Keeping the lines of communication open

In our current market conditions, many planners are noticing a reduction in the number of new clients. Even worse, tougher times for advisers have resulted in a growing phenomenon of client stealing and aggressive marketing.

Robert Kiddell,Money Management’s 2002 Financial Planner of the Year, has witnessed “people spending up to $10,000 a quarter on advertising alone, which in itself is an indication of the increasingly aggressive nature of the industry”.

Managing director of Proquest Geoff Davey predicts 2003 is going to be a “very bloody” year for the industry.

“Advisers can expect bad publicity over the next 12 months, especially after the [ACA’s] ‘shadow shopping’ results come out. What’s coming will affect different advisers in different ways, depending on their relationships with their clients.”

The bottom line is, if your clients feel insecure or undervalued, they could easily be seduced by one of your peers. So now is the time to lavish them with affection.

Gaining clients

You will only be able to deal with confused, fearful or angry clients if you understand them personally, as well as their financial goals. And the best time to do this is right from the very beginning.

“The time you spend with a client at the start of the relationship is the single determinant of their future comfort,” Kiddell says.

Prior to the initial interview, Kiddell sends potential clients a standard suggested agenda with points of discussion, and a list of documents to bring along. He also includes his latest newsletter, theAdviser Services Guide(ASG) and other industry information booklets.

“The first interview should be used to get to know your client, the second as a fact-finding session, and the third and fourth to discuss risk profiles, asset allocations and strategies,” according to Kiddell.

He also suggests that planners book a fifth interview a week to 10 days after the client first sees the plan.

“This will give the client time to read the plan and raise any questions, which can then be addressed in the fifth and final ‘initial’ interview.”

Conducting your initial set of interviews in this way ensures that you are providing your client with ample opportunity to communicate any concerns, which you can then rectify. Kiddell has found that after this sort of extensive interview process it is rare that the client will not implement the plan.

Sydney risk adviser Russell Collins adds that it is also important to personalise presentations to individual clients.

“Many people come out with identical presentations for their clients, regardless of the situation. Presentations should be a summary of the necessary information, and should not be given in a report form,” Collins says.

“At all times, be aware that you are communicating with your clients, not just talking at them.”

Maintaining clients

If initial interviews are imperative in getting business, keeping it is about regular reviews.

“Advisers who don’t carry out reviews will really struggle,” Kiddell says. “Not reviewing your clients is a sure way to lose them.”

According to Mondo Financial principal adviser David Owen, the frequency and length of reviews depends on two factors.

“The first is the length of the relationship, and the second is the complexity of the client’s situation.”

Clients in complex situations may require quarterly face-to-face reviews, as may clients who are new to the industry. Conversely, a client who is comfortable with you and in a relatively simple situation may only call for one face-to-face and one phone interview per year, according to Owen.

In a difficult market such as this, however, more communication across the board may be the key to keeping your clients. In response to the current conditions, Kiddell’s firm is lengthening what were previously shorter reviews. However, this luxury may not be afforded to all planners, and this is where other forms of communication come into play.

Other forms of communication with your clients throughout the year should include quarterly newsletters and mailings or reports on changing market situations as they arise. It is important that all communication with your clients is not restricted to straight reporting.

“Reviews and communication in general need to be more than just evaluation reporting. All of the client’s affairs need to be included, from day-to-day living and cash-flow management to ongoing insurance issues,” Owen says.

This, according to Owen, will fulfill your client’s ongoing need to feel valued and understood, and is a large factor in the growing trend of ‘holistic’ financial planning.

Reviews and other communication can also be used to educate your clients. Educating clients on issues such as the influence on and behaviour of the market, and the real performance and behaviour of portfolios as opposed to what is perceived, will stand you in good stead in troubled times.

It is also an effective way to gain your client’s faith and support, and “prevent them from following knee-jerk reactions or reacting negatively to advice from misinformed friends”, says Owen.

Keeping clients

The better educated and informed your clients are, the better they will cope with a down market and nothing, according to Davey, is more important than educating them about risk.

“Communicate openly with clients about risk,” he says. “New clients need to be warned, using 1973/74 as an example.”

On the flipside, a client whose volatility has reached a higher rate than they are comfortable with needs to feel able to communicate this to you. Alternatives need to be discussed and any adjustments made if necessary. Davey also stresses that in the instance of acceptance of higher risk, proper documentation must be in place.

“Make sure you use the appropriate systems to assess the risk and the client’s risk tolerance, and then get the client to sign off on any extra risk,” he says.

Recording a client’s risk profile is especially important in troubled times such as these because one of the most effective ways to deal with a concerned client is to remind them of your original, and mutual, agreement.

At an international seminar last year Don Connelly of Putnam Securities explained one particular strategy. All new clients to a particular firm are given a standard four-part questionnaire.

The first question is, “What is your time horizon?”, and the last is, “Would you rather buy low and sell high, or buy high and sell low?”.

An unsettled client contacting the firm regarding a disappointing report after only six months would be directed to the original questionnaire. The client would be asked to go to question one, cross out their answer — five years, for example — and write ‘six months’. They would then be directed to the last answer, where they would cross out ‘buy low and sell high’, replacing it with the latter option. The activity serves as a gentle reminder that just as a planner is expected to follow the rules until the end of the game, so is the client. Keeping your clients focused on the end goal should help to alleviate immediate concerns.

Kiddell’s planners are now focusing on talking to clients about “big picture things, what various gurus are saying, and what’s likely to happen in terms of the recovery of the international market”.

He says the problem is that your words of comfort in difficult times will sound more like false assurances, unless you have worked on building a solid relationship with your client from the beginning,

According to Sydney-based Associated Planners life broker Russell Collins: “The size of my commission cheque is not based on what I know about life insurance, but how well I can communicate with people who know nothing. People buy your advice first and your product last — the relationship you have with your client is more important than your final transaction. When times get tough it’s the relationship that counts. The relationship is what’s essential in keeping clients.”

With pressures on financial planning businesses, many planners may have neglected to communicate as often or thoroughly with their clients as hoped. But it is never too late to repair or grow a relationship with your clients.

Start lining up face-to-face interviews, sending out updates, and take the time to get to know your clients again.

Davey says that planners would be wise to ensure all their clients have been given a recent review with an emphasis on looking forward, not backward.

“Look at where your client is now, where are they going, and how you can now focus on getting there.”