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How we can help clients really achieve their life objectives

Helping clients to achieve their life objectives is about creating real engagement which connects money with real life, says Chris Pitt, head of Market Analysis, IRESS 

How many times a day do you find yourself targeting ‘objectives’? Think about it. When headed for a pre-work gym session, you’ll probably know in your mind what you want to achieve before you even get started. You complete all your target reps and weights; ‘tick’, objective achieved.

I’ll bet you’ve also got annual, quarterly and weekly goals (objectives) at work that you’ve either set yourself or are part of a corporate governance programme. Then, there’s that charity bike ride you signed up to with a couple of colleagues. The game is on to hit the sponsorship target – another objective.

We’re all doing this. Sometimes it feels as if there should be some sort of complex spreadsheet at home where you can tick everything off. ‘Delivered kids to swimming lesson without them killing each other or you losing it’. Tick. ‘Remembered to send flowers for anniversary/birthday/Mother’s Day’. Tick.

So, as we strive to engage clients with their finances and create better financial futures, why not step into their world a little further to explore financial objectives aligned to their life objectives, and help achieve these. It may sound exactly like financial planning in fact. But it’s actually about connecting money with real life rather than just asking them how much they need to retire on.

Ideally, it will help clients see managing their finances as less of a goal in itself and more as an enabler. It also helps transform the adviser-client relationship, clearly shows the value of the adviser to the client and ultimately drives revenue.

So what is different about the proposition?

These changes are subtle but at the same time significant. Lifestyle planners focus more on gathering soft facts, helping clients to understand and reveal true aspirations – sometimes surprising themselves in the process. Here are some typical questions:

• If you had everything you needed for the rest of your life, what would you do?

• If your doctor told you that you had 10 years left to live, but you would be healthy as long as you were alive, how would you live it?

• Imagine you have only 24 hours left to live. Reflect on all the things you intended to do, and all the things you accomplished. What did you miss out on and who did you not get to be?

The answers aren’t always what you’d expect. Many people avoid making change out of fear or concerns about financial insecurity. One financial life planner uses an example of a couple in their sixties who had clear aspirations but were terrified that they didn’t have enough to retire on, which meant the husband was still stuck in a job he hated. They had some money from an inheritance and other bits and pieces, and the planner was able to show them that they could completely change their lives.

For others, it may be simply changing a poor relationship with money, we’ll call this ‘the ostrich approach’, and taking the fear out by teaching core budgeting skills and reviewing priorities.

This sort of support is key to lifestyle planning. Obviously, a financial plan is required to achieve the aspirations uncovered in the fact-finding process but a deep ongoing relationship is critical to helping the client achieve their goals.

Do I need to completely change my business?

A typical lifestyle planning proposition places new demands on the adviser business. The approach may require additional training, to develop emotional intelligence and questioning skills along with the ability to capture and correctly interpret responses.

Deeper relationships may demand more time, contact and personal engagement, possibly even mentoring clients at key stages of the process.

Charging structures may need to be reviewed. There is the potential for conflicts of interest if charging is on a % of AUM, e.g. there will be times when it is appropriate to advise clients to spend more, thus reducing AUM.

Do I need special tools?

If you don’t already use one, you’ll want to invest in a good lifetime cashflow planning tool. As the fact-finding process becomes increasingly detailed, both adviser and client must deal with more and more information. Cashflow planning distils all information into a clear output and brings it to life.

Cashflow models can be constructed using one of two fundamentally different approaches. The first, ‘deterministic’, creates a single projection of lifetime income and expenditure based upon a single set of parameters and assumptions, e.g. the rate of inflation and interest rates. You can change these parameters and assumptions but there is only ever one assumption “determined” for each. The second approach is ‘stochastic’. This draws on vast amounts of historical market data to produce a range of potential lifetime income and expenditure outcomes, each with an associated probability. Hence, the most likely outcome will have 50% probability attached, whereas better or worse outcomes that are less likely will have a much lower level of probability.

For me, the key consideration is that the tool works within your business model. There is the potential to spend significant time preparing models that you aren’t being paid for. Hence the need for a tool that either is or can be integrated with your CRM system – rekeying of data takes time and introduces risk.

It’s useful to configure different templates, such as a pre-retirement template and a post retirement template, which set standard defaults that reflect the starting point for modelling instead of setting them every time.

What does your client need to see and what value does it add? Is this delivered by a paper report and if so can you specify what goes into the report or is it standard output?

The business benefits

Lifestyle planning may not be for everyone. But, it has the potential to create stronger, longer-lasting relationships with clients who can clearly see the difference their adviser is making to their life, bringing trust, loyalty and advocacy. Or in other words, regular, repeat income with the potential for growth. I’ll let you decide if it’s for you.

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