Kitces: Is a sample financial plan really worth it?

Among the biggest challenges advisors face is simply getting the data needed to execute a client’s financial plan. Without information to enter into the planning software, it’s impossible to ultimately make informed recommendations. While for some clients this is a problem of organization, more often the client doesn’t actually understand the value of providing all their data in the first place.

And yet there may be no more powerful tool at our disposal than a sample financial plan. I’m constantly amazed at how few advisors actually bother to show one to clients. This, in spite of them being arguably the single best way to get client buy-in both financially and in terms of the time and trust commitment to gather data and link accounts.

This highlights a core truth about creating a plan, and more broadly about relating to clients. It’s not enough to just make the data gathering process mechanically smoother. Rather, we need to prove why creating a sample plan is an essential step in building trust. The sample plan is often the one and only tangible deliverable that clients can see to judge the value of the planning process. It’s a crucial trust-building tool, and the onus is on us to show our clients that investing their dollars, time and trust in our services is the right thing to do.

Historically it’s been difficult to get clients to complete data gathering forms. At best, it’s time-consuming, and in many cases clients aren’t sufficiently organized to do it.

The latter factor can cause embarrassment; having to acknowledge openly that they don’t know their financial situation is not pleasant. Of course, the rich irony is by going through the planning process, clients become more organized.

The good news is that this organizational challenge is starting to ebb. In this digital age of planning, the next breakthrough won’t be in more efficient data gathering software, but rather in account aggregation tools. These software-based solutions will distill a process that could take hours to one that lasts mere minutes. Simply by linking their accounts to the planning platform, everything will be inputted automatically.

Some planning software solutions already have this capability. In particular, eMoney Advisor was a pioneer in using account aggregation embedded directly into planning software, helping expedite the data gathering process. And in recent years, other tools have slowly been building similar capabilities. RightCapital, for one. MoneyGuidePro has integrated with Yodlee. But even as data gathering gets easier, not all clients want to link their accounts and turn over access to that aggregated information.

Reticence to linking accounts via aggregation tools has become one of the most common complaints I hear from advisors trying to adopt all this new technology. It’s not so different from advisors struggling in the past to get clients to manually complete the data gathering forms, leading you to wonder what’s actually been gained.

For some clients, their reticence may just be related to a general cybersecurity concern. We need to explain to these individuals how their data will and will not be used. All the planning software companies have clear privacy policies, but we need to assure clients that neither they nor we will actually gain access to do anything in their accounts. It’s just about porting account balances and transactions into our planning software, so we can best execute a plan and a recommendation.

And this will actually get a lot easier in coming years because account aggregation itself is being refined. Whereas the current slate of tools function from the perspective of, “Give us your account login credentials, and we’ll go we’ll scrape the information off the screen,” the new aggregation wave will pull direct, client-authorized data feeds — without clients ever having to turn over their login credentials.

But even as we address cybersecurity, there’s a more fundamental issue that’s cropping up. As planners, we’re not doing a good job of showing clients what’s in it for them when they turn over all this data.

BREAKING THROUGH
Think about how much you earn from a typical client. Not just the standalone planning fees you may charge, but the entire compensation you earn for the planning relationship. That’s the real planning fee, as it includes the commissions you earn for implementation as well as the AUM fees you receive from the rollover at the end of the planning process.

At the end of the day, whatever your compensation happens to be, you’re not just earning it for implementing a product or a portfolio, but for the advice and plan you deliver. Remember that clients can acquire almost any investment online, whether it’s an insurance product or an allocated portfolio. There are plenty of direct-to-consumer insurance and investment providers and online portals to help them.

So roll it all into one number. For most advisors, that average revenue per client is several thousand dollars per year.

Now think about the plan that you prepare and deliver. Maybe it’s printed. Maybe it’s a PDF. Maybe it’s packaged up in a nice binder. Maybe it’s more interactive, delivered with the client in a conference room. Whatever the format, the question is whether the plan you deliver is representative of the value you’ll bring. We ask clients to pay all this money for an intangible service that has just one tangible outcome — the plan — yet we spend almost no effort trying to show clients what they’re going to get.

Obviously we can’t share another client’s plan by way of illustration, because that’s a privacy breach. Changing the names on an existing client’s plan can still leave too much identifying information that someone could potentially use to determine who it is.

A workaround for this may be to take an existing plan and adapt it to the client’s situation, such that Jim and Jane Sample are no longer identifiable. The critical point is to present a sample plan in which the client can see their own situation reflected back at them. “Wow,” they’ll think. “This person’s plan seems really well-organized. And my situation is just like theirs—I’m retiring soon, I’m worried about Social Security distributions—so this plan really is going to help me get more organized too.” Now you have a client who wants to give you the data and engage in the process.

Bottom line, have something to show prospective and new clients that they can see, touch, hold, scroll through or flip over.

I’ll admit that when I used to look at our firm’s sample plan, I didn’t love all of its pieces. We’ve been trying to improve it over the years, but the fundamental point is that most of us earn thousands of dollars of revenue from each client we work with — whether in planning fees, implementation commissions or AUM fees later. And for several thousand dollars, we have to figure out how to make both sample and actual plans look the part. In sum, appearances matter.

Of course it takes time and effort to produce nicer-looking materials, and there’s no guarantee that a client will read the plan in full or even crack its spine. But the up-front work of creating a good, polished template that can be used and iterated on for future clients is time well spent.

The point remains that the prospective or new client has a major decision to make at the start of the planning relationship: “Is this planning thing really going to be worth all the dollars it’s going to cost me?” It’s the fundamental question of our profession, and one that’s hard for most clients to evaluate.

Planning is an intangible service, one where we tell someone who may be meeting us for the very first time, “Trust me. In the long run, you’ll thank me.” The only tangible thing they have to go on is a sample plan. Aside from any recommendations that might’ve brought them through our door, it’s what helps them best determine whether this process — and this relationship — will be worth the cost and time required for it to be successful.

That may not seem fair, given the holistic value of what we provide; the success or failure of our prospecting shouldn’t be determined by a single sample plan deliverable. But the reality is that it often is. That plan really does bear most of the burden in demonstrating to the new client our worth. If you don’t even have one, that’s as good an indication as any as to why clients may not be buying in.

So if you’re struggling to obtain account data from clients or to link up account aggregation tools, it may mean that your clients are not seeing the whole value of financial planning. I know it’s hard to describe this value. It’s something we collectively struggle with. But the starting point is a sample plan with a polish and professionalism that reflect the thousands of dollars and hours of time that the client will invest in the process.

And if you don’t have a sample plan or one that properly conveys the expertise you bring, maybe it’s time to sit down and work on one. That’s your homework. Because the truth is it’s not enough to know that you’re worth it. You have to show prospective clients that these somewhat tedious upfront steps will be worth their time and investment in both dollars, hours they’re going to invest and the trust they’re going to hand over to you. We have to honor that by showing them what they’re going to get.