Gaining And Retaining Clients In A Changing World

by Ryan Goulart

We all know the world, especially the financial services world, has changed drastically in the past few years. We’re now living with constant change. Technology, economic policies, demographics, longevity, the evolution of health care—it’s all changing the world around us. And it all means that clients want something different from their financial advisors than they did even just 10 years ago. To thrive in this world of constant change, a new advisory business model and message is required.

Doug Lennick and Chuck Wachendorfer, CEO and President of Distribution, respectively, of Think2Perform and experts in the behavioral finance field, are advocates of educating clients on behavioral financial advice and changing how you converse with your clients. In this Q&A, they share their thoughts about how the changing world is impacting both advisors and clients, as well as how advisors can alter their businesses and incorporate behavioral advice to gain and retain new clients amid all the changes. 

What are clients looking for from advisors today? How can advisors use this knowledge to gain new clients?

Doug: Clients are waking up to the fact that for the most part, advisors can’t predict the future. Generally, people are more anxious and feel more stressed about the future than they used to. For example, when you look at all the surveys out there, you see that the majority of people are concerned about health care costs. Yet most don’t think they can talk to their advisor about it even though they want to talk to their advisor about it. And historically, advisors want to avoid the topic. Don’t avoid it!

The health/wealth connection is a magnet for high-net-worth clients. Understanding the connection between health and wealth is a lightning rod topic through which you can engage with prospective clients, especially those in the pre-retirement or retirement ages. By diving into areas other advisors want to avoid, you can provide a great deal of value to existing clients and attract new ones.

I do use the term “retirement age” cautiously though, because retirement now has nothing to do with age, but rather financial preparedness. Retirement age is an outdated notion. Instead, think about it in terms of clients who are eligible for Social Security and Medicare.

What are some other concerns that clients have in today’s changing world?

Chuck: People are living longer than they expected to, and they’re concerned about the impact of longevity. In the June 1, 2015 Encore section of The Wall Street Journal, there was an article called “How to Add Life to Longer Lives.” The first sentence said, “The first person to live until 150 is alive today.” In fact, kids under age 10 today have a life expectancy of 120. Long life—that’s what people are looking to advisors to help them think about. But advisors still tend to gravitate toward talking about performance and products. Resist the urge to do so and focus on what your clients are concerned about—cost of health care, long life, and maintaining their lifestyles.

Financial advisors and financial services firms have sold to the consumer what’s emotionally easiest for them to buy. It makes sense—we all have to make a living and people make financial decisions with the right side—the emotional side—of their brains. The draw of making money is a powerful motivator for clients. So when the market is tanking, it’s easy to sell fixed assets, and when the market is taking off, it’s easy to sell equities. But even though clients are buying these things, they’re not getting at what they are most concerned about—the future.

So instead of focusing on the market, ask your clients and prospects: “What are you worried about in the future? What can we do about preparing for the future?” This helps people focus on what they can control, rather than what they can’t. And this is good for advisors! We don’t have to perform better than the guy down the street; we simply have to understand our clients better.

What are some changes that are specifically impacting advisors and how?

Chuck: Technology for sure, as it’s made more options and information more widely available to people, but one of the other changes directly impacting advisors in an almost bigger way than technology is that of demographics. You have the majority of advisors focused on a group of people—the baby boomers—who are about to exit the job market.

Most financial advisors in the independent space have business models that are related to assets under management. Unfortunately, there’s a lot wrong with that model, and the problems with it are going to be exposed more and more in the next few years. The assets-under-management model is attractive because it annuitizes a practice—it creates income. And it’s made sense considering the demographics of the last 20 to 30 years, where the baby boomers have been controlling the market. However, all that’s about to change.

Clients are beginning to take out their assets because they need them to live, and not many advisors understand how to build a business model that is built on assets under distribution. How many of you have clients who are beginning to behave like the money they invested with you is theirs? That’s the problem with the AUM model—it’s in conflict with the interest of the client. The advisor has to talk the client out of using their money, otherwise the advisor loses compensation.

Doug: The AUM model works great for the advisor—at least, up until clients start taking their money back as Chuck said. But now that we’re seeing large groups of people retiring, we have advisors who are conflicted because their own economics are compromised.

The AUM model also positions advisors to focus on performance; if I’m paying you to manage my money, I expect good performance. Instead, clients should be paying you for your advice, and the price for your advice should not necessarily be tied to how much the client invests with you. Clients want transparency and simplicity, but they don’t want to pay a lot for the product.

AUM as a model is destined for death in this new age of technology and demographics. It may last for a while, but it’s going to die eventually. Advisors who are ahead of the curve can take advantage of this moment of change and start positioning themselves differently.

Especially in the independent space, advisors are positioned to move in this direction. The Cetera Financial Group is unique because of the training they offer through things like Wealth Management University, but most broker-dealers do not have programs like this, so many advisors don’t have a good framework for this type of advice-based business model. Since you have all this training and support, now is the time to act.

What can advisors do about this issue and continue to grow their businesses?

Doug: Three things: change your terminology, change the way you charge and change your conversation with clients. Doing these three things can make you stand out from the competition, who is likely going to keep trudging through the old way of doing business and try to force it to work; it can help you gain more of your clients’ assets because they better understand your motives and methods; and it can help you gain new clients who want an advisor who is addressing the issues weighing heavily on their minds. I’ll go through these briefly.

Terminology and charging – One of the most negative phrases is “fee-based advice.” In the last 20 years, the consumer has figured out that “fee-based advice” means their fee is associated with how much money they invest. So even changing the terminology from “fee-based advice” to “advice-based fees” could transform an advisor’s practice and make them more open and available to client acquisition. However, you have to change behavior along with the term—your fees should be based on advice, not on assets.

The client conversation – Change your message when acquiring new clients. Let them know that you are equipped to converse about and help them plan for this new future—this future full of uncertainty in markets and governments, rising health care costs and longevity. Emphasize that planning needs to be less about what the markets are going to do and which investments are the best, and more about what is right for their future goals. The thing is, what the markets do and which investments are best don’t have much of an impact on portfolio performance.

More than 85 percent of portfolio growth depends on saving and behavior—more than asset allocation, investment selection and market timing combined. If you tell your clients this, they will likely be shocked. But now that your value proposition has to be based on your ability to advise, you need to educate your clients. And if you educate them, you can change the game entirely.

What if your marketing message focused more on client behavior and less on your performance? Many advisors out there are still spending most of their time talking about their model, their performance, even though they have no control over what the market does. They’re not talking about what they and their clients can control – how much they spend and how much they save. Take advantage of this and be the one to start changing your message.

How can advisors make this change, especially when their business has been based on the AUM model their entire careers?

Chuck: It’s simple, but it’s a hard change. We tend to do what we’ve always done, we’re programmed to think of change as danger, and our brain is designed to detect and run away from danger. So remember this and remember that change doesn’t have to be overnight.

I think most advisors will agree with me that we’ve seen product commissions get cut more and more over the past 35 years in this industry. If you think that trend is going to continue—and I do—you’re going to have to manage a lot more money for a lot more people, or you’re going to have to make it up in advice (by charging for it). This will require changes not only to how you charge, but more importantly to the conversation you’re having with clients. The mechanics is the easiest part of the change; you’re not going to charge them more, just differently. For example, instead of charging $10,000 for $1 million assets under management, you’re going to charge a $10,000 fee for your advice.

Now, what do you say in your meetings? That’s really the hard part, especially if you’ve been showing them Morningstar and asset allocation charts at every quarterly review. A lot of advisors say they want to focus on values-based planning instead of performance-based, but then they have MSNBC on their flat screen in the office! As soon as clients walk in the door, they’re focused on the market. If you have a TV in your office, put on the home and garden channel or the travel channel. Change your conversation in your meetings to be more about living than on the markets.

And living is what clients want and need advice about. They weren’t prepared for this type of future—one in which they’re living to 80, 90, or even 100 years with a lot of uncertainty. Talk to them about that and how you can help them prepare for any uncertainty.

How do advisors communicate their value to clients in this new world, beyond that of portfolio manager?

Doug: Isn’t the game less about portfolio return and more about how to align decisions with values and goals? The portfolio return will go up when you do behavioral coaching and spending behavior, because clients will be more likely to stick with the strategy you have helped them create.

The operative words here are spending strategy; not retirement income strategy. Your clients are going to spend money on other things before they retire–their child’s graduation, education and weddings; vacations, new homes, etc. So their spending strategy is going to influence their portfolio return, which will ultimately impact how much they have to live on for the rest of their lives. Once advisors begin to embrace that their job is to give to advice on how to behave—investing behavior, saving behavior and spending behavior—your value will skyrocket for your clients.

If you look at the statistics that show the difference in performance for the markets vs. investors, the markets did much better. Why? The investors were not behaving properly. By providing behavioral advice, you can provide a significant amount of monetary value to your clients. And providing behavioral advice will likely make you infinitely more referable because it will differentiate you from everyone else who is trying to be a portfolio manager. There is no data that says advisors who are portfolio managers outperform the market. If they were that good, they would become portfolio managers.

Behavioral advice seems to be a key part of implementing this change to charging for advice and providing what clients are looking for from advisors. So how can advisors implement behavioral advice in their practices?

Chuck: You don’t tell people what to do; it’s about asking questions. For example, when someone wants to get out of the market, it’s because they’re afraid. If we’re afraid, we either want to run away or fight, and when it comes to the markets, most people want to run away. Not only that, but we want to respond quickly before anything else bad happens, and by reacting purely on emotion, we often make the wrong call. So if you’re faced with a client in a situation like this one, use questions to help them calm down and take the emotion out of it, which will help them make a more rational decision.

Can you provide an example of how to do this?

Chuck: Let’s say a client does want to jump out of the markets because they think it’s going to tank any second, but the strategy you created to help them reach their goals requires them to stay invested. Ask: “Can we take a step back? Would you be willing to talk to me again about what your values are?” Then go through a values exercise to identify the client’s top five values.

Ask: “What are your top five values? I’m not asking you because I don’t know, but because I want you to redirect your focus. Let’s think about what really matters, what’s important to you. How are these values important? How do they connect to your goals? Has any of that changed?

As I get the client to think about what’s really important to them long term, they get calmer and can begin to access the logical thinking part of their brain.

Once they’re calm, say: “Let’s think about your options here. You want to take all your money out of the market. Are there any other options?” The client is either going to say “I don’t have any,” or “Besides taking it all out, I could take some out, take none out, or add some.” Then ask, “Can we talk about the advantages and disadvantages of each option together?” Most clients will agree.

You can let them take the reins and list what they believe to be the pros and cons of each option, but make sure to add those they leave out—and they will leave some out. Once you get through all four options, don’t tell them what you think the best option is; ask them what they think the best option is.

If the client still says they think they should get out now, ask: “Do you mind if I tell you what I think the best option is and why?” Explain that you are looking out for their best interests and remind them why they agreed to the strategy in a first place. Once you explain though, acknowledge that, in the end, it’s their decision. 

What are some other ways advisors can use behavioral advice in their practices?

Doug: Ask both existing and prospective clients, “If I could position your assets—with your support— such that whenever you need money for whatever reason, there would be a smart place to get it? Would that help you feel a little less stress? If you knew that financially you were prepared for everything—prepared for the financial implications of death, of being alive for a very long time and needing health care or support, and of the ups and downs of the market, would you be able to relax and enjoy life a little bit more?

One hundred percent of people say “yes” to this! Ask the right questions to help clients give you the right answer. And you can actually have a value proposition based primarily on answering questions—you’re putting the clients’ investing strategy back into their hands, and simply helping guide them to the right place.

The crux of the issue here is that advisors must bring up and discuss the hard issues with their clients. This is what clients want and need in this changing world. Then you need to charge for discussing these hard issues and making a plan to address them so clients feel ready for the future.

And lastly, you need to educate your clients on why they must stick to the plan and how they can do so. When you do that, I believe clients will flock to you. They’re desperate for advisors who do this, and you have the opportunity to be exactly that for them.

To learn more about behavioral financial advice and how you can develop your skills in this area, go to

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