Believing in Your Value Proposition

I never realized how difficult crafting my value proposition would be until I froze mid-sentence during a mock advisor-client meeting about a month ago. Although my current role does not necessitate a perfect value proposition, the mock meeting led me to understand how important being able to articulate your value is for a Financial Advisor. During the mock meeting my mind was stuck on the idea that the prospect can always find a way to challenge your opinion since many financial advising services are subjectively valued. After my slip-up I decided to do a deep dive on the value proposition, and last week made an hour-long presentation on the subject at my company’s offsite retreat. I’ve put dozens of hours into researching and reflecting on the value a Financial Advisor can provide and will highlight the points that resonated with me most. In a later post I will take a deeper dive into other aspects of the value proposition.

My research started with the question, “Why is the value proposition so hard to describe?” Financial Planning is a complex, subjectively valued, intangible, long-term service. There’s no question that anyone who has worked as a Financial Planner for a few years knows exactly what a Financial Planner does, but we also know this industry so intimately that it’s easy to forget how entrenched the complex terms and acronyms are in our daily vernacular. Have you ever tried to describe what you do and almost immediately seen that person’s eyes glaze over? An explanation that was meant to be simple can quickly turn into data overload. If you can manage to take the complex and present it in a simple way, you still need to get around the obstacle of value often being subjective. Effectively proposing your value requires an understanding of what that person values. Finally, there’s a required element of trust that the relationship will be mutually beneficial over the long term. Trust in an intangible, subjectively valued service is difficult to build and maintain. So despite the fact that you may know what a Financial Advisor does, it’s no easy feat explaining the merits of an intangible service that the person may have never experienced when his or her sophistication and interest levels are unknown.

For me, the most important part of the value proposition is to believe in it myself. At its core, Financial Planning is a business that helps people navigate and develop a balance between their goals and their money. Although we may like different aspects of our roles for different reasons, I’ve seen a common theme in Financial Advisors’ underlying motivations of being in this business to help people. It should make you feel good to work in a profession that has the primary objective of helping people live out their goals through the proper management of their financial resources. Although you may feel as though you’re in this profession to help people, conveying your value proposition requires an understanding of your services and their impact, as well as the justification for your fee.

Only a portion of the strategies we implement yield quantifiable, consistent annual benefits such as tax loss harvesting, rebalancing, or tax planning. Many planning opportunities are subjectively valued and occur inconsistently over the years. Does the prospect have the resources and intellect to combat these issues as they occur? What about the time? Even if they are able, do they want to? For many, there is a high value on the peace of mind and free time that comes with having a competent advisor. These benefits are virtually impossible to objectively quantify, so advisors and clients need to mutually agree that the fee is worth the value. I could spend all day writing about our hard-to-value services, but the one that sticks out to me the most is a good Financial Advisor’s ability to anticipate planning opportunities during life transitions. An advisor who has taken the time to understand his or her client’s comprehensive financial situation (goals, values, interests, priorities, etc.) will be able to assist the client in avoiding expensive common pitfalls. When clients transition to new phases of their lives it can be exciting, but often comes with an overwhelming feeling of “I have no idea what I’m doing” as well. Having a knowledgeable, experienced partner can make all the difference in a person’s mental state during transition periods. Examples of life transitions include: starting a new job, moving to a new state, purchasing a first home or other large asset, getting married, having kids, sending your kids to college, getting divorced, selling a business, getting a promotion, or receiving inheritance. Having an intimate understanding of your hard-to-value services is essential to conveying your value proposition.

The final area I will touch on is the need for you to believe the fees you charge are justified. There will always be prospects and clients that argue fees, which can lead to a defensive or even argumentative discussion if 1) you can’t articulate value clearly and 2) don’t know your fees well. I’ve always worked for firms that charge on a percentage of assets held with the firm, but if I’m speaking honestly, prior to my research I had never really paid attention to the actual dollar amount. For the average advisor the AUM fee arrangement can come across as clandestine, oftentimes shown only as a line item on four statements per year. If we tout our fiduciary responsibility we should have a solid understanding of what various clients pay in real dollar terms. Even though it may be easier for the client to stomach an automatic withdrawal from their account, we shouldn’t encourage that type of “out of sight, out of mind” mentality. An exercise I found beneficial was to calculate my firm’s fee in both a positive and negative 6% return environments over one year for $1M, $5M, and $20M portfolios. Justifying the fee is easy in positive market years, but an advisor’s behavioral finance knowledge is put to the test in down market years. When the client wins, we win, but when the client loses, we win a little less. Having a high level understanding of our additional impact on the losses clients undergo in the short term helps to build empathy, which is an important component to any advisor-client relationship. If we believe that our fee structure is fair, then we should be able to have frank discussions with our clients explaining that the justification for our fee comes from the understanding that the advisor-client relationship has historically proven to be mutually beneficial over the long-term. It’s no easy feat to gain a prospect’s trust when the relationship can take years to net positive annualized returns. Understandably, our value oftentimes needs to be regularly reinforced throughout the course of the relationship. On the flip side, that also provides opportunities to develop solid long-term relationships with our clients.

Ultimately, your success in this area will come down to experience conveying the value proposition to various types of people. There is no shortcut, this important skill takes time and repetition. I encourage you to write out a framework and practice delivering it to your friends, family, and anyone you think might be interested. The sooner you develop your value proposition the more opportunities you will have to practice it, making you that much more prepared to impress your future prospects. The longer you wait to develop your value proposition, the more opportunities you’ll let pass you by.

New Year's Resolutions Start Today

I am a fan of resolutions in general, but New Year’s resolutions are frequently unsuccessful. Let's assume, however, that 2017 is going to be different. There is a lot of advice on how to make the change stick. Here is one you may not have heard before though: start planning for your 2017 New Year’s Resolution now. 

Think about what a successful New Year’s Resolution looks like for a moment. It is probably not just a 6-week habit, or even a year-long habit, but more likely a lifelong change. To think that one can simply wake up January 1st slightly hungover and change one’s life is unrealistic. Rather, one must plan now.

Here is a hypothetical schedule:

• October - 
• Consider potential New Year’s Resolutions.
• Make a decision to pursue one.
• Decide what is going to be sacrificed. There are still only 24 hours in a day, but you now have added something to your life. As a result something must be given up, whether that is another activity, time, energy, or a combination of all three. What are you no longer going to do to make time for your new change?
• November - 
• Talk with other people who have achieved your resolution.
• Read three to five books on the topic.
• Create a few post-mortems. This is an exercise where you hypothetically assume everything went wrong, identify what could have caused this, and then learn from the mistakes in order to avoid actually doing them.
• December -
• Purchase the necessary equipment, supplies, or other required items. If your resolution involves waking up early, don’t start that January 1. Gradually ease into it, so come January 1 you are accustomed to waking up early.
• Create a schedule or system to track progress and foster accountability - maybe in the form of a journal or simply marking a calendar.
• Possibly test your New Year’s Resolution in advance to get an idea of anything you may not have anticipated.
• Consider what you are going to do if you have an off day or get thrown off track.

Success lies in the preparation. Starting to think about New Year’s Resolutions now initially sounds ridiculous. However, consider a successful New Year’s Resolution: it is probably a big deal. Three months of getting ready is a minimum requirement. Start thinking and planning now.

Four Skills for New Financial Planners

When you are in college things are stressful, time-consuming, and confusing. College is when most are given their first opportunity to develop serious systems for learning, retaining information, and building routines that will allow them to excel in real world situations and get the recognition they deserve.

What isn’t challenging, assuming you have a pretty good idea of what you want to do, is actually creating the tasks, exercises, and road map that will manifest into an environment in which you will be primed for growth. That is what college is for. Classes are designed for the profession you desire to enter, and professors coach you on where to spend your time academically to best position yourself for the workforce. Additionally, peers on the same trajectory conveniently serve as motivational and accountability systems.

In the Financial Planning world, the road map for a college student is relatively well laid out: Major in either some type of finance or accounting; Financial Planning if you desire to get the educational requirement for the CERTIFIED FINANCIAL PLANNER™ designation, and then begin your job search. The Financial Planning world is still small enough that if you make it a pure play, professors and other services, such as Caleb Brown’s New Planner Recruiting, can provide assistance by introducing you to firms all over the country.

Once you find the right firm, the next step is also fairly straightforward: sit for the CFP® examination. A terrific amount of money and energy have been put into study programs and review courses specifically tailored to helping you pass this exam. Due to the fact you have made Financial Planning, a specific field, your passion and focus, this will most likely not be a problem for you. You will pass, eventually gain your 2-3 years of work experience, and then be a full-fledged Financial Planner. Congratulations.

None of this is a secret.                         

I am going to talk about all of the other proficiency areas required to be the best Financial Planners we can be.

I will begin by saying that I obsess about the future. It’s why I was born for this profession. Taking advantage of “time value of money” is important, but when you use that same logic and apply it across your life you can see there are equal if not more important areas where the advantage of starting early is essential. Stashing away money in a 401(k) so it can consistently be working for your retirement can easily be compared to stashing away time studying in college.  Other examples include learning how to make the right amount of eye contact, or practicing the secret power of listening more than you speak. Spending time on all these essential skills now will produce a compounding effect that will make us the best at what we do.

The Four Skills

There are four broad categories that intertwine and build off of each other in the profession of Financial Planning. Every successful Planner I have interacted with has these skills to some degree, often in surplus:

The challenging part is that only the first category can be formally assessed, and therefore is easily measured and tracked. The three remaining categories don’t offer grades, degrees or certificates. There is no exam to measure how much people trust you, or a certificate showing you know how to effectively communicate a complex topic in simple terms.

It is the things that can’t be measured that will set us apart from other professionals. It is the things that can’t be tested that will determine whether or not somebody trusts us enough to let us help them accomplish their life goals.

Technical

 Obviously, you need to know your stuff. Technical skills are essentially all the things you learn in undergrad and throughout your CFP® studies. This category is not completed after accomplishing those feats by any means, but it is certainly where you have focused the majority of your energy.

The above graphic almost sounds like a job posting, right? No coincidence there, most firms agree that this is pretty bare bones stuff, which is why it is the first skill on our list and the one you spend the most time on in college and CFP® studies.

I quickly learned that technical skills do not end after the CFP®, and the ability to be resourceful in this profession is far more important than having actual resources. While you are not expected to have every rule and regulation memorized, the ability to quickly track down information is essential. Along the same vein, being able to identify planning opportunities is far more valuable than memorizing the IRC. I work to improve this is by engaging in what I call “technical reading” on a daily basis first thing in the morning. The purpose of this is to build familiarity. If I am asked a question that I do not know the answer to, I want to be sure that it is at least a familiar topic and I know exactly where to track down the data.

There is the potential for additional certifications, including the CFA, EA, or CPA, or perhaps an additional degree such as a masters in Tax or Financial Planning, or an MBA. While these provide an additional level of differentiation, they naturally require their own separate cost benefit analysis.

When developing a personal plan under the technical umbrella it is important to understand that we cannot be professionals in everything. A huge part of developing this skill is figuring out what area you may want to specialize in.

Communication

“Make it simple, but significant”

                -Don Draper

Communication is the ability to get your point across in a clear and concise manner. One of the essential skills we need to have as professionals is the ability to help the client understand the services and advice we provide. This requires attention to speaking, writing, and presentation skills.

Having all the information needed to help a client is not going to be enough if it cannot be delivered effectively.

I have found that doing several things proactively has improved upon this skill. A coworker and I have been conducting educational sessions for the client service staff at our firm. They pick the topics, and we prepare and conduct a presentation. Additionally, I set up a case study group outside of work that holds monthly meetings where we conduct mock advisor-client meetings. This study group provides a safe space where young advisors can practice explaining complicated financial topics with feedback from experienced advisors. If possible, find people in your life that would benefit from a presentation or discussion on financial topics.  

Naturally, participation in client meetings has no substitution. Being a participant and contributor in client meetings where a slice of the time is specifically yours will certainly improve communication. This is amplified when a mentor is the other advisor and will provide feedback after the meeting.

Empathy/Relationship Management

As I mentioned earlier, it is the things that can’t be tested or measured that will determine whether individuals will choose to work with us. This category is about the ability to understand different personality types, listening, asking the right questions, resolving conflicts, educating others, and counseling. It is also being cognizant of the feelings of other people so that you can adjust your communication style and approach to connect with them better.

A father with two young children has the financial goal of purchasing a lake house. He feels that he is spending less and less time with his children and that if the family had a summer destination this problem would be resolved. Fairly straightforward, right? However, due to financial constraints that arise from this new goal the father has to work slightly longer hours for the next three years before the family can afford to purchase the lake house. In three years the children are in High School, want to spend even less time with their parents, and their father wasted additional time with them while working towards this tangible financial goal. If the goal was recognized as “I want to spend more time with my family” rather than “I want to buy a Lake House,” that experience could have been lived many times over while the children were still young.

A Note on Self-Compassion:

There will be times where you will need to be the voice of reason for those clients that, for whatever reason, are unable to implement change. Often we see clients trapped in a cycle of guilt or suffering; as advisors we need to practice understanding and remain non-judgmental.

Presence/Marketing/Sales

The final piece of the puzzle is the ability to compel and persuade others using the prior three desirable skills. It’s the ability to sell yourself.   

Almost 2,500 years ago Aristotle pointed out the three elements needed to move an audience (rhetoric), these include logos, pathos, and ethos; meaning intellectual, emotional, and charismatic appeal. In the beginning this is mostly just getting in front of people and sharing either advice or information that is relevant to their situation.

The ethos side relates to your credibility. This is where technical and communication skills shine. Demonstrating that you are competent and have the presence to represent that competence will be powerful. This is an industry that demands people of character.

Pathos is the appeal to emotion. Financial Planners must make an emotional connection with the people they service. Discerning the appropriate emotional appeal is of the utmost importance.

Logos, the appeal to reason, is where demonstrating why engaging with you as a professional makes sense. You are in the business of persuading. You must persuade those you interact with to pay you for Financial Planning services, engage in a comprehensive Financial Planning process, and actually implement your recommendations.

Proactively working with friends and peers on their immediate financial needs will provide just as much help to you on the presence and sales side as it will to them on the planning side. While practicing with those close to you is helpful, again, learning through observation will do wonders on watching how these skills and rhetoric are used.

I also would like to stress the importance of mentors. Learning through real-life observation is difficult to replicate, and being a willing mentee, like a sponge, is an admirable desire. Often it is easy to feel like you are asking too many questions, but at the end of the day, this industry is filled with passionate people who love to teach.

How to Start

If you make your goal to run a marathon, every day leading up to the race you will not be accomplishing that goal. This would inevitably kill your motivation (and is supposed to be really bad for your joints). People often see challenges as insurmountable, become discouraged, and give up. However, if you focus on a system or routine rather than the end goal you will consistently have positive reinforcement in your life. For example, if you make the goal to simply run every day, each day you run you have accomplished your goal, whether you ran one mile or 26.2.  This mindset creates a very positive attitude towards goal setting.

There is nothing you can do to all of the sudden wake up and be a good communicator or have terrific empathy. But what you can do is make a goal to teach somebody a financial related topic that is relevant to them every week. Or you can make it your goal to get outside of your comfort zone and join a new group that will involve sharing your story and listening to theirs.