Why we need to sell hope not fear
Make financial advice an empowering experience for clients, not a depressing one, and you can charge a premium price for your services, says Brett Davidson, chief executive of FP Advance
If an adviser firm looks closely at what its clients need from it, an advice proposition can be pretty straightforward.
If we strip an adviser proposition right back to the bare bones most pre-retirement clients need help answering this question: How much is enough to live comfortably in retirement? Similarly, many retirees need help answering the question: Will my money last as long as my spouse or me?
When you think you have a functioning proposition as an adviser you must ask yourself one important question: Does my proposition resolve the issues my clients are facing?
As I’ve alluded to many times before, you’d be amazed how many times the honest answer to that last question is No or Not really. If the client’s number one concern is working out how much is enough at retirement and you don’t build some sort of a cashflow model to satisfy yourself and the client that they will get there, then your proposition just isn’t fit for purpose in my view. So check in with yourself and make sure that what you want to describe and market to the world actually deals with the issues your target markets are facing.
It is why the financial planning model is being adopted by firms hand-over-fist in the post RDR world; it just makes sense. Forget all the baggage that you might have associated with financial planning or life planning or any of these new fangled names and call it something different if you must, but a model that addresses the client’s core needs (whatever it is called) has got to be the right way to go.
Old school thinking
The old sales model just isn’t a viable model for long-term success and high levels of business profitability. A model that simply reorganises financial products for people will not sustain a premium pricing position in an increasingly automated online world, because the value added is just not there.
In the old direct selling days sales training went something like this: Ask some questions, find a weakness or a gap in the clients situation, disturb them and then match the product to the need.
When I started in this industry my sales training basically told me that a Whole of Life insurance policy was the answer to any question. Whatever the need was, Whole of Life could provide the answer.
It now sounds ridiculous but a lot of us were trained along these lines and it’s no longer appropriate. What you sell now is advice, not products rammed into gaps.
Using the disturb technique may have worked in a sales environment 20 years ago but today I think the disturb tactic simply disenfranchises people. Let me explain what I mean by that with an example: Advisers who are not looking at the bigger picture will often ask clients what level of income they want to retire on and then do a quick calculation as to how much the client would need to have in their pension at retirement to achieve that. Then they will say, To hit that number you should be contributing an extra £2,000 per month.
The client then says But I can’t afford £2,000 per month and the adviser says, Well how much can you afford? Let’s try and make a start with that amount then. Boom. The sale is made (or so they think).
However, when clients are presented with this sort of unachievable goal they often respond by thinking the situation is hopeless. Even if they do decide to act (and many people won’t) this is not an uplifting and empowering experience and it’s certainly not referable. Why would I tell my friends about my advisory experience when I feel depressed afterwards?
Let’s be honest, there is barely a person on the planet that is contributing enough to their pension fund each year to hit their number. Yet with some assistance many people can (and do) still get to a decent standard of living in retirement.
Sell hope instead
New school thinking tries to sell clients hope by identifying the shortfall but then working more creatively to show how it can be bridged over time. Many advisers are doing something along these lines already but this is where the cashflow modelling becomes essential.
Forget about the client viewing the cashflow model for a second. How is the adviser going to work out:
a) How much the client needs at retirement?
b) What assets are available to contribute to meeting this target?
c) What existing income streams will kick in? (e.g. State pension, employer defined benefit pension)
d) Will the income stream last as long as the client (or their spouse) may live?
e) Would it be possible (preferable) to take a little more money in the early years of retirement while health is still good?
f) What impact will that have in later life when the client is more vulnerable?
g) How much is a sensible (or safe) amount to take? What is the right level to trade-off the competing issues?
h) What about purchases of new cars from time to time, or some nice holidays that can’t be funded from annual income?
Even if the client is never going to see the model you build, it is essential that you can work out the answers to these questions. The cashflow model becomes the tool for doing so.
The benefit of being able to model a range of scenarios is that you can start to find more practical solutions to take back to the client. For example:
• Could they gear themselves into a buy-to-let property? (assuming they have the asset backing, the right time frame and risk profile)
• Could they sell their holiday home in retirement? Or in later life? • Would downsizing their home help bridge any shortfall?
• If they are not prepared to consider downsizing how else could the gap be funded?
• Could they salary sacrifice at work?
• What happens if they work three years longer? How do the numbers look then?
• What if they worked part time as a consultant for the first few years of semi-retirement?
• Do they expect to inherit? How certain are they the inheritance won’t get eaten up with care fees for their parents?
• Could they scale down their family home and free up some cash?
• Or use equity release to achieve a similar result?
Delivering peace of mind
Only by answering these questions for yourself can you then walk the client through your thought process and guide them to some sensible options to achieve their lifestyle outcomes. Do that well and you can charge a premium price for your services because this is what delivers that genuine peace of mind to clients. As the Mastercard advert says, this is “priceless”. You can also see that by answering these questions first, the product sale that attaches to them is often a no brainer.
By arriving with ways to bridge the gap you are actually selling hope not fear and you are doing what clients came to you for in the first place (even if they didn’t say that out loud or know it consciously themselves). In the worst-case scenario where clients can’t achieve their goals, you can provide a bridge to the second best option and give them the strategy for achieving the best possible outcome that their circumstances will allow. Knowing this sort of information and having a range of honest, sensible choices is an empowering experience for clients, not a depressing one. Yes, it takes some soft skills on the part of the adviser to deliver, but this is why you are so valuable to people and always will be if you are working this type of business model.
Rather than fighting the trend it’s time for all advisers to embrace the financial planning model and to start delivering highest value added for all their clients. Anything less is just selling yourself and your clients short in my view.
For more on FPAdvance go to: http://www.fpadvance.com