“I am 48 years old and intend to stop work in 2020. What is the retirement corpus that I need to accumulate, if my expected monthly spending is rupees one lakh?” “How much do I need to save on a monthly basis to fund my son’s education after 10 years, the expected cost of which is $ 50,000 annually for 4 years?” These are typical questions that planners get from their clients; and if financial planning is a science, the answers of different financial planners should be alike.
Instead, there are counter questions the planner has to answer. “What is the expected rate of inflation from now till retirement? How much over inflation will you earn after retirement? What is the life expectancy to be assumed? Do you intend to leave behind a corpus for my surviving family members? What is the expected currency movement of the Indian rupee versus the US dollar?”
Can anyone predict what the average inflation rate will be over the next 10 years? We all know that this cannot be determined precisely; but does that mean that we ignore this factor? What is needed is an educated guess, and the ability to modify the assumptions and determine the impact on meeting of each financial goal, especially as it gets closer to the target date. And, more importantly, the ability to have conversations with the client is critical.
Conversation skills are not taught in the CFP (Certified Financial Planner) course, neither in most other professional qualifications that require technical skills. However, planning is not just about meeting financial goals but also about client relationships. Any opportunity that one has to create conversations is to be grabbed in order to get one step closer to a deeper relationship.
It is important for the planner to understand the “why” of client behaviour. He must seek opportunities in every interaction. When the client fills in the checklist and lists his goals, understanding their importance is probably more crucial in cementing the relationship than intricate calculations and colourful graphs.
For example, taking the questions from the start of this article, one can try and understand why the client intends to retire at the age of 55. Is it a greater cause that he seeks to pursue, or does he intend to spend time with his ageing parents in his village? Will it be after his children have started their education overseas, and will that bring a sense of relief? The conversation may then veer to finding out that the client is not enjoying what he is doing – if he was able to find something of interest today, he may be inclined to working till the normal retirement age of 60. What does his wife think of this? Does she share his vision to spend time in the village, or is she a “city woman”?
Registered investment advisors are now required to administer risk profile questionnaires. The purpose of doing so is not to find out a score and bracket the client into aggressive-moderate- conservative alone, but to consider how a client is likely to behave in different financial circumstances. If you ran the questionnaire with his spouse, you may find diametrically opposite profiles. This allows you to have in-depth conversations as to what is the risk capacity better suited to meet the common financial goals of the family. The planner may have to consider creating two separate portfolios with different allocation for reporting purpose, without taking his eye off the ball in what is required to meet the family goals.
How does a planner hone his conversational skills? Here are a few tips that have worked for me.
Reading – Since my intention is to be aware of a range of topics, speed reading works better for me. The tendency is to browse articles, posts and thoughts off the internet rather than read a book from cover to cover.
Sharing – When meeting in planner groups, I have not hesitated in sharing my experiences. This allows me to ask more questions from planners who have been in situations which I too could get into some time in future. A fellow planner understands the space you operate in, and you can have a frank discussion without being judged or threatened. You just need to shed your inhibitions and ego.
Listening – In the past month, I was fortunate to participate at two outstanding events: the congregation of Asian financial planners in Malaysia and the Council of Financial Planners’ convention in Bangalore. A specialist geriatrician made me open my mind to the issues that my clients will face or are facing in their old age; a session on customer centricity explained why I reacted in a particular way to some clients; and the focus on our fiduciary relationships with clients came to the fore in the session on “dharma” where I understood we alone bear the consequences for our actions.
Conversation skills are essential to ensure more engaged clients. Are you investing in yourself to acquire that skill? The time to start is now.