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Financial Advisors: Do You Know Your Value?

Date: February 5, 2021

There is a misalignment in what investors value and what financial advisors think they value. This ongoing fee conversation happening in our industry is proof of that. Of course, we know we create value, but do we really know what value we’re creating, how much it’s really worth, and what our clients are actually prioritizing?

I would like to propose that we change the conversation. Clients should know the impact you will have on their financial lives. We are always calculating the future value of money for our clients. What is the future value of your advice? Do YOU really know your value? How are you communicating that to your clients/prospects?

The Value Debate

The topic of a financial advisor’s value is a matter of debate in the financial world and part of the reason for that is this misalignment in how we communicate value. The question we should be asking is not whether advisors provide value but how much a financial advisor is worth to each client. 

That worth is going to be measured differently for each client because the needs and circumstances will differ. So, boasting a 3% alpha will not only lead to skeptical reactions like this tweet below but it also isn’t going to communicate the real value you’re providing to your clients.

Do DIY investors not have any use for a financial advisor?

Let’s take me as an example. With over two decades of experience in the business, I can certainly manage my own money and keep up with the constantly evolving tax laws.

However, I haven’t done a good job of explaining RMDs or Roth conversions to my wife. If something happens to me, my instructions to her are to seek a financial advisor. 

The time it would take her to read through textbooks and online forums and courses on the subject is technically possible but not something she has any interest in doing. She’d rather spend that time with our daughter, family and doing things she enjoys.

For DIY investors out there, I’d bet they have similar stories. Sure, they have the time and motivation to learn the ins and outs of investing, taxes, and so on. But their spouse, children, or other beneficiaries may not.

In that case, you want to know your beneficiaries have a financial advisor prepared to handle that transition of finances for them.

You may even want that professional, outside perspective for yourself since a DIY investor can still benefit from talking through their financial plans with a fellow expert.

And as a fiduciary advisor, if you are not bringing this point up, you are missing an important conversation.

In short, a client’s level of background knowledge or experience in the field affects what kind of value you can provide, not whether or not a financial advisor provides value at all.

Financial Advisors Don’t Communicate Value Effectively

In a recent study, investors were asked to rank various attributes of financial advisors in order from most to least important. Advisors were then asked to rank the same attributes in the order that they believed the investors valued each one. 

The results revealed that investors and advisors aligned on the fact that reaching financial goals was the top priority. However, when it came to how to achieve this and what was most important to success, there was considerable disagreement.

For the investors’ part, they underestimated the real value of behavioral coaching in keeping them on track toward their goals. Plenty of research shows that biases, emotional decision-making, and other financial behaviors can have a huge impact on an investor’s success.

Financial advisors knew this all too well, hence their consistent decision to rank it among the most important things they do for clients. However, the fact that investors ranked it so much lower shows that there’s a lack of communication here.

As financial advisors, we’re not effectively communicating the value created by our advice. 

This problem gets even worse when we look at the second most important attribute investors’ prioritize in financial advisors: skills and knowledge

While we’re spending all that time talking about fees, we’re either taking for granted that our skill and knowledge is implied or we’re underestimating how much it really sets us apart from our competitors.

As an advisor, your professional experience is unique. Perhaps you’ve handled a particular type of client more than another. If you’re newer or less specialized, perhaps you faced a uniquely challenging situation or client and triumphed impressively. 

Whatever that unique skill or expertise is, it’s time to focus on what it is about your experience and insight that makes you qualified to achieve the unique financial goals of this client. 

Why Financial Advisors Need to Focus the Conversation on Value Created

It’s not that your fees are irrelevant. Of course, clients care about cost. 

However, they’re more concerned about understanding what they are getting in exchange for those fees. If you aren’t communicating how your particular skill set qualifies you to provide exactly what they need to achieve their particular goals, it won’t matter how your fees are structured or what rates you offer.

As someone that has been in the financial advisory world for two decades, I have served in a variety of different capacities, from being an advisor to compliance to running thousands of financial plans, creating portfolios and trading hundreds of millions to participating in thousands of meetings and interactions with clients. 

Through my conversations with clients, seeing how we serve them, knowing what goes into a financial plan or how an investment strategy is put together, I’ve gained insight into the value that we as financial advisors create. I have also noticed that much of the value we create gets missed—both by our clients and by advisors.

The result is that clients can’t really make a clear cost comparison between advisors, even in cases where both advisors charge the same fees. The fixation on fees is driving a race to the bottom to offer the lowest all-in costs. Or worse, offering more services for the same level of fee.

Communicating Your Value Leads to a More Unique Value Proposition

In addition to this race to the bottom, the lack of discussion about value has created another problem: 60% of investors say that all advisors make the same promises so it’s hard to tell the difference between them.

While some promises are a necessity, you can do more to distinguish your services from the next advisor by focusing on what it is that makes your particular professional background stand out.

We’ll talk more about the nuts and bolts of how to craft a better value proposition later on. For now, let’s focus on what kind of value you actually create—and potentially aren’t communicating effectively to your clients and prospects:

What Do Financial Advisors Do for Their Clients?

In order to make that shift toward a value conversation, you need to think more about the kind of value you can create beyond talking about alpha or AUM. Here are some of the most important things financial advisors do for their clients and how to better communicate their value:

Construct Personalized Financial Plans

Does your client want to travel the world when they retire? Do they want to pay for their child’s college tuition? Are they hoping to save up for a major purchase? Those goals are exactly what you’re here for.

To talk about this in real numbers, you need to quantify the future value of your advice by showing clients how much faster or more effectively they’ll be able to achieve that goal by following your recommendations. Create a system to track this for your practice, even if you don’t share all the value you create with clients. 

Provide Spending and Savings Advice

Helping your clients manage their expenses goes deeper than just creating a budget. You’re also able to provide guidance on insurance, mortgages, and other aspects of a client’s budget that can result in significant improvements to their monthly spend.

For example, if you recommend a client refinance their $300K mortgage with a 4% rate to 3.5% - over 30 years, you just saved them $30K in interest costs (excluding tax deduction offset). Email them and let them know exactly this.

Showing a before and after graph or chart of your client’s expenses and savings is a great way to easily communicate the value you created in this service.

Manage Investments

Executing trades and reviewing investment portfolios are perhaps the two tasks financial advisors are best known for. By always being plugged into the market, you’re able to spot profitable opportunities and make rebalancing recommendations more effectively than your client, who has a job and life of their own that prevents them from closely monitoring the market on a daily basis.

When discussing this, avoid getting too technical unless the client has a background in finance or asks for specific technical information. Instead, provide broader measures of your success. How much risk did you eliminate from your client’s portfolios? 

Consider using RiskAlyze or similar software to quantify this and present it in a compliant way. Based on how the investments performed, are they on track for their goals?

4 Ways to Show Clients How Much Value You Create

Having interacted with thousands of clients during my time as an advisor, I have gained a deep understanding of how we serve them and how they view us. This has allowed me to hone a few key strategies you can use to effectively communicate the value you create for clients.

Here are four that you can easily implement right now:

1. Write a Great Value Proposition Statement

As mentioned earlier, most investors have a hard time telling the differences between financial advisors. This is because we all tend to make similar promises about our “experienced investment managers” or “tailored solutions.” 

While we need to make those promises, we also need to add something unique and avoid certain common mistakes. Here are a few tips to get you started on revising your value proposition in a way that opens up a conversation about the real value you create:

  • Tailor your message. To be effective, a value proposition has to sound like it’s talking directly to the prospect. How do you do that with something that will be read by countless eyes? One way is to craft an imaginary ideal client. Give them financial goals and constraints. You might even draft an outline of the ideal client’s investment policy or personal life goals. Write your proposition for this person. How would your services benefit this ideal client?
  • Identify what makes you and your firm unique. Give concrete attributes like years of experience, areas of specialization, and notable achievements.
  • Prioritize trust. One pervasive complaint among investors is the lack of focus on trust. Investors often turn to advisors for guidance and reassurance while navigating the market. They need to know they can trust you. What do you do as a financial advisor to build that trust?
  • Avoid industry jargon. When you’re on the verge of using investment jargon, pause to think of a plain English alternative (that doesn’t sound condescending).

For more tips on putting together a strong value proposition, check out this step-by-step guide.

2. Use Visualizations

Keep some visualizations on hand that you can show to clients and prospects during your conversation about value. For example, you can use a flow chart like this one to clarify the range of services you can provide for your client:

The advantage of visuals like this is that it makes it easier for your client to understand what they’re paying for.

It helps demonstrate that financial advisors are not just problem solvers. That is, once you solve this current problem, you can continue to create value for your clients in other areas as they come up in life. You won't cover everything at once - but they should know that you are always having an eye over the much bigger picture even if it is not important right this second.

Use this and other visualizations to open up a conversation into this client’s long-term goals and priorities. Get them talking about what they want to achieve. As they talk about their personal goals, you can talk about where your services fit in and how you can help them achieve those goals.

3. Quantify Your Future Value

Quantifying your future value helps you show your clients, in concrete terms, what they’re paying for. In exchange for those advisor fees, you’re creating a meaningful impact not only on their finances but on their long-term life goals. You need to express that impact in real numbers and make a point of showing clients that difference.

For example, you may recommend someone do a Roth Conversion. That can help them avoid thousands in taxes once they retire. Show them and communicate it with them over time.

4. Send Written Summaries

When you’re sitting down with a client, discussing a specific problem, and explaining your recommendations, your value as an advisor becomes clear. In that moment, there’s a concrete problem and you’re providing real and specific insights into solutions that this client was unable to see on their own. 

The result of those meetings is a sense of confidence both in your expertise and in their financial future. This is exactly what you want to achieve.

The challenge, though, is making that feeling stick. 

As soon as your meeting with a client is over, that client is quickly going to forget what you did for them. As they return to their normal routine, your advice fades to the back of their mind and that sense of confidence fades along with it.

To ensure clients remember your advice and, by extension, the value you’re creating, follow up each meeting with a written summary of the recommendations you provided, the reasoning behind them, and their expected future value.

Doing this doesn’t have to eat up hours of your day, either. Shameless plug: Using a documentation software like Pulse360, you can generate written summaries from your meeting notes in a matter of seconds. 

Blog Series

In a series of blog posts, I will highlight the phenomenal value that is typically created by financial advisors.  While I will use examples from my own career, I will change identity details to protect the privacy of my clients. However, these details are not the point. Instead, I hope to use the experiences to help shift the conversation from fees to value—phenomenal value that is. 

Subscribe to our newsletter to get an update on when we post the series. Also, follow #fintwit and #fintwitvalue to stay up to date on the latest posts!

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