The Advisory Career

Tools Of The Trade

Things just turn out better with the right professional

by Clifford P. Ryan CLU, ChFC, RHU and Stephen N. Mathieu ChFC, CLU, RHU

Mr. Ryan is the principal of Elder Planning Advisors of Maine, Inc. He has served on many local and national boards and committees involving seniors’ and retirees’ issues. Cliff has written several articles, presented educational sessions to a variety of public and professional audiences, and has appeared as a guest on numerous radio and television programs. He has been an MDRT member for 25 years and has qualified for Court of the Table three times.
Mr. Mathieu is the founder and President of Legacy Financial Solutions, Inc. He is a licensed Life Insurance and Annuity Broker in various states and an Investment Advisor Representative for Legacy Financial Solutions, Inc. As a life and qualifying member of MDRT, Stephen has 11 Court of the Table and one Top of the Table qualifications.

Say you’re going to play in the Masters Golf Tournament and you can choose between having Phil Mickelson’s golf clubs or his ability. Which would you choose? While some may immediately say they’d like nice golf clubs, you should pick Mickelson’s ability. No matter how great the tools are, placing them in untrained hands won’t yield adequate results.

As a professional, Mickelson recognizes that each club serves a different purpose and understands how to use each tool in his bag to maximize his results. The same is the case when it comes to financial DIY-ing versus hiring a financial professional. In financial planning, there are also different tools that are used for different purposes.

Only an experienced financial professional knows how to use these tools to their full potential.

A recent study by the Million Dollar Round Table’s (MDRT) highlights why engaging a financial professional is so crucial, showing the gaps in confidence and comprehensive planning of those who choose to DIY their personal finances. Whether that professional assists them with comprehensive planning, situational planning needs, or insurance or investment product implementation, things just turn out better with the right professional involved.

What’s Wrong With DIY-ing?

Any financial professional has no doubt seen a wide variety of self-styled plans over the course of their careers. While some are not as bad as others, very few can make the grade by a professional’s standards. In thinking about the fallacy of financial DIY-ing, consider how most Americans file their tax returns.

The Internal Revenue Service (IRS) says that anyone with a basic reading level can understand and complete their tax return forms. Even though the IRS claims filing tax returns is easily accomplished, most of us disagree and choose to hire a professional for assistance. Why is it that people understand they cannot do their own tax returns, but think they can navigate the complexities of a proper insurance plan or manage their own 401(k)?

For whatever reason, it is widely believed that individuals are able to plan for themselves. Most people who take this path try to self-educate and then move ahead with tax strategies, writing their own legal documents, and determining their appropriate investment allocations. Some work on the big picture of their financial plan and then choose an “a-la-carte” method of selection with various legal, tax, or financial professionals to flesh out the details of their plans. While some may make out reasonably well in certain areas, lack of knowledge in others may lead to major problems in the long run. To put it plainly, these DIY-ers often don’t know what they don’t know.

The Dangers of Working Without a Professional

Several data points from the MDRT study help demonstrate how dangerous it is for consumers to craft their financial plans without help from a professional. For example, only 36 percent of millennials are participating in their company’s 401(k). The U.S. government currently has a high national debt and a large amount of unfunded liabilities. Because of this, there will no doubt be an increase in tax rates in future years. For millennials who are currently in a lower tax bracket, it is critical for them to start saving now.

The data also shows that many people don’t understand the actuarial science involved in retirement. Employees used to have a guaranteed pension for life so they never had to worry about running out of money in retirement. But over the past few decades, America has gone from a defined benefit society to a defined contribution society which can lead to planning up to retirement, but not necessarily through it. Many people simply save what they believe to be an adequate sum of money and hope that it will last. These DIY-ers put money in bonds and stock and mutual funds, but none of these options can guarantee that they won’t run out of money. Without the guidance of a financial professional, they would never know about immediate annuities or the potential impact of market risk or interest rate risk on their retirement.

Building trust with clients is absolutely critical in moving the 79 percent of Americans who have never hired a financial professional towards doing so

Another worrisome statistic is the fact that only 46 percent of Americans have an emergency fund, indicating how few people have liquidity when it comes to their personal finances. The problem with less than half of Americans having an emergency fund is that they are woefully unprepared for possible upheaval in their lives. If they think their retirement plan can also function as their emergency fund, they are mistaken. A financial professional could put a high cash value, low death benefit permanent life insurance policy in place of an emergency fund so that the client is prepared for anything life can throw at them.

Building Trust through Education

The toughest part of our jobs as financial professionals is bringing people through our doors. How can we convince those 79 percent of skeptical Americans that hiring a professional is worth it? There is also the obvious level of wariness that is laid at the feet of professions like ours. Much of this comes down to lack of financial education of the public. It is natural to be suspicious of things we don’t understand. We see this in all walks of life, from distrust of lawyers to guardedness with auto mechanics. If the consumer doesn’t know how things work, how can they feel comfortable that they are being treated fairly?

The best solution is to assist prospects and clients in understanding the concepts and complexities of the work we plan to do with them. When the client understands the conceptual nature of different areas of financial planning, it’s easier for them to get involved in the planning and decision-making processes. Education unloads the suspicion factor and also helps them see that these subjects are much deeper than they had initially believed them to be.

When it comes to implementation, they rely on us to translate their needs into outcomes. Their informed input can help to guide us, and their involvement cements the plan as their own. However you can do it, education is a wonderful way to connect and instill confidence in your clients. As they feel more confident, they will respect your help more and may even become advocates for your practice.

Other Ways to Connect with Clients

Another best practice is striving to be transparent and disclose all material aspects of our dealings, even beyond what is required by regulation. Full, fair disclosure is an excellent way to help individuals move beyond societal mistrust of financial service professions. Clients will never know all of the minute details of our regulatory regimen, but they should understand sufficiently to move forward with the planning without the worry that something might be going on that could hurt them. Helping clients to understand your business model, your regulatory responsibilities to them and compensation methods will only make them feel more comfortable in the long run.

Keeping in touch with clients to stay top of mind with them throughout the year is another important element to building trust and confidence. Sitting down for a comprehensive annual review to make sure that their plan is still in line with their objectives is a simple way to reinforce your commitment to making their plan work for them. In addition, provide touchpoints throughout the year by reaching out to clients with handwritten notes, birthday or holiday cards and newsletters.

Building trust with clients is absolutely critical in moving the 79 percent of Americans who have never hired a financial professional towards doing so. The more the general public understands what we do and why our expertise is essential, the easier it will be for us to bring in clients and help them work towards the healthiest financial future possible.

We can’t help them until we can fully engage them. Once they trust us and respect our capabilities, they will come to us for our expertise. ◊