By David Anderson
In the 10 years I’ve been in the financial services industry, I’m constantly challenged by the way in which this business is servicing clients. In this post, I’d like to outline some of the most common problems within this industry and how we can each do our part to correct them.
Product Isn’t King
As financial professionals, we’re encouraged to spend a lot of time learning product. We listen to sales pitches from carriers about the latest (and greatest!) features. We’re given glossy brochures and lengthy webinars about products that will “solve” our clients’ retirement and insurance needs. More time is spent on selling product than truly understanding the client’s needs or concerns. Companies pressure the financial professional to meet certain production levels, which of course, puts more pressure on the agent/rep to sell product. It’s no wonder then, that financial professionals are trained more on product than on how to design effective retirement strategies and build long term relationships with clients.
What we can do: First, let go of the notion that you are a product pusher or a professional salesperson. Then, understand that this business is all about asking questions, listening intently to your clients’ responses and then asking more questions. Your goal is to help your client find financial balance and positively answer this question: “Are you fairly certain Mr./Mrs. Client, you have an ever-increasing income that will last the rest of your life?”
Repeat after me: “Financial balance is not sitting with a client and recommending a product.” This is the absolute last thing that we want to do.
Most Retirement Plans Fail
Most retirement plans are built around a failure model based on several common theories. Some of the most common successful retirement planning theories include:
– Live on 60% to 85% of your current working income. We question this, why in the world would any of us want an amount less than 100%?
– Save 10% of your income. Sounds like an easy thing to do. But sadly, we’ve proven over and over that this won’t cut it for most folks.
– Work longer. First, I don’t know of many people who really want to do this. But second, this is also a myth our LIP advisors bust over and over again.
Sadly, the majority of retirement plans fail what most people want: the ability to maintain their standard of living throughout their lifetime. There is a complete misunderstanding of “cash flow ratio” retirement planning and its importance without respect to product.
We are compromising what our clients really want because they have a desire to consume too much too soon. As they say, “we all want to keep up with the Joneses.’” This creates a financial model that is tremendously out of balance.
What we can do: These financial models are built around income. Unfortunately, this is the wrong place to start. A financial model should be built around consumption. Basically, a great lifetime spending plan that is balanced based on a client’s cash flow ratio and not some general rules of thumb!
The Truth About Strategy
Most concepts taught in the industry have been accepted versus challenged. For example, choosing a 15- versus a 30-year mortgage is one of the most popular. You’d be surprised how fast LIP shows you the better answer for a client’s situation. Other concepts include the truth about dollar cost averaging, reinvesting dividends in taxable accounts and tax deferral. I won’t get into the lengthy discussion around the misunderstanding of different life insurances (term, universal life, whole life) because we’d be here all day…or how many advisors believe in accumulation theory instead of distribution theory. When should a client take social security (ahh, the flavor of the month with all lead programs out there)? How do you understand the true rate of return on money versus the marketing hype? There are also several misunderstandings of annuities and how they really work.
What we can do: LIP advisors have observed an incredible desire from people wanting to be in financial balance, but just don’t know how because their current financial advisor isn’t providing this insight. We have seen the crisis of the industry lending too much money too easily. We have seen the hype on all the next “get rich quick” ideas. We seem to have lost the basics of financial balance – not spending what you don’t have.
Our main goal is to create disciples of the theories and systems so more and more people can be helped to achieve true financial balance. This is critical in America now more than ever. America has become very out of balance financially. We must all take a stand to bring it back into balance and it starts inside the family.
Communication is Key
In general, communication and interaction that you have with clients is mechanical and apathetic. You’re taught to read scripts and offer solutions before you truly know what a client needs. It’s no one’s fault, this is what the industry promotes and teaches us! Unfortunately, real client interaction requires much more than this. It’s about an ongoing, organic language that removes pressure, promotes empathy and allows clients to make decisions easily.
What we can do: Start using what we call “Non-Convincing Language.” Pushing products isn’t the way to a happy, healthy financial services business. It doesn’t work! As professionals, we must ask ourselves the question: What strategies will work best for this client in their situation? Non-Convincing Language gives you the foundation to not only navigate your client meetings more effectively, it allows you to ask the right questions which lead to faster decisions and ultimately more product sales for you.
Correcting these challenges isn’t easy. After all, we’re faced with each of them nearly everyday in our client interactions. Are you supposed to just stop your business right now and change the way you do everything? No, of course not. However, changing one thing at a time leads to overall betterment. Gaining new perspective on one or two of these situations means you’ll be able to help your clients even more.
Think of it this way: it doesn’t, and shouldn’t, take a lifetime to realize your and your clients’ financial security. It is just as important now as it will be in the future. The Lifetime Income Process is a visible and measurable way to monitor your progress and test future financial decisions. Peace of mind is worth taking the time to plan your financial future.