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3 Steps Financial Advisors Can Take to Communicate Value to Clients

Date: May 5, 2021

According to a recent study by Vanguard, 45% of the perceived value of your service comes from your client’s sense of well-being and their overall trust in you as a financial advisor. Your ability to communicate your value in clear, quantifiable terms is the key to building that trust and maintaining that sense of well-being. 

While we know, as financial advisors, how important it is to continuously create value for our clients, we often take for granted that the value we create is immediately recognizable. So, let’s take a deeper dive into why and how to communicate your value more effectively to your clients. 

Why Should You Quantify Your Value?

According to the latest Cerulli report, 51% of American households are willing to pay for financial advice. For the other 49%, the primary reason they aren’t willing to work with a financial advisor is that they’re unclear on the value they’re getting in return for the advisor fees they pay. 

If you fail to communicate the future value of your advice in quantifiable terms, you’ll have a harder time attracting new clients as well as keeping the clients you have. 

What Is the Future Value of Advice?

When we communicate with clients, we spend a lot of time identifying financial goals and producing annual summaries or reports to show how much progress has been made toward those goals. What many of us forget to do is include quantifiable data on how much influence our recommendations have had on that progress.

I call that quantifiable value of our recommendations the “future value of advice.” 

To better understand it, take a look at an example from my own career. I’ve altered some details to protect privacy.

Solo 401(k): $3,900 of Value Created

When I was an advisor, a prospect lost his job. Soon after, he started his own consulting firm. In our first meeting, I learned that one of his primary financial goals was to maximize his retirement account as much as possible. To that end, he was planning to start a traditional IRA and fund it to the max. 

As his advisor, after reviewing options, I recommended that he consider a solo 401(k). These are easy to set up and with one, he would be able add at least $19,000 as compared to the $6,000 limit on his IRA. 

This situation is likely a familiar one for most advisors. I identified my client’s goal and provided a personalized recommendation that would improve his ability to achieve that goal.  It’s what we do. 

It’s easy for something like this to become such an ordinary part of our day that we lose sight of how important it is to clearly communicate what you just did for your client.

So, let’s quantify it:

Without my advice, this client would have been maxing out a traditional IRA at $6,000. With my advice, they could now put away an additional $13,000 into a tax-protected retirement fund. Based on an average tax rate of 30%, that’s approximately $3,900 in tax savings.

In other words, the future value of that piece of advice was $3,900. 

3 Steps Financial Advisors Can Take to Communicate Value to Clients

To better communicate that future value, you need to stop taking it for granted that it’s already understood. When you’re putting together your annual summaries, make sure you’re also including clear, detailed information about the influence your recommendations had on the progress seen in those reports. 

Here’s a 3-step approach you can use to do that:

#1 Identify Outcomes

The first step is to identify what kind of value you create for your client. This will depend largely on what financial goals the client has. 

For some, you might be mainly focused on portfolio management to help them achieve their retirement goals or improve tax efficiency. For others, you might be more concerned with financial planning, helping them with their spending behavior or debt management.

As you go back through your notes, start identifying the specific outcomes you’ve generated for this client. 

  • What recommendations did you offer?
  • What planning or management services did you provide?
  • How did you rebalance their portfolio? 

Once you have a list of exactly what you’ve done for the client this year, you can measure how much money your client saved or earned because of your advice.

#2 Quantify Value

Quantifying the value you created is not just a matter of generating a report that details your client’s returns or tax efficiency. You also need to quantify where your client would have been today without your recommendations.

  • How much would they be paying in taxes if you hadn’t helped them restructure their retirement savings?
  • What would their returns have been if you hadn’t helped them rebalance their portfolio?
  • What would their debt look like if you hadn’t helped them revise their budget or establish that repayment plan?

For each of the outcomes you identified in step one, calculate what that client’s outcomes would have been without your advice. For example, in the case I described earlier, my client would have paid $3,900 more in taxes without my advice.

#3 Communicate Value

Clearly communicating your value needs to be an ongoing process, not just something you do to attract new customers. This isn’t just bragging about what a great financial advisor you are. It’s about showing your work and giving your clients a reason to continue trusting you with their money. 

How you do that is up to you and should be tailored to the needs of your client but here are a few ideas:

  • When you send that follow up email with your recommendations, you can note the future value of that advice in the email. For example, “I recommend opening a solo 401(k) which will allow you to save an estimated additional $3,900 in taxes.”
  • Include before and after data in your annual summary to show the value added because of your recommendations.
  • Provide periodic reports of the quantifiable outcomes you’ve provided.

However you choose to communicate the future value of your advice, make sure to do it consistently and proactively. You can use Pulse360 software to easily keep track of your notes and recommendations and then generate personalized summaries of the value you created for your clients.

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