If you asked yourself and others the two questions from last week, you realized everyone has the same answer for number one. What do you first look at when you open your bank statement? When a person opens their personal bank statement, the first thing they look at is the BALANCE. As individuals we are concerned with what the balance is in our account. This is the first distinction between clients and advisors. The client looks at the balance and the advisor looks at the holdings. The advisor is concerned with issues like: is this something we like or not, is it properly allocated or not, is the portfolio diversified or not, is there something we need to adjust or not. These questions then determine the agenda for any conversation with the client. This is the First Cause of miscommunication and misunderstanding.
The second question, "Why is that item you look at important?" is where the second distinction is made between clients and their advisors. It is also where the relationship is derailed. Why do clients look at the balance? We discover it is for none of the reasons the advisors are questioning above. Everybody looks at the balance to know how much they have to SPEND, either now or later.
If you are living close to your budget then the balance represents whether or not you can pay your bills this month, if you are a little better off then you are wondering whether you can take the vacation you planned later this year. And if your are well off you are looking to see if you are still retireable and if your lifestyle will be maintained and enhanced in the future.
In every case the client is NOT concerned with the money, but with what the money will BUY.
This is the Second Cause of miscommunication and misunderstanding.
This is the biggest mistake in the financial service industry. The industry is concerned with the money. They want to create financial plans and grow the investments forever, while clients are concerned with what money will buy. Clients want a Spending Plan, not a financial plan. They want to maintain and enhance their lifestyle, not their investment portfolios.
These different perspectives create a large disconnect between the client and their advisor. One is talking about apples and the other is concerned with oranges. This problem is easily solved. Next week we will see how to step through a conversation to connect with the client's concerns.