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Why lifestyle isn't a soft and fluffy issue to valuable advisers
By Ian Hutchinson
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Financial planners are at a turning point in the evolution of
the profession and must become more relevant and influential to
clients or risk losing the central advice position, argues Ian Hutchinson.
Managing a client's lifestyle outcomes, not simply their money,
will become core to the future advice relationship, he says.
At a time when financial planners are under attack from disgruntled
clients reeling from the dramatic loss of capital and income, progressive
thinking planners see this as one of the turning points in a profession
struggling for greater credibility and influence over a client's
financial affairs.
To these forward thinkers, the current environment is an enormous
opportunity to become more relevant and valuable to their clients,
not to feel threatened and insecure.
If we've learnt one thing from the past 12 months it is that we
know what a financial planner can control and what they can't. More
vitally, clients now know this. Investment returns and market performance
are out of the control of the planner and the consistent focus of
this industry to portray itself as "investment experts"
is wrong.
Advisers have jealously guarded their "expertise" around
asset management and the ultimate outcome of that asset, investment
returns, since the birth of this industry. Primarily this was due
to the fact that advisers have been paid to do just that: invest
and manage the assets of clients. But financial planners must finally
let go of this sacred cow and accept that their role is far more
fundamental and responsible than managing assets, vaguely suggesting
that they have some influence over investment outcomes.
The recent ASIC/ACA survey of financial plans will also impact
the way progressive planners think. The key message from this report
is to do a better job in educating and informing clients about their
financial goals and lifestyle expectations. Financial literacy is
ridiculously poor in Australia and this industry has largely survived
on "blinding clients with science," rather than empowering
and educating them to become more involved with their financial
plans. Financial plans of the future will be simpler, easier to
understand and more meaningful to clients on their lifetime goals.
The investment industry's simplistic mantra to assuage client
hostility on losses is to "keep your nerve and think long term."
This fails to recognise the concerns and underlying issues of clients
and why they invest and take advice form planners in the first place.
Clients seek professional advice to gain comfort and peace of mind
that they will reach their goals and desired lifestyles with certainty.
Financial planners exist for one primary reason: to improve the
quality of life for their clients. How do we, as simple financial
advisers, achieve that lofty and broad goal ?
"Financial planners exist to improve
the quality of life for their clients"
Have we given clients more confidence or less in reaching their
financial outcomes during this particularly volatile period of investment
markets?
To become more relevant in the future, planners need to focus on
clients and their underlying issues, their life aspirations and
goals and their desired lifestyles. Ultimately clients pay financial
planners to help them achieve a quality of living; whether that
be saving for retirement or a shorter term tangible goal.
The recent investment shocks have rocked clients and they are now
clearly uncertain about whether they can afford the lifestyle in
retirement they originally planned on, For some clients who have
never had confidence that their financial plan would indeed get
them to their destination must feel rudderless in a violent storm.
Progressive financial advisers know that their role is to empower
clients to become self-sufficient in all areas of money management.
This is more than simply lazy investing of lump sums. Research conducted
in 2002 by marketing research firm Intellectual Capital on the future
of advice suggests that clients will use planners to help influence
better savings behaviours and control their cash flow as the core
role of the advice relationship.
Future planners will also build their advice and position their
value around a deeper understanding of clients' needs and expectations
and work to manage the trade off between these expectations and
the actual or desired lifestyle outcomes.
Ultimately financial planning is about helping people reach their
lifestyle goals, not the dazzling technical detail of a weighty
financial plan. The financial plan is simply a means of getting
there. But along the way clients experience turbulence and temptation.
The progressive planner will accept the role of coach and mentor
to guide clients into better money management behaviour and to keep
clients non track and clear about where they are headed. That will
achieve more confident, resilient investors than a self serving
message about "thinking long term."
So how can financial planners redefine their role to become more
influential and relevant ? The key is to understand their lifestyle
expectations and aspirations. If planners have a clearer picture
on where a client wants to go and why, then it is easy to become
more central to helping clients reach the milestones to these goals.
This is more difficult than it suggests as the average client doesn't
know what they want or where they are headed. They have generally
a poor level of clarity about their lifestyle aspirations and expectations
and thus, fail to engage in the financial planning process.
If planners adopt a more holistic lifestyle approach to their financial
planning process, they will find clients more actively engaged in
the financial plan, and ultimately, taking greater responsibility
for its implementation and outcomes. Wouldn't that be a utopia that
all financial planners would desire?
Many financial planners see lifestyle planning as a vague, soft
and fluffy issue. That's largely because lifestyle planning is a
poorly understood term and, as a result, there is little serious
efforts in this country to embed a true lifestyle emphasis into
the traditional financial planning process. The result is that planners
continue to work in a vacuum where a client's core underlying needs
and expectations about lifestyle are separated from the technical
plan construction, The future will see progressive planning firms
who can integrate both lifestyle and technical planning into a cohesive,
more meaningful document, a true guidemap to a client's financial
journey.
Best practice advisers will change the dialogue they have with
their clients, right from the first introduction meeting to annual
review meetings. Progressive planners will ask more questions about
lifestyle expectations and have a more consistent, systemised process
to more accurately assess risk and reward. This will allow a client
and a planner to jointly agree on the trade offs of financial risk.
Financial planners are like most people: resistant to change unless
there is a sufficient consequence for not changing. That day is
approaching, when clients will challenge the validity of a financial
plan to give them comfort and peace of mind. And clients will ask
planners fundamental questions, like "How well do you really
know me? How well prepared are you, your staff and your practice
for that day? In fact, how prepared is this industry?
Ian Hutchinson (G.Dip.Psy, B.Bus, APS), Founder
of Life by Design®, has built a reputation
as Australia's leading lifestyle strategist. He has studied overseas
with some of the world's leaders in lifestyle planning, and his
lifestyle strategy work has been profiled throughout the media.
His entertaining presentations are in demand throughout the world
including Europe and the Middle East. Life by Design®
can be contacted by phone on (02) 9979 4949, or visit www.lifebydesign.com.au.
For permission to reproduce this article in whole
or in part,
contact Tanya Mottl by phone (+ 612) 9979 4949, fax (+ 612) 9979 4969,
or email info@lifebydesign.com.au
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