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How to Understand Your Client's Full Financial Background

By Crucial Clips     February 20, 2019
The following text is a transcript of a portion of a speaker's presentation made at an industry conference or during an interview. This transcript solely represents the view of the individual who spoke, and not the view of Financial Advisor IQ or any other group.
Source: FAIQ, Dec. 17, 2018 

GARRETT KEYES, REPORTER, FINANCIAL ADVISOR IQ: Hello. My name is Garrett Keyes. I'm a reporter for Financial Advisor IQ. And I'm here today with John Vento, president of Comprehensive Wealth Management. John, why is it important for a financial advisor to understand their client's full financial background? And how do they go about understanding it?

JOHN VENTO, PRESIDENT, COMPREHENSIVE WEALTH MANAGEMENT: Well, it's extremely important. The reason is that unless you know the client's full financial background, you cannot possibly prescribe the right solution to their problem.

So the analogy I like to draw here is that if you go to a doctor and he doesn't examine you and he's prescribing medication, he can't possibly cure what's ailing you. Same is true with a financial advisor. What you need to do is understand everything about a client.

You need to go through a list of questions. In my book, I refer to them as the 10 Wealth Management Issues. And I have 20 questions that you would go through. From the simplest, which is "Are you living within your means?" which is covered in Chapter One, which basically helps people get on track budgeting themselves.

To the other extreme is estate planning. Now that you've accumulated wealth, what do you need to do to preserve those assets? So for every client, that's really a different situation. But step one is you need to ask the appropriate questions.

Also, you need to prepare a statement of net worth for them so you can understand where their strengths are, where their weaknesses are. Once you have that whole picture, giving advice becomes a lot easier. And you know you're going to be giving the proper advice then.

GARRETT KEYES: So what can happen if an advisor is working with a client and they don't understand their full financial picture? Are there any risks associated?

JOHN VENTO: Well, the main risk is that that client will not be properly served. And what I mean by that, just to give you an example, so if you have a client that comes to you and says "I'd like to invest $100,000," and you give them great investment advice, you may think you're doing the right thing for the client even if you have a good rate of return and create what's called alpha.

But if you didn't stop to ask the simple question, "Do you have any credit card debt?" So if this same client has $100,000 in credit card debt paying 20%, now you put this client at great risk. To invest the $100,000, you managed to earn 10% for them. Well, yes, you did a great job. But at the end of the day, you really did the client a disservice. So knowing the full picture, and only then could you really give the client the right advice.

GARRETT KEYES: Is it common in the industry for advisors to not understand their client's full financial picture or full financial backgrounds?

JOHN VENTO: Yeah, unfortunately, the answer to that is yes. Because many advisors, although they call themselves financial planners, they really are strictly money managers or investment advisors. So if your goal is just to provide investment advice and not look at the big picture, then yes. That unfortunately does happen quite a bit in the financial services industry.

GARRETT KEYES: So for an advisor that does completely understand their client's financial picture, does it aid them in providing better advice to the client? Or can it strengthen the client relationship?

JOHN VENTO: Well, number one, it definitely will make the relationship better because you're going to find out things such as what are their dreams. Do they have a daughter who may be getting married in a few years? You know, did they just have a grandchild that they are going to want to put some money away for college?

So the more intimate you are with your client and knowing everything that's going on in their life, you're going to be in a better position to serve them. Not only is it about serving them but that relationship will guarantee -- well, hopefully guarantee -- that they'll keep coming back to you as well and get additional clients from that as well.

GARRETT KEYES: Thank you for speaking with me today, John.

JOHN VENTO: My pleasure.