What does the term “financial success” mean to you?
As a professional financial planner, I know the first and most important interaction I have with people is the initial meeting, where my job is to listen well as I complete a success inventory that tries to capture clients’ values, situations, goals and challenges in a way that enables me to help navigate a path to each client’s unique vision of prosperity.
Later, specific asset allocation strategies and risk management conversations provide specific building blocks that help achieve the goal. Later still comes decisions about what types of products and accounts to use to implement strategies. The problem with the financial services industry is that many practitioners put the cart before the horse, immediately focusing on a specific product when the conversation ought to focus on establishing meaningful goals.
While a business plan begins with a mission statement, an individual’s success criteria establishes a person’s positive vision of the future.
When someone says, “I want to be worth a million dollars,” I want to know why. They might be concerned about a health issue. They could have special needs children they’re trying to protect. They might want to quit work and write the great American novel. Just about everyone wants more money, right? So merely having a goal to increase financial wealth doesn’t usually answer the real question, which is more about what you’re trying to accomplish in the upcoming season of life.
Your success criteria also tells me a lot about your key values. Your checkbook should reflect these values, as should your business succession, estate and legacy planning. I need to discuss your specific situation — your financial and non-financial resources along with the challenges you face and implications of adopting new strategies to help you reach these goals. In the meantime, I need to meet the key advisors on your team — metaphorically, if not physically — as well as assess your willingness to adapt to change. If there are areas where I might be part of the solution, then it’s appropriate for me to take some time to tell you more about me. But it’s amazing how much time the industry spends talking about itself rather than listening to clients.
When I began my own firm in 2005, I wanted to tell everyone about how my unique investment background, training and strategies would help them. I spoke too much, assumed too much and spent way too much time wondering why people were slow to come on board. Over time as I surrounded myself with great listeners and began to learn why the skills they brought to the practice were more important than my own, I learned to talk less, listen more and slow the planning process down to get everyone heading in the same direction before strategic alternatives were even considered.
In the financial arena, taking stock of a client’s risk profile is a key element in designing a successful plan. An industry joke is that clients want 20 percent returns and no risk. Right? If you assign a maximum value of 10 for the aggressive return goal and a minimum value of zero for their desire to accept risk, then the “average” response of the two questions is five. The resulting score could tell you more about the type of questions asked than it does about the client’s appropriate risk posture.
In my experience, the typical risk tolerance survey provides an incomplete picture of a client’s ability to handle risk. In my view, advisors should use many different types of asset allocation tools to benchmark clients’ risk tolerance and develop their overall asset allocation plans.
Once a plan is in place, the computer can stress test it to see if bad market conditions are likely to “break” the plan. I can also run alternative scenarios through the plan — such as a prolonged and expensive long-term health care event — to see what happens. Concentrated stock position risk can be evaluated, too. But the real test for each individual plan ties back to the individual’s positive vision for the future to determine whether outside events will put the core vision at risk. As we say in my practice, “It’s not about your money. It’s about your life.”
Most people procrastinate in this area, which is unfortunate because the earlier the plan is prepared, the easier it is to address risks and weaknesses. Take time to listen to yourself. If you don’t know what success looks like, then any path will do. But your prosperity isn’t a random event. Most paths won’t lead you to where you want to go. Take time to plan to prosper.