I had the good fortune to spend the early part of my career as a Financial Adviser working for an organisation that provided excellent training and fantastic tools for start-up Advisers. During the first three-month “boot camp” type training new Advisers were introduced to a few scripts (Introductory Meeting Script; Goal Development Script; and data Gathering Meeting Script) which were drilled and practiced on a daily basis. As an adult with several Asperger traits, I must admit that the scripts were invaluable to me and I employed them in a dogmatic, even religious, fashion in my client interactions. Even four years after leaving Old Mutual Private Wealth Management I can still recite the Introductory Meeting and Goal Development Scripts today. [As an aside: I would argue that they were a large part of the reason for my success as an Adviser and it would be interesting to hear the opinions of some of my ex clients who may per chance end up reading this post – but we can argue the merits and demerits of scripts on another occasion].
Today I want to further explore part of the four page introductory script which emerges as a bit of a bridge at the top of page three. At this point of the script the adviser has broken the ice, established some of the prospect’s goals, and described the financial planning process. At this point the Adviser says: “There has been a lot of research worldwide and I would like to take a few minutes to discuss the reasons why people fail financially.”
The Adviser then talks through seven obstacles that most people need to overcome to achieve financial success. They are as follows.
1. Not having a Written Plan
Most people do not have a personal financial plan let alone one that is in writing. The first reason is simply not putting in place a written plan. If you were starting a new business today the first thing you would do is compile a business plan, yet most people run their entire financial life without any such plan in place. A written plan clearly identifies three key issues:
- Your lifestyle goals which are clearly defined;
- Where you now stand against your goals; and
- Key strategies and actions to move from where you are to where you want to be.
2. Not Monitoring Financial Progress
Even the small percentage of people who do build a plan tend to lose direction after a time, due to lack of monitoring, the second reason why people fail financially. Things change in people’s lives. They get married and divorced. They have children, move home, get a new job, buy new assets, or inherit money. They move to a new city or a new country, an aged parent moves in with them, they get retrenched or they change careers. All of these have an impact on their financial affairs and are occasion to revisit and check their financial plan.
3. Lack of Clearly Defined Goals
Most people do not set up well-defined goals. Well defined goals refer to lifestyle goals (not return on investment goals). They include life events such as providing for retirement, providing for tertiary education, providing capital and or income in the event of the death or disability of the breadwinner, providing a legacy for one’s family, protecting your income earning ability in the event of a trauma event, etc. Clearly defined goals are SMART: They are specific, measurable, achievable, realistic, and have a time based deadline. Most importantly they are written down.
4. Not Understanding Inflation
It can be difficult for people to grasp and take the effects of inflation into account. As an adviser in the South African context I used a story to illustrate inflation: Thirty years ago you could by a VW Beatle for R500. Twenty years ago you could buy a Yamaha 400cc motorcycle, and ten years ago a good mountain bike. Today you could buy a decent pair of Nike runners for the same price. Fair enough inflation in Australia is not as high as in South Africa and here we would use a $ instead of an R to denote currency, but the concept remains the same.
5. Not Understanding Risk
This is an area where an adviser can really help their client. People lack of understanding of risk. In the first instance few people understand risk as it relates to investment, in a risk reward structure but secondly and as important few people understand the risk involved in life – for example in understanding the financial implications of a premature death or a long-term disability.
6. Not Understanding Tax
Tax is so pervasive that in any financial plan there are inevitably a range of taxation implications. Few lay people can fully comprehend the effects of taxation. This is where a good planner who has a good understanding of tax can add immense value to their client.
7. Delaying Action
Finally, few people fully grasp the effects of delayed action. In many instances putting thing off is probably the biggest obstacle to success. Once again, by illustrating the impact of compounding the adviser can educate his prospect about the opportunity cost of procrastination.
At this point of proceedings the Adviser pauses and asks the prospect “Do you feel that any of these obstacles relate to your situation?”
The adviser then keeps quiet and listens!
Most prospects will identify with some of these as their key obstacles. Let them talk and personalise the obstacles for them. Write them down.
The next step of the script is for the Adviser to demonstrate how he can help the client to overcome these obstacles. Roughly paraphrased the Adviser says something as follows.
My role is to help you overcome all these obstacles. In doing so we can make sure that attention is paid to your whole financial picture. In order to do this we will first set up your objectives and develop them into well-defined goals. We will also need to talk about your views on risk and what types of investments programs you would feel comfortable with. Following this, with the aid of a thorough analysis, I will put together affordable recommendations based entirely on your specific needs and instructions which will include sound Investment, Protection and Tax strategies. I will present you with a written plan that is specifically tailored to meet your objectives. Once you have begun to take the action necessary my role will be to monitor your progress and help you deal with the inevitable changes that will occur in your future.
Using this simple model helps in the process of client education and provides an elegant and easy to understand checklist as to where you can add value to your client without a reference to selling a product.