Client centricity, developed through dialogue rather than through number crunching, has been a major theme in financial planning recently, and builds a case for a lifestyle-orientated approach.
This begins when a client first contacts a financial planner and for most, this is at the time of their retirement. Typically, the leading question they will ask is whether they have enough money for their golden years, says Gavin van Dyk, director, Fiscal Private Client Services.
Soon-to-be retirees want to know if they can fund their existing lifestyle for the rest of their days. Van Dyk explains that the question is often followed by a statement – with clients saying that they want the “best” possible investment return. Both the question and the statement lead to important discussions. “For me, the essence of the discussion is not about the money. It is first and foremost about the people or person asking for my advice. A financial advisor cannot determine if their clients have enough to provide for their retirement without having a clear understanding of what matters to them, and what their preferred lives looks like.”
Before undertaking a financial needs analysis and/or considering possible investment options the planner needs to fully grasp the client’s aims, circumstances, aspirations, and understand their concerns and fears.
So, what does a lifestyle-orientated financial plan look like?
Step 1: Formulate lifestyle aspirations
During the initial stage it is important for a financial planner to listen and come to understand the client’s story. Typically, this can be done by way of appropriately designed questionnaires and one-on-one meetings (whether in person or via video linkups). Next the planner and client need to collate, discuss, and review all relevant financial and fiduciary information and documentation.
Step 2: Develop a client-centred financial plan
Having heard the client’s story and gathered the necessary information, the financial planner is able to undertake a financial planning analysis and consider possible alternative courses of action which are based on the client’s desired outcomes. This leads to discussing the statement regarding the “best” possible investment. Van Dyk refers to it as the most appropriate investment for the client and their own circumstances. It is not only about returns, but about the client’s personal required rate of return and the amount of risk taken to stand a fair chance of achieving the return in a reliable manner.
In addition to this, the financial planner needs to help the client understand the differences between different investment vehicles and the flexibility/accessibility, security, costs and taxes related to each when making the investment, during the investment and when exiting the investment. Once the client understands their options and the alternatives have been evaluated, the client’s personal financial plan can be prepared.
Step 3: Implement the financial plan
Van Dyk explains that by this stage the financial planner and the client have built a good rapport and the client generally feels empowered and informed. All of what has gone before certainly has meaning and purpose but is only the initial stage within the financial planning process. From here, the financial planner needs to guide and assist the client in implementing their financial plan.
Although most clients will be quite ready to implement their financial plan at this stage, there will be those who cannot bring themselves to do so. There are many factors which may hinder or prevent a client from acting and these should be respected. Further discussion and engagement with a client may be required.
Step 4: Review progress
Life happens and the world around us changes. Reviewing the financial plan and if necessary, revising it, are important. That said, the review process starts with the client and the most recent chapter of their life which will be the main reason for making any changes to their financial plan.
“In following a client-centred approach, clients are able to articulate their dreams, hopes and fears, feel heard and, together with a financial planning professional put together a financial plan which enables them to live the best life they can, given the resources available to them,” says Van Dyk.