Distinctions between Approaches

Transcription

1 What is Client-Centered Financial Planning? by Andrea White, Master Certified Coach Financial Conversations We ve been to three other financial planners so far, said Pete, catching the eye of his wife, Mary. The first one said she wanted to be our trusted financial advisor and that she practiced values-based financial planning. In addition to all the financial information, she asked us what was important about money. She asked us what was important to us repeatedly. Initially I felt good that she was asking all these questions, as if she were interested in our family, our goals, and us. However, the only time we ever talked about what was important to us again was when she was trying to get us to sign the contract to hire her to manage our investments. It seemed like it was just an effort to make her recommendations more appealing. The second, Mary continued, said he took a holistic approach and used comprehensive financial planning. It was comprehensive, alright!! In addition to investing our assets and talking to us about college and retirement funding, he tried to sell us life insurance, long-term care insurance, an annuity and everything in the book. While he seemed interested in us as people, he seemed more interested in just how many services we would buy! The third person felt like a shrink!!! Pete added. He asked about our first memories of money. He asked about our parents feelings about money. I ve been to a psychiatrist before, and I have nothing against them. I just wonder what kind of training this financial advisor has that qualifies him to take me through this kind of discussion and frankly, he looked uncomfortable, too. So now we are interviewing you, Pete said with a sigh. Are you any different than the others? We want our lives to make sense where all the pieces including our money fit together. Can you help us? Distinctions between Approaches Investment Advisory Services vs. Financial Planning: In 2005, there were 23,000 Registered Investment Advisors registered with either the Securities and Exchange Commission or individual states. There are more than 73,000 persons worldwide authorized to use the Certified Financial Planner designation. i So what do they do and how are they alike and different? The CFP ii Board of Standards describes financial planning as the process of meeting your life goals through the proper management of your finances. Life goals can include buying a home, saving for your child s education or planning for retirement. iii 2/7/2008 Page 1 of 6

2 According to the CFP Board of Standards, the use of the six step financial planning process is another earmark of financial planning. The six steps include: 1. Establishing and defining the client-planner relationship. 2. Gathering client data, including goals. 3. Analyzing and evaluating your financial status. 4. Developing and presenting financial planning recommendations and/or alternatives. 5. Implementing the financial planning recommendations. 6. Monitoring the financial planning recommendations. Certainly many financial professionals do/purport to do financial planning yet have not earned/maintained the CFP designation. Likewise, there are professionals whose focus is investment advisory services that hold the CFP designation. So, clearly holding a CFP designation is no guarantee that services above investment advice will be offered. Conversations abound in the industry about the differences between investment advisory services and financial planning, and fee structures can be an important part of this discussion. Clients should ask and understand the differences between fee-only and fee-based services. They should understand how and when the advisor is being paid. Suffice it to say that a client knows when the financial professional is mainly interested in managing assets, or when they feel that financial planning is taking place. Financial Planning vs. Comprehensive Financial Planning Commonly, the difference between financial planning and comprehensive financial planning boils down to the breath of the planning provided. While financial planning may focus on a particular aspect of a person s life, say retirement or college planning, comprehensive financial planning denotes an approach that considers a client s total financial picture. The National Association of Personal Financial Advisors (NAPFA) provides a diagnostic tool to determine what comprises truly comprehensive financial planning.iv According to this description, comprehensive financial planning specifies that the planner discuss life events and goals with a client and do so in all areas of a client s financial life. What is clearly articulated is the breadth of the discussions, such that comprehensive financial planning includes goal setting, cash management and budgeting, tax planning, investment review and planning, estate planning, insurance needs, education funding, retirement planning and any other financial matters important to the client. While the breadth of these discussions is clearly defined, the depth of these discussions is largely up to the planner. 2/7/2008 Page 2 of 6

3 Values-Based Selling: When investment advisors/wealth managers/financial planners are focused on production goals, values-based selling is sometimes employed as a means to more effective client conversations. Like any selling skill, its primary objective is to sell more services. Often, it involves using what is important to a client as a means to getting a client commitment, thus building a wealth manager s practice. The formulaic approach is designed to sell services in the most cost and time effective manner possible. There is much to be gained by the use of a valuesbased approach that identifies what is important to a client and then links recommendations to it (see client-center financial planning below.) The means of using values-based questioning are not the differentiator the ends are what distinguishes values-based selling from client-centered values-based planning. Client-Centered Financial Planning Client-centered financial planning can be distinguished from other types of investment advisement/wealth management by both the ends and the means used in a client engagement. First the ends: a values-based client centered financial planning engagement starts with client satisfaction, client peace of mind, and client fulfillment as the deliverables. This approach sees money as a necessary fuel for achieving fulfillment and joy in life, but money is not the ultimate deliverable. Not convinced? Imagine yourself on a desert island with stacks and stacks of cash but nowhere to convert them to food, housing, or things to buy. The money has no value. In client-centered planning, life becomes the context for making decisions about money. Peace of mind and a full and satisfying life are the ends. Money then becomes one of the means to achieve these ends. Urban legend, biographical information, and personal anecdotes all resonate with the adage Money doesn t buy happiness. Conversely, struggling financially isn t that much fun either. According to a 2003 study from the University of California at Berkeley published in the Personality and Social Psychology Bulletin, money buys happiness almost universally, that is up until the point where basic needs are handled. Beyond that, the impact of money differs greatly. "In a capitalistic society, people generally believe that - all other things being equal - being rich is better," says Haas School of Business professor Jennifer Chatman. "But that is not what we found."v What they did find was that individuals high in extrinsic orientation experienced higher subjective well-being and job satisfaction to the degree that they earned more money; those high in intrinsic orientation were lower on subjective well-being at higher income levels. 2/7/2008 Page 3 of 6

4 Client-centered financial planning can be defined as: Comprehensive financial planning in which a client s life goals become a context for financial goals and planning. The planner seeks to understand not only what clients want to do with their money but also what they want to do with their lives. vi The planner is focused on long-term relationship building, not on immediate returns for him/herself or the client. As reflected in the latest CFP topic list addendum, planners do well to focus on using communication, coaching or counseling skills to understand the client s life fully before preparing the planning documents. Fair game for these discussions are hopes and dreams, regrets and vulnerabilities, healthy or broken familial relationships, even wild and crazy ideas are welcome!! Mitch Anthony defines a client-centered approach, calling it financial life planning, and describes it as: Financial life planning is not about having all the answers, it is primarily about asking the right questions. Financial life planning is simply a matter of broadening the conversation from asset management to money as it relates to each aspect of a client s life. In this light, financial life planning is not o Playing psychiatrist, marriage therapist, or career counselor o Counseling people in non financial matters o Advising people on what to do with their lives; or o Giving advice outside your areas of expertise.vii Planners using a client-centered approach also differ in the means to client service. Their process is interdisciplinary, using specialists as needed. Next to the estate planning attorney or long-term care specialist in their contact manager is likely to be both a professional coach and a psychologist/psychiatrist. Not only are skilled planners equipped with these referral sources, they also know when and how to make a referral. Through the use of specialized skills, the planner allows the client to describe or discover what would bring them peace of mind, fulfillment and joy in life. Where do planners acquire these skills? Certainly, the field of counseling and psychology have defined and refined these tools. Yet planners are not counselors or psychologists and to have those kinds of conversations with the client without being well trained in how to deal with them is both frightening and potentially damaging to a client. The field of professional coaching offers a viable option. 2/7/2008 Page 4 of 6

5 The Field of Professional Coaching Professional coaching is an emerging industry. The International Coach Federation viii says of coaching: Coaching is an interactive process that helps individuals and organizations to develop more rapidly and produce more satisfying results. Coaches work with clients in all areas including business, career, finances, health and relationships. As a result of coaching, clients set better goals, take more action, make better decisions, and more fully use their natural strengths. Professional coaches are trained to listen and observe, to customize their approach to the individual client's needs, and to elicit solutions and strategies from the client. They believe that the client is naturally creative and resourceful and that the coach's job is to provide support to enhance the skills, resources, and creativity that the client already has. While the coach provides feedback and an objective perspective, the client is responsible for taking the steps to produce the results he or she desires. The DEVELOP PROCESS Financial Conversations has developed a seven-step process to integrate professional coaching skills into the financial planning process. Described in detail in the chapters that follow, the process includes: Design the Relationship Explore the Situation Vision and Values Clarification Enumerate and Evaluate Options Periodic Follow- Up and Accountability Operationalize Plan Link options to Values The benefits of this process include: o The planner has a sense of control and freedom because he/she has a track to run on o The client feels heard and understood, and sees how execution of the recommended plan is in alignment with what he/she values. o Because the client sees the alignment between recommendations and the plan, they are more likely to implement the plan completely and on a timely basis. 2/7/2008 Page 5 of 6

6 o The planner s business grows through valued referrals from satisfied clients. Personal Reflection What is in it for me? Take a few minutes and think about where you are in your investment advisor/financial planning journey or career. What difference does it make to you personally if you investigate this approach or not? What difference might it make to your current or future clients? How does this align/not align with what I think is important? What is in it for me? What is in it for my staff, clients, and co-workers? i "Mission and History." Certified Financial Planner Board of Standards, Inc. CFP Board of Standards. 14 Aug 2006 < ii CFP Board owns the certification marks CFP, CERTIFIED FINANCIAL PLANNER and federally registered CFP (with flame logo) in the U.S., which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements. CFP Board currently authorizes more than 51,000 individuals to use these marks in the United States. iii Certified Financial Planner Board of Standards--Financial Planning Basics." Certified Financial Planner Board of Standards, Inc.. 30 Aug 2006 < iv NAPFA Financial Planning Diagnostic." National Association of Personal Financial Advisors. 14 Aug 2006 < v Chapman, Jennifer A. and Ariel Malka. "Intrinsic and Extrinsic Work Orientations as Moderators of the Effect of Annual Income on Subjective Well-Being: A Longitudinal Study." Personality and Social Psychology Bulletin 29(2003): vi White, Andrea, Financial Conversations, vii Anthony, Mitch. Your Clients for Life. Chicago: Dearborn Trade, viii Founded in 1992, the International Coach Federation (ICF) is the industry s credentialing authority. As of July, 2006, the ICF includes 10,500 members in 80 countries (145 chapters in 40 countries) and is the largest nonprofit professional coaching organization in the world. 2/7/2008 Page 6 of 6