Is planning just like banking?

By Ed Morrow

Intl. Assoc. of Registered Financial Consultants


“But planning is just like banking.” I cannot tell you how many times I have heard this. The first time was in the early 1970s, as the profession of personal financial planning was just emerging. A landmark study by the Stanford Research Institute had indicated that prospective planning customers had a lot of confidence in the security and probity of banks. This encouraged many banks to attempt to enter the field. Most did it initially through their trust departments, others through the retail platform.

In most cases, it was a failure; however, sometimes it was successful. One Midwestern bank realized that the loan officers who dealt with small- to medium-sized business owners were really close to their customers. They had seen a few financial plans that were brought in by customers when applying for loan increases. It was obvious that the loan customer whose personal financial house was in order would be a much safer lending opportunity.

A good loan officer can nominate prospects for financial planning, and might participate in the implementation of a plan, but writing the plans is not a skill they possess or want to acquire. However, they are an excellent entrée to logical planning customers.

Rather than grow a planning department, some banks partnered with an experienced planning firm. Client meetings were conducted in the bank, introductions having been made by the astute loan officers, each of which received additional compensation as an incentive. Most plans recommend the use of trusts and various bank “products” such as certificates, and loans are routinely placed.

It is customary for a highly qualified financial planner to charge a fee for the preparation of a plan. The data collection and the preparation of the plan are very time intensive. The best planners have always known that planning is not price sensitive, it is quality sensitive. But banks have often taken the position that the plan should be given away for free as an inducement to secure other financial relationships, such as the sale of products, the lending of money, and the provision of trust and estate services.

This is not surprising, since plans have often been treated as a service that should be delivered for free, as a way of capturing more business. This started with the life insurance industry. The companies had consistently indoctrinated their sales force with the idea: “You do all the analysis, the retirement, disability, estate and survivorship planning for free, and then you will have earned the insurance sale and will be well paid.”

Likewise, many securities firms offered “off the shelf” plans with no individualization at ridiculously low fees — some even under $200. Their only pay-off was an account to be actively traded.

But the most desirable clients require an extensive amount of effort. These are small and medium business owners, well established farmers, professionals, and corporate executives, and especially pre-retirees. A lot of work has to be done: extensive fact finding, preparation of personal balance sheets and schedules, needs analysis, research on tax issues and alternative methods of addressing their problems. When, and if, they finally buy insurance, annuities, investments and other bank products, someone still must go through all of the disclosure and service of the purchase. These clients will ask, “What do I owe you for all this planning?”

It wasn’t long before insurance agents were leaving those captive life insurance companies and forming independent financial planning firms. The same was taking place among the major wire houses. They charged fees, developed plans, and took over the management of over $1 trillion.

One substantial agri-business owner said, “Your tax advice alone has saved me many thousands. The fee of $5,000 is far exceeded by the value of the planning service.” He still bought a lot of insurance and offered six referrals. It’s obvious that clients expect to pay.

Closing the fee-based client engagement is not difficult from inside the structure of a well-run and respected bank. Yes, the interview must be carefully structured, but that is easy. The physical environment inside a bank is a superb setting.

The focus of financial planning cannot be that of a marketing tool. It is a professional service. However, the closing ratio for the policies and investments recommended will approach 90 percent and gradually, all the business will be brought inside. A bank wishing to offer financial planning must adopt a posture — no free analysis. If the prospect will not agree to pay a fee, then move on to someone else. No free lunch!

Some senior officials may admit they don’t comprehend the plan reports and the advisory philosophy. The institutions certainly have to change their attitudes regarding compensation. Good planners gradually have a substantial and rising income. This must be considered aside from the general compensation structure of the bank. They must be treated more like an outside attorney hired to represent the institution in a potentially big-ticket law suit.

Personal financial planning can be easily offered as a corporate perquisite — a benefit for executives, senior managers and board members. There is little price resistance. The public now accepts financial planners. The occupation of “financial advisor” is now ranked consistently among the leading five most satisfying careers by Jobs Almanac. The position has prestige and respect. However, years of financial planning have made clear 12 things:

1. You must have a good sample plan to help the prospect understand what he will be getting for the fee, and why the work is so extensive as to justify a fee.

2. You must make a formal presentation of your services. Initially, this featured slides; now it is done in PowerPoint. But the entire first session must be thoroughly scripted, with many items added to counter, in advance, logical objections and any reluctance to paying a fee.

3. You must have a planning process chart that describes how you gather information, assemble your plan, and provide service. Clients are comforted to know that you are following established and professional procedures.

4. Gathering information for financial plans is far more comprehensive than selling a product. You need well-designed forms. You must gather lots of “soft” attitudinal data. You should offer clients a documents and records archive system as a way of emphasizing the importance of getting all the data.

5. You must have a written fee schedule, with options for persons of lesser degrees of affluence.

6. Prospective clients still have some skepticism. The best way to overcome this is to have a satisfaction assurance certificate. If they aren’t pleased, they get their money back. This is very effective in closing the new client engagement.

7. You must have a way to produce plans on a cost effective basis. This means software that is customized for personal planning. Spreadsheets won’t do.

8. The plans must include graphics. This is how people absorb information best, and it often leads to swift decisions. Nothing has greater impact than a large red area labeled “cash Shortage.”

9. The plans must be carefully reviewed using checklists to avoid the “sins of omission” that can easily take place as the plan writer focuses on his or her own area of interest or expertise.

10. Plans must conclude with an implementation checklist — all the many steps being recommended for the client’s consideration. Most of these are not items the bank will be selling. This adds credibility to the items for which compensation will be received.

11. You must have a client relationship management system. As the business progresses, the sheer volume of record keeping and communications becomes monumental. You will need a system, and that system must be populated with the letters, agendas, checklists and forms that your practice requires. There is no time for writing these items from scratch. You need to be able, in just a matter of seconds, to “pick it, edit it, mail it, and file it.” That is what CRM systems do. Because planning is a distinct service, the planning CRM should be separate from the banks standard CRM system.

12. You must alter your image from that of having a product/sales focus to one of providing financial services and advice. This is not difficult or expensive, but it does require close attention to the smallest item that will weaken your brand.

In 1988, I did a speaking tour in Australia for their emerging associations, presenting a full day symposium in the six major cities. At each one, I would hear that old refrain, “But, you can’t charge fees here in... Australia” However, I showed them how to do it, and the creative nature of those plan writers took off. Today fee-based financial planning is the norm in Australia.

It has become very clear over the years that:
  • The market for financial planning is universal. Everywhere, people are recognizing the need for assistance in achieving financial security.

  • No one, in any country, can rely on their government for financial support.

  • The market for fee-based financial planning is not price sensitive, but it is very quality sensitive. You must present and perform in a superior fashion.

  • The initial presentation is critical. If you don’t do that well, nothing else takes place. Far too many would-be financial planners concentrate on portfolio analysis, estate planning, or complex software, when what they really need to learn is how to secure clients.
The great majority of financial planners started out as life agents or stock brokers, and they moved into planning to counter the perception that life insurance or securities trading was a high-pressure, low-prestige career. They had been conditioned by the companies to deliver their advice free, and to press for the product sale in order to be paid. In actuality, greater sales result from planning, but the home office guys, including bank senior officers, have never delivered a financial plan, so how do they know? These sales reps-turned-advisors tend to charge too little, and some even offer to waive the fees. A big mistake.

Raising the fee raises the respect, and it obligates the financial advisor to do the very best for the client. As a financial advisor, when the plan is sold properly, there will be handsome payments received, and there will be subsequent portfolio fees and product commissions. That business will have been earned by a good plan, well developed and effectively delivered.

Preconceived notions can be very dangerous. How we have always done business in the past is no indication of how the most successful organizations will expand in the future. If a bank does not offer personal financial planning, it can only expect erosion of client assets to other organizations.

There are agents, stockbrokers and bankers in other countries that will say, “The culture of our society is different. You can charge fees in the U.S., but people will not pay for a plan here in...” But citizens pay for the advice of lawyers, accountants and doctors, don’t they? There are all sorts of consultants in every country who charge for advisory service and then offer to assist the client further with products or some form of fulfillment. The only reason a person will not pay for a financial plan is because it simply hasn’t been presented properly.

The future is very bright for the institutions that successfully make the transition to financial planning as a professional service, not as a loss leader to attract other business. This is a future that is financially bright, and emotionally satisfying. Imagine, no pressure to prospect or perish.