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December 29, 2017

Looking for practical ideas to improve your practice? Here are our favorite 2017 ideas – written by your peers – for taking your financial planning to the next level.

Play psychologist around loss aversion …

… to understand clients’ seemingly illogical reactions, says Mitchell Kraus of Capital Intelligence Associates.

Kraus’s first recollection of seeing truly illogical financial behavior was during the dot-com boom and bust of the 1990s. One man he spoke to at the time had all his money in CDs and treasury bills and managed to save well over $1 million. In 1999 the man decided to take this easy money and put it all in dot-com stocks. By 2002 his portfolio was cut by a third.

Kraus told him to get out before he suffered further losses but the man said, “I can’t. I need to make this money back so I can retire.”

He was holding on to assets that didn’t fit his financial needs. Kraus realized he could spend all day walking him through the logical underpinnings of his advice but to actually get through to him — to get him to take action — Kraus needed to do more than just give him a logical explanation.

This particular client was suffering from “loss aversion.” Losses loom much larger in the emotional landscape than gains and the emotional pleasure of a gain is equivalent to the emotional pain generated by losing just 50% of that gain.

But even though Kraus understood the psychological concept, he wasn’t sure how to counteract such deeply-embedded thinking. He decided the best approach would be to start early in the client relationship rather than waiting until a loss event.

Mitchell Kraus

So, at his first meetings with prospects he asks questions to determine if they’re someone who’s likely to sell in a panic when faced with a down market. If they are, he works with them when the market is good to help them understand there will be times of losses.

Educating them early on helps ensure when the market goes down they’re able to respond appropriately.

Kraus asks questions beyond just “When do you want to retire?” and “Where do you want to your kids to school?” so that he can understand the ‘Why?’ behind clients’ actions.

Remember, money isn’t the only focus for retirement advice …

… and make sure your clients understand that too, says Amy Jo Lauber of Lauber Financial Planning, recounting how several untimely deaths inspired her to reflect on what clients really need in retirement planning.

About seven years into her career Lauber witnessed a shocking event that started her on the path she’s on today. Several of her clients were highway department workers offered early retirement. Within a year of retiring, half of them passed away unexpectedly. These were people she’d worked with for years, helping them save for what they’d hoped would be the time of their lives.

After some digging Lauber discovered that once they’d stopped working, the men had become couch potatoes. Even though they'd saved enough to fund their retirements, they’d burnt themselves out doing so, neglecting the rest of their lives.

Says Lauber: “I knew my role as a financial planner didn’t include healthcare but I started bringing a big basket of fruit whenever I visited my clients at that particular highway department. I also began asking them about their stress levels, if they were taking time to relax, and what they did for a hobby. Being rugged, manly men they looked at me as if to say, ‘Oh brother, are you kidding me?’ But over time, they began to cooperate.”

The way Lauber approaches retirement planning also changed. Instead of assuming clients needed to maximize savings — which meant working as hard as possible and maximizing overtime pay — Lauber started looking at how much money clients really needed. Lauber has tried to get clients to understand that ultimately they need to think about the big picture of their lives and not just focus on money.

Amy Jo Lauber

Back in the day, Lauber’s questioning of a client’s plans for retirement made some of her colleagues uncomfortable. But the topic is a lot more top of mind in today’s industry than it used to be.

“It took me awhile, but I eventually realized that to provide clients with the kind of advice and help I had to offer, I needed to start my own practice,” Lauber says. “So, seven years ago I went out on my own. Now that I have my own practice, working with clients to define and plan an active retirement is a very important part of my mission.”

Simple calculators aren’t enough …

… for financial projections you need robust resources, says Ilene Davis of Financial Independent Services.

When Davis got started in financial advice about 30 years ago, most of the training was about what to sell and how to sell it, with little in the way of assessing what choices were best for clients. But over the years she’s realized helping clients make the best choices involves challenging calculations, both financial and emotional.

Recently she met a couple where the wife was retired and the husband was wondering when he could join her. The big question was whether the husband should take a lump sum payout from his pension or fixed payments.

There are multiple factors to consider in this scenario, including age of retirement, life expectancy, lifestyle preferences, risk tolerance, and others.

The couple told Davis they weren’t satisfied with the projections their previous advisor had provided – the scenarios seemed to change without much explanation.

“It occurred to me this advisor may have been relying on just one software program for his projections,” says Davis. “If that was the case, I sympathized … These programs can make it very difficult to customize the scenario for the needs of a particular client.”

Ilene Davis

To help clients navigate financial options – and trust your advice – Davis says you need to have robust financial planning tools that you know well and that take all the relevant information into account.

It’s also important for advisors to be upfront about the assumptions they’re using in these calculations.

“Of course, it would help if they were also mathematically and financially adept,” says Davis. “But at minimum they should closely review their available tools and whether they adequately serve their clients’ needs.”

Don’t assume you know everything …

… be willing to incorporate ideas from unexpected sources, suggests Vincent Cucuzza of Barnum Financial Group.

A number of years ago, Cucuzza had an experience that turned out to be a gut-check for him, changing how he does business. He’d developed a client’s plan but learned that the client’s tax accountant had another — and better — idea for how to handle his situation.

For the work Cucuzza had done on the intergenerational planning for the client and his daughter, Cucuzza had consulted his in-house tax accountants and lawyers to confirm what he’d believed to be the best path forward. And they’d all agreed it was a good plan – as did the client.

But the client also sent the plan to his accountant, who after a thorough review came back with a different take.

“And that accountant was right. But we both couldn’t be right. So, you know what happened? We both looked silly and confused the client. That was not a good outcome,” says Cucuzza.

When he took a step back, he realized he’d been overconfident.

“When you successfully develop similar plans and strategies for clients, you start to think you know everything and you look for answers that conform to your experience,” says Cucuzza.

Vincent Cucuzza

In the end, Cucuzza incorporated the accountant’s advice and reworked the plan accordingly. But the whole experience was a stark reminder to reach out to all available experts – especially the client’s other service professionals.

Accountants may have more experience interpreting tax laws and making those laws work for different clients. And a client’s other service professionals are also plugged into their clients’ lives, attuned to what they need. Reaching out to those professionals can expand your understanding of your clients’ situations — and the more you know, the better you can perform.