When you try to sell the consumer a financial product without having done sufficient fact finding you open yourself to the possibility of three very serious outcomes. We no longer operate in an environment of Caveat Emptor "Let the Buyer Beware!" In fact, it is more the matter of "Let the Seller Beware!"
- Despite all your efforts the prospect doesn't buy. They may give you a hundred different reasons, rarely the true one, which is usually "lack of complete confidence in you."
- The client rescinds the purchase. Yes, it is their right to do so. It is called "Buyer's Remorse." But this is a very demoralizing event, because it tells you that you did something wrong – or more likely, inadequately. You have to give up the commissions you feel you legitimately earned.
- Negativity. The client makes the purchase, only to become angry later when they become dissatisfied. Remember, this dissatisfaction did not have to be your fault. It was likely stimulated by a competitor, a self-interested family member, an irresponsible member of the media, or an aggressive plaintiff's attorney.
If you have more than a few rescinded orders you will also have an internal compliance problem. There will be a suspicion that you are not making the sale the correct way.
But if you have the latter result (a claim or complaint) then you have a major problem headed your direction. First, the compliance department is now looking at you very closely and with suspicion. They are likely to defend you in the first matter – but then withdraw your contract. You can easily win the battle, but lose the war. And securing a new business relationship will be both time consuming and expensive.
Furthermore, if a court or arbitration panel decides the transaction was improper (with the benefit of hindsight and a different set of data and without credible written evidence on your part) you are facing compliance nightmares and a lawsuit that can swiftly wipe you out.
Get the Facts First
This means all the facts. Not just the financial circumstances of the client, but also the soft data about what they truly want to accomplish, and what family issues are likely to become a factor.
Please do not tell me that you gather all the information on your yellow pad, and that you can interpret it correctly after several years. I'm not even convinced you can find all your old fact finding notes. Misfiling is very common. Offices have break-ins, fires, and water damage. One formerly successful financial advisor had recently moved into first floor offices in a lovely remodeled mansion. It was a prestigious office location, with nice parking and the other tenants were all professionals. Late one night a fire started in the floor above. The wood was dry and the flames raced through the upper floors. The fire department was prompt and diligent. They arrived quickly and with four inch hoses poured thousands of gallons of water into the top floors of the old mansion, extinguishing the blaze.
But all his files were a soggy mess! His computer network had been on, doing its nightly backup when greeted with torrents of water. You can guess the result. His insurance was inadequate. Business interruption coverage was not close to being sufficient. The valuable papers coverage of $5,000 was a joke. His practice was devastated, but it was recovering slowly.
That is until a subpoena arrived, claiming that his sale of a very large life policy to a client's ILIT was under challenge. He had proposed that the client shift hundreds of thousands of dollars from taxable assets into the trust to fund the policy that could then provide tax favorable income and also reduce probate expenses and taxes. A non-participating heir didn't like it, and his golfing buddy was an aggressive attorney.
All of the advisor's notes were a soggy mess. Nothing could be read. A great many of his computer records were also damaged. The notes from the client indicating that the youngest son was a spendthrift and scoundrel could not be found. The local paper loved the story and ran several articles. His attorney advised him to settle quickly. But he knew that he was in the right, and decided to fight it. He may win someday, but his practice is gone.
Good Business Practices are Essential
Yes, he should have had better casualty insurance. No question about that. But it would still not have alleviated the lawsuit.
Yes, he should have had offsite computer files backup. Even if they had been run, say every weekend, and then all records but the last few days would have been recoverable. That would still not have helped. Why? Because his notes were in those soggy clumps of "oatmeal" that were shoveled out during the cleanup after the fire.
He had been focusing on serving his clients, not on protecting his own assets, including his most valuable asset – his financial planning practice. He was a professional, but one who did not exercise a professional process!
Gathering Information is a Process
It starts with the use of carefully prepared fact finders. These must be objective, not designed just to gather enough information to make a product sale. The forms must be comprehensive and preferably completed first by the client, in their handwriting, not by the advisor. Many persons today are eager to help their financial advisor. They will gather all the information and will even enter it into a software file – provided you have one for them that is consumer friendly. Think not? Then watch how many sales are made of Turbo Tax to persons who previously hired a tax preparer.
Financial Facts Aren't Enough
You also need to have detailed expressions of client positions in four other areas:
- Planning Assumptions. The factors that will be considered in developing your analysis and recommendations. Any change or correction of the Assumptions and you would alter the recommendations.
- Goals and Objectives. A clear expression of what the client truly wants to accomplish – arranged or stated in order of their priority – to the client.
- Investment Attitudes. How risk averse are your clients? How much volatility can they truly accommodate? Forget what they tell you verbally – what have they signed off on?
- Personal Interests. Are there travel desires, hobbies and sports activities that will have an impact on the planning recommendations?
Even Getting the Facts Isn't Enough!
Often when a client provides information they make omissions or they change their mind. But you are left with the wrong entries in your notes. You have no verification. This can be rectified very simply.
- First, you gather all of the data, using not your error-prone yellow pad, but on simple forms.
- Next, you enter the resulting notes into a program that is already formatted to accept them easily and with very little effort.
- Your financial data should be entered into a standardized program and you first print the summary listings – for verification, long before you start to develop your conclusions.
- Then, you send the attitudinal and financial data to the client and request that they review it and sign off on the accuracy.
- Finally, you make the revisions indicated and then your recommendations will match their true goals and true circumstances.
The data that was entered into your computer, printed, sent to the client and then confirmed in writing is all in your computer. Then, when your system is backed up offsite, all these planning assumptions are stored. Your personal Assets are protected!
But You Didn't Study This!
All of the above was not in your coursework if you studied the Chartered Financial Consultant course or the Certified Financial Planner curriculum. You acquired knowledge and you passed tests, but you didn't take that course, Practice Administration 302 – about Gathering Information.
A New Approach to Financial Services
We know that addressing the economic needs of your prospects and clients is a process. Running a practice properly also means that the process has to be executed in the correct fashion. Learning to operate a process is quite different from learning things, acquiring facts and figures. One is learning, the other is doing. Maybe what you need is to take a "Doing" course instead of the traditional "Facts" approach. It might be very good for your pocketbook.
The Financial Planning Process™ is an intensive five day curriculum that is not based on just the acquisition of knowledge and test-taking. It both educates and trains the practitioner how to operate the process – to move prospects through the planning and implementation phases to obtaining referrals. Soon you can get off of the Prospecting Roller Coaster engaging more clients. Think of it as a financial apprenticeship where you learn to use new tools - and you take your new toolkit home with you – so that you are immediately using your new skills.
Get the Facts
The first step I would suggest is to contact Jim Lifter, MBA, RFC the Education Director for the new program. Jim can send you a course brochure, and you will be amazed at the difference between the Financial Planning Process™ and the courses you took in college or your post-graduate financial studies. This is not your typical lecture, study and exam approach. The students actually produce both modular and comprehensive plans. They learn to use all the software necessary to move clients from the prospect to the client stage.
You can send Jim and email at: Jim@IARFC.org or call 800 532 9060 ext. 18 and ask for a course brochure. You can evaluate whether or not you want to change the way you have been trying to approach prospects that definitely need your services. Jim was the editor of the highly regarded Prospect or Perish course, workbook and study guide.
Don't Procrastinate
The costs of acquiring new clients and of doing business are going up. It is time for a new approach. For most readers it isn't practical to solve your career problem by working harder and longer. What you need to do is be working a process. In fact, perhaps what you really need is for your personal assistant to be working a process for you. Sometimes working smarter is letting someone else do the working. But they need the process. Let Jim tell you about how to use the Financial Planning Process™ to change the dynamic of your practice. Let better Fact Finding increase your income, boost your sales and protect your assets!
Ed Morrow, CLU, ChFC, CFP, CEP, RFC, is an advisor to financial advisors in the U.S. and in 19 other countries where he lectures regularly on how to build and sustain a financial practice. He is the Chairman of the International Association of Registered Financial Consultants and the author of 21 manuals, 4 books and 7 software programs including the Financial Builder Suite, in use by over 3,000 financial planners. You may contact him at the Financial Planning Building, Middletown, OH 45042-0430, phone: 800 666 1656 Or visit Ed at: www.FinancialSoftware.com
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