Giving Financial Advice is a Collaboration

Giving Financial Advice is a Collaboration

‘Why?’ is a question that few financial advisors used to hear. Their role was to be an expert oracle, who presented a recommendation that was seldom, if ever, questioned — or explained. The advisor simply told the client what they should do, and the client did it.

Those days are over.

Today, people want to know the ‘why do this’ as much, and possibly even more, than they want to know the ‘what you should do’. And they will ‘push-back’ if the advisor’s answers to those ‘why’ questions don’t measure up, often by walking away.

Welcome to the age of collaborative financial advice!

The Gods Are Fallen

Financial advisors, like many other professions, used to enjoy a position of great power. They had financial information, knowledge, and product access that normal people did not. In a way, they were god-like — and gods are not required to explain plans that mere mortals cannot comprehend.

But today, that status has collapsed. Information is a click away; knowledge is given out for free and financial products are as easy to buy as a loaf of bread. Now the client can be their own expert because they have the same facts as their advisor.

So, what is left for the advisor to do? Luckily, a lot!

For many people, there can be a large gap between knowledge and understanding — which needs to be bridged. Meanwhile, life is full of uncertainties and unknowns which can make planning difficult. So a person with lots of facts and information can still be frozen by their doubts, indecision or lack of experience.

Partners In Planning

Financial matters are almost always very complex. Unless you have unlimited resources your decisions inevitably involve some trade-offs.

But making those trade-offs can be very hard. There are many ‘possible futures’ to consider, while a decision in one area can have unexpected ramifications in another. Laying out all the ‘what-ifs’ and considering the many possibilities is a daunting task for people who are untrained in the disciplines of this type of analysis or don’t have the technology to model these scenarios.

Financial advisors can guide people across these seemingly insurmountable mountain ranges. They have the training and technology to be the client’s partner in their financial planning. They can show the possible routes from which the client can choose and recommend the one they think the client should follow, which is very different to trying to ‘carry’ the client to the destination.

Help With Problem-Solving

There is lot going on in your client’s mind when they approach a financial decision.

They may not be acting purely on their rational thoughts, as emotion and intuition are often more dominant. They may have thought about some trade-offs and scenarios, but not others. Some of their understandings may be incorrect or based on flawed data.

They need tools and expertise to help them to solve their problem and financial advisors have both! Advisors can deliver to the relationship:

  • A process for identifying and prioritizing goals
    Setting goals is a deep-thought exercise, that most people don’t regularly undertake. It’s hard to do, as it’s difficult to consider all the possibilities and juggle the resource restraints. But advisors have a process to help people map out their goals and rank them in order of importance.
  • Relevant information – but not too much
    It’s easy to drown in data, but advisors can filter and condense it. Clients need information that helps them make sense of their circumstances and the decisions they face. The information may need to me presented in multiple ways, such as images, audio-visuals and even narratives.
  • Modelling of prospective scenarios and potential outcomes
    It’s too hard for most people to work out the many financial ‘what-ifs’ that lie before them. But advisors have software created specifically to do that complex job in the blink of an eye. It’s easy to change the person’s saving rate by a few percent a year; show the effects of a lump-sum withdrawal or model a market correction — and instantly see the potential outcomes change.
  • An experienced hand
    A journey into the unknown that is full of uncertainties can be scary. It’s comforting — and of value to the client — to have an experienced hand along who knows what to expect and what to do.
  • Professional judgement
    This is not the advisor’s first rodeo! They’ve seen these bulls before and have developed strategies for riding them. Their professional judgements can save the client from a nasty fall.

These factors won’t be a surprise to most advisors, but they take on a new intensity in a collaborative planning process.

Collaborative planning is interactive. A previously unconsidered ‘what if’ can trigger a re-ordering of goals, a need for new relevant information and revised modelling — and any number of what-ifs may emerge as the client works through their situation.

Explain The Process

A big change under collaboration is that the process of decision making, which is often concealed, becomes transparent.

Financial planning has been compared to the ‘Wizard of Oz’ where the advisor collects information, disappears behind a curtain to number-crunch and then re-emerges with their ‘magical’ recommendation.

But we are learning that is not what many people want.

The latest research shows that many want to understand how their goals and priorities have been weighted, considered and traded-off against each other to reach the recommendation.

Interestingly, they are not necessarily trying to second-guess the advisor and are still often happy to follow the recommendation. They simply want to see evidence that they have been heard, and to understand why that recommendation was considered suitable for them.

Obtain Informed Consent

Informed consent is a ‘yes’ that truly means yes.

To give informed consent a person must understand the alternatives choices they could make and the potential positive or negative outcomes that may result from a particular choice. From this basis their consent is an agreement to proceed with an agreed course of action. This is quite different to the client agreeing to do what someone has told them to do.

Doctors do this regularly, when they explain the benefits and potential side-effects of a medication or surgery. But advisors have often shied away from this type of conversation, partly because it can become time-consuming, in a world where every second counts.

Collaboration and informed consent are a quantum-leap in how advisors relate to, and interact with, clients. The advisor’s role changes from being the expert who provides a solution to a collaborator who helps and guides the client to find their solution.

I have been using FinaMetrica for over 17 years for onboarding new clients. They like the extensive value of the reports; but what we appreciate is the innovations in technology, the value of the client-facing materials and the development of the life-long client relationships as I get to really know their behavioral tendencies. FinaMetrica has assisted me in building a very successful practice and we highly recommend it for any advisor who wants to enhance the overall value of their client relationships.

Ron Wilkinson - Portland, Oregon, USA
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