What is the “real value” that financial advisors deliver and that clients are willing to pay for?
The value delivered by financial advisors has morphed over time. Decades ago, it was picking stocks and facilitating transactions. Then asset allocation and money management came into vogue. In the past 15 years, financial planning has become popular in parallel with the rise of financial planning software such as MoneyGuidePro, eMoney, and NaviPlan.
Underlying this has been the accelerating pace of technology change as smartphones make the non-behavioral aspects of saving and managing money as simple as a few screen taps.
Today, average financial advisors who remain wedded to the way they’ve been doing business will soon find themselves perfectly suited for a world that no longer exists. They’ll be chased out of business by prospects who never became clients, by clients who left to work with advisors better-suited to their evolving needs.
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In this world, money is simply a tool. And the advisor’s role is to smartly manage the money and collaboratively guide the client’s behavior so they can live their best life possible with the money they have.
In this world, advisors who remain focused on the “mechanics” of money will be replaced by advisors who focus on the “alignment” of money.
As technology automates much of the “mechanics” of money, advisors need to evolve to the more emotional aspects of money. After all, simply helping rich people get richer isn’t usually a driving motivator for advisors—or clients.
In my conversation with Doug Lennick, the co-founder of Think2Perform, an author, and former EVP of Advice and Retail Distribution for American Express Financial Advisors (now Ameriprise Financial), he shared four words that he believes underlie the real value financial advisors deliver.
Money is neutral. It’s neither good nor bad. Some say money is a representation of your life energy in the sense that you exchanged your time and your output for something we call money.
Values are the things that have intrinsic worth to us. These are the qualities that we hold dear and strive to live.
Now, how well does the way you save, invest, and spend your money reflect what you say your values are? Or better yet, do you know what your clients value and do you help them align their money with their values?
Many people go through life reacting to it instead of proactively living a life with purpose. Your purpose is the organizing aim of your life. It’s what gives you meaning to want to get out of bed in the morning instead of staying warm under the covers.
Don’t let the word “purpose” overwhelm you with a feeling that your purpose has to be some grand vision that changes the world. It doesn’t. In simple terms, your purpose is a sense of what you can do in life that gives you direction and makes you feel that your life has meaning.
Do you have any idea what purpose animates your clients’ behavior? You might think, “Steve, that’s really awkward. I’m not going to ask my clients, ‘what’s your life purpose?’” And I agree. You shouldn’t directly ask that.
Instead, you could say, “John, we think about money as a tool that helps us live our best life possible. And while part of our role is to help you make smart decisions about how your money is managed, we also want to understand what your money is for, what you want it to do for you. So I’d love to get a sense for what gets you up in the morning. If there’s anything you can share in that area, it might help us as we discuss the best ways to use your money, to invest your money so it supports the purpose you see for your money.”
“Goals-based financial planning” has become popular in recent years as a way to directly tie how a client’s money is managed to specific financial goals they want to achieve. It makes sense albeit with one caveat—what if a client doesn’t know what their goals are?
When a client doesn’t know what their goals are, you have a great opportunity to put your “coach” hat on, help your client dream a bit, and add real value to their life. Through a series of questions, you can help your client home in on what they want their money to do or provide for them. And their goal could be as simple as getting to the point in life where they don’t have to worry about running out of money. Or maybe they have a series of goals and you design buckets of money that are allocated to those goals.
Vanguard has spent years researching what they call Vanguard Advisor’s Alpha®. This is a framework to describe the value a financial advisor adds to the client relationship. Essentially, Vanguard says the value an advisor provides is not in trying to “beat the market,” rather, it’s “by providing relationship-oriented services—such as cogent wealth management via financial planning, behavioral coaching, and guidance.”
In real numbers, Vanguard says the behavioral coaching value of an advisor is worth on average 150 bps per year, while portfolio construction and wealth management make up another 150 bps, for a total value of about 300 bps.
How do you make things like values, purpose, goals, and behavior more tangible so clients can get a sense for whether or not that’s worth paying 1% or more per year to you?
Lennick says, “The whole idea is the value of the advisor is to help the client align their behavior, their decision-making behavior, and their investment behavior with their goals, with their sense of purpose, and with their values.” And for clients who receive this type of value from their advisor, “that's a big deal,” says Lennick.
The word “align” is key. Helping clients make or save more money with no deeper understanding of what the money is for can be done by robo advisors or call-center advisory services offered by Vanguard, Fidelity, TD Ameritrade or Schwab for 0 to 35 bps. If you compete in this market, you’ll fail and fail fast.
Rather, it’s about helping clients be more aware of their values, purpose, and goals, so that regardless of whatever emotion they’re feeling (e.g., freaking out because the market is tanking), your clients can behave in a way this is aligned with what gives them greater satisfaction in life. And who wouldn’t want that?
If all this talk about alignment, values, purpose, and behavior feels too “soft,” to you, then Lennick has another way to position your value.
He says you can position yourself as a truth teller and “the truth is uncertainty.” And your value arises when you prepare your clients, “for the certainty of uncertainty.”
As you talk to clients, Lennick says you can frame your value this way.
I don't know what's going to happen. Now, it's appropriate for you to expect that I have educated guesses and I do, but they're still guesses. I don't know what's going to happen for sure. What I do know is I can prepare you for whatever happens, such that whenever you need money for whatever the reason, there will be a smart place to get it.
Whenever you need money, no matter what's going on in the world, you can call me and we'll have a smart place to get that money from. That will help me help you make a rational decision even though you might think the sky is falling and the world is coming apart. We'll be ready. We'll be ready for the financial implications of dying. We'll be ready for the financial implications of living. We'll be ready for the financial implications of not being healthy and the financial implications of being healthy and we'll be ready for the markets being up or the markets being down.
This “certainty of uncertainty” and “smart place to get your money” framework is a great way to describe your value because it combines your financial acumen with your behavioral coaching. And it can naturally lead into the values, purpose, and goals conversation I described earlier so there’s no disconnect.
In order to guide clients through the kind of conversation I just described, you have to be there yourself. You have to be clear on your values, your purpose, your goals, and have a high-level of self-awareness. Here are some suggestions.
1. Download and complete my values-clarification toolkit as a way to help you clarify—and live—what you say is most important to you.
2. Learn how to gain greater self-awareness by listening to my podcast and reading the book, Elevate, by Commonwealth Financial founder Joe Deitch.
3. Learn how to facilitate values and purpose type conversations by listening to my podcast with Dr. Martin Seay.
What I’ve described in this article represents a major shift for many advisors and you might be wondering where you’ll find the time to have these types of conversations with clients. What I see happening is advisors will use technology to automate much of the money management and planning process and use the freed-up time to have deeper life-centered conversations. Advisors who continue business as usual will begin falling behind at an ever-increasing pace.
- Think2Perform Visit Doug Lennick and his team online.
- Leveraging Your Financial Intelligence: At the Intersection of Money, Health, and Happiness. Leveraging Your Financial Intelligence will teach you a powerful values-based approach to achieving your most important life goals.
- Financial Intelligence: How to Make Smart, Values-Based Decisions with Your Money and Your Life. Beginning with your principles, values, and beliefs, Financial Intelligence offers a concrete guide to help you achieve better results.
- The Importance of Self-Awareness and Action in Delivering Great Financial Advice My conversation with Joe Deitch also touches on knowing yourself so you can know your clients.
- "Moral Intelligence 2.0" by Doug Lennick and Fred Kiel Ph.D. Doug Lennick describes how moral and emotional competencies are critical to success in all walks of life.
- "Exception to the Rule" by by Peter J. Rea, James K. Stoller, and Alan Kolp Doug Lennick recommends this book on the connection between virtue and sustainable value.
- The ROL Index A tool Mitch Anthony and I developed to help advisors measure their clients' well-being in 10 aspects of life.
- Values Clarification Toolkit Click here to download this FREE tool and start living your values.
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