Originally posted at Financial Advisor, by Mitch Anthony.
Given the choice of addressing either an effect or a cause, a strategic thinker would always prefer the latter. A person constantly putting out fires without understanding the cause has a limited ability to control situations.
Yet I’ve observed that the majority of financial advisors seem to be highly reactive rather than proactive with most of the life transitions their clients will face. If you listened to them, you would think there are only a handful of life transitions to plan for, namely children’s college, retirement, home purchases and death. Not surprisingly, this thinking often reflects the products financial services manufacturers offer: insurance, savings vehicles and investments.
But as we all know, there is much more to life, and we ignore the other things at our peril.
Divorce is one obvious example of something we don’t prepare for. We also don’t prepare for a child getting married or empty nest syndrome, for aging parents, a child’s illness or a job loss. These challenges and life transitions can be put into a few categories:
Personal and family transitions: When a child gets married or goes to college, or a parent faces empty nest syndrome;
Health transitions: When we have to deal with aging parents, recent deaths or the illness of a child or spouse;
Work and career transitions: When we lose a job or when we sell a business or expand it;
Retirement transitions: When we fully retire, change residence, trigger distributions, etc.;
Financial transitions: When we experience a significant loss or gain—taking hold of an inheritance, for example, or refinancing a house;
Giving transitions: When we give to charity or give gifts to grandchildren.
Clients feel vulnerable during these changes in their lives, and their judgment is likely clouded. That underscores the need for planners to be proactive and pre-emptive in their approach. An important question to ask: “When are your clients most likely to make self-sabotaging moves, to let emotion dictate over logic or to behave in a manner that is counterproductive?” Most likely, it’s during these high-impact life passages.
A major bank conducted a study specifically on the retirement transition and when advisors should begin the conversation about that transition with clients in order to ensure that assets carefully cultivated would stay put and not be squandered. The bank’s conclusion was that planners should start the dialogue four and a half years ahead of the actual transition to secure their own places in client minds as the go-to professionals.
But those familiar with my “Return on Life” concept should know instinctively by now that the life aspect must be fully appreciated before the financial aspect can be addressed. Unfortunately—or fortunately, as your personal understanding may go—most practitioners have their eye on the money in motion (the effect) and not on the life transition (the cause).
A personalized financial plan must address the transitions unique to each client. It is better to prepare than to repair. Much self-sabotaging financial behavior could be avoided by proactively addressing life transitions. There is a strong link between a life in transition and money in motion.
Over the past two decades, my organizations (the Financial Life Planning Institute and ROLAdvisor.com) have been conducting studies on the life transitions affecting clients’ financial well-being. Their research identified more than 60 such transitions and also unearthed the financial implications for each. Some of the research comes directly from financial planners themselves; the Financial Life Planning Institute has aggregated data over the last decade on a life transitions checklist where clients indicated to their planners the specific transitions going on in their lives.
In spite of market meltdowns and turbulent world events, the most frequently indicated transition was one that few planners ever discussed with their clients before using this planning tool: their concern about aging parents. The unintended consequence of the aging revolution is that many boomers are being sandwiched—forced to act as shepherd for both the preceding and following generations.
More To Life
There is much more to life than college, retirement and death—and we have to start practicing in a manner that acknowledges this reality. To that end, I’ve designed a tool to facilitate a dialogue about life transitions called the “$Lifeline.”
This is designed as a collaborative conversation between advisor and client. The advisor helps clients map out the approaching transitions on their personal lifelines and then begins, one by one, to address the financial implications of each, as well as devise a strategy for addressing those implications.
The advisor begins this conversation with a nugget of wisdom, to wit: “In my X years in this business, one of the most important observations I’ve made is that many people fail to prepare ahead of big life changes and end up making mistakes in those transitions. We’ve decided ‘It is better to prepare than to repair,’ and we want to take a more proactive approach with our clients.”
Then you can help them, at a very personal level, begin to chart out their own lifeline. In this discovery process, clients will learn that:
- Each life event can affect them financially.
- There is value in being ahead of the game of life.
- Not every transition announces its arrival. There are expected—and unexpected—life transitions.
- Having a good planner is about more than investment returns.
The last point is crucial in an age of eroding and vaporous value propositions. There are many significant passages and changes in life—and money is part of each chapter of the story. The most powerful value proposition going forward is for clients to understand that they need a trustworthy advisor to help them navigate the plethora of financial decisions they will need to make in life.
These transitions are typically dealt with one at a time, based on their chronology or urgency. What this means for you, the advisor, is that you’ll always have something of interest to discuss with your clients: the next chapter in their lives. Clients never get tired of this topic. Redundant market and investment return reports … well, that’s another matter. Talking to clients about their unfolding story is the highest form of personalization possible.
And the process of financial advice should become more personal to every client if we hope to retain that client and prove worthy of compensation. The clients need to sense great value in every conversation with you. If you’re not addressing these matters, you’re taking an unnecessary risk. Clients will be drawn to somebody who is comfortable with these talks. The value of proactive life-centered planning is inestimable for the client and for the good of your practice.
The same rule that applies to the life of the client applies to the life of the advisor: It’s better to prepare than to repair.
Mitch Anthony is the author of the industry best seller StorySelling for Financial Advisors and the groundbreaking The New Retirementality (now in its fourth edition). A highly sought-after speaker, Mitch is widely regarded as a thought leader and pioneer in Financial Life Planning