How financial planners can meet the needs of their clients

Merton Miles looks at the financial planning environment and asks whether advisers are doing all they can to help their clients.

Whenever financial planning professionals face pressures such as market fluctuations and the plethora of findings from financial, taxation and superannuation reviews, it is a good time to revisit some of the fundamentals that form the basis of the service we provide.

Throughout these and other events the fundamentals remain sound, but we need to consider how to apply them.

Three guiding principles in financial planning are:

• know the product;
• know your client; and
• educate your client.

Know the product

We can easily define the characteristics of products relative to objectives, strategy, timeframe and performance but we need to know the product beyond these matters. Questions we need to ask are:

• Will it provide the outcome the client requires?;
• Is it within the client’s risk profile?; and
• What are the tax consequences, access and flexibility?

Planners are generally well informed about products but we need to ensure the product is not only soundly based and managed, but will provide the outcome clients seek.

Past examples of relying on drawing capital growth as income (and reducing tax) demonstrate the need to choose products to meet the client’s requirements.

Know your client

Important aspects of knowing your client include: their personal and financial details, goals and objectives, and tolerance to risk.

However, equally important is the need to understand what clients seek when they come to you for advice.

Knowing details of their position and understanding what they seek can be quite different.

Clients seek advice, strategies and recommendations but they also seek assurance and comfort. To provide that, we need to understand financial advice can be an emotional issue and clients are seeking solutions to their concerns or problems.

A client’s concern for continuity of their income far outweighs the potential future increase in value their recently depleted account based pension balance may offer.

Educate your client

Macquarie dictionary defines ‘educate’ as “to train the mind and abilities”.

Is that what we want to provide to clients, or do we want them to know and understand the options they have so they are able to make informed decisions?

Technical details can be confusing when a client’s main concerns are what outcome they can achieve and the consistency to meet their needs.

If we focus on giving information so clients can make decisions, we are likely to give them greater comfort than if we provide technical details which may not affect their situation.

Some observations

Planning

Good planners get their priorities right and follow the alphabet. We need to clearly define the client’s required outcomes and then nominate the options before we can consider the product and performance.

Clients can then focus on what they seek to attain before the means of achievement is discussed.

Options

We are often tempted to move quickly to a recommendation that we consider appropriate without offering options for the client to consider.

Conversion of superannuation benefits to an account-based pension is a very suitable strategy for many retirees but it is not the only option.

Superannuation benefits can be withdrawn in full, retained in full or the two choices combined.

An explanation of options can often introduce ideas and concepts that clients have not previously considered but which can provide the outcome they seek.

Planners

A final observation

Good planners focus on the fundamentals and do the simple things well. They maintain contact and personalise advice. They also listen to clients and most importantly know when to stop talking.

Risk Profile

Assessing a client’s level of tolerance to risk is the most important aspect in providing investment advice. It is also the factor that causes the most disputes with clients and claims against planners.

My observation over many years in this industry is that some planners do not place sufficient importance on assessing a client’s tolerance and this can lead to an unsound assessment. It is easy to rely on a prescribed risk profile, which puts a label on a client.

The label may not accurately reflect the client’s expectations of how their investment will perform but it satisfies the planner that we have explained the risk.

Factors of occupation, background and environment can result in clients of similar age and circumstances having different levels of comfort.

Risk tolerance is a very personal judgment and one, which should be clearly explained to and understood by our clients before we proceed to provide advice.

In these difficult times it is important we revisit the fundamentals and continue to apply them for the benefit of clients.

Merton Miles is a financial adviser at Fiducian Financial Services.