"Don't allow the client to become performance driven. Chasing performance numbers can counter the logic behind money management."

To Build Trust, Leave Nothing to Chance

By John Bowen

The key to building a hugely successful asset management business is to develop great relationships with clients—intentionally through the Investment Consulting Process. This effort will give you a significant competitive advantage.

The most successful advisors start relationship building, on purpose, at the very first meeting. They follow a scheduled series of meetings designed to build that trust, step by step. The key to our strategy is to leave nothing to chance.

The Presentation

Your goal at the first meeting is to qualify a prospect, to determine whether he or she is a good candidate for your services, and to establish trust immediately so the prospect will want to proceed to the next step.

An effective first presentation can be accomplished one-on-one or as part of an investment seminar. If you decide to follow the seminar approach, team up with a good speaker who shares a target market with you, and share expenses and promotion. It's easy to find CPAs or attorneys who share your market. By teaming up, you not only benefit from having another good presenter and sharing expenses, you gain credibility from each other. Additionally, your co-presenter can increase the number of attendees.

Many financial advisors are taught to sell their prospects something first, then to solidify the relationship. Unfortunately, you only have one time to make a great first impression. If you take this traditional approach, you immediately position yourself as a salesman. We believe that by focusing on uncovering a client's needs, objectives and values, you become, instead, his or her trusted financial advisor—a much better position.

We balance our first presentation by first uncovering our prospect's values, then presenting the key concepts of our investment strategy and how it relates to those values. I like to begin by walking prospects through the five key concepts of Modern Portfolio Theory, illustrating the building block format of how that methodology can be implemented. We then show the prospect, if we can assist them, how implementation of our strategy has a higher probability of addressing their needs, objectives and values than other approaches.

We then discuss drafting a personalized Investment Policy statement (IPS) for that individual. This is the time to set up the next appointment. Explain that the goal of the next meeting will be a fact-finding interview to gather accurate information for designing an investment policy statement tailored to his or her specific needs.

Don't rush your client or prospect. Modify the speed of your presentation to correspond with the recipient's rate of understanding. Money management is too complex to explain quickly. If you see eyes glazing over, slow down. You can make a presentation in fifteen minutes, but some prospects need more time to assimilate the information.

Don't allow the client to become performance driven. Chasing performance numbers can counter the logic behind money management. Point out that empirical evidence clearly shows that attempts to beat the market by buying performance result in inferior returns.

At the close of the presentation, walk your prospect through the steps that he or she will encounter in working with you. Explain that the reason most of us are uncomfortable when making any major decision is that we do not have faith in the integrity of the process. Clearly articulate each step of your investment process.

Repeat at the close of the first meeting that the second meeting is the fact-finding session that will lead to the written complimentary personal investment policy statement. The IPS will clearly illustrate where your prospect is now, where they want to go when, and how to achieve those goals based on their risk tolerance. Explain that it is your policy that no investments will be entered into at that point. Your goal is to establish a life-long relationship. Remind your prospects that an individualized complementary written Investment Policy Statement will result from this second meeting. When presenting to a group, invite all members of the audience to set up this second personal meeting with you.

The Second Meeting (The Fact-Finding Interview)

Your goals for the second meeting with a prospect are to define his or her needs, objectives and values, and to determine that individual's current financial position. Make it clear to the prospect that you are collecting information in this meeting in order to write a comprehensive Investment Policy Statement tailored to his or her specific needs. Both for your potential client's benefit and your own, you should never sell a specific investment plan or instrument until you understand that particular person's needs, objectives and values.

Send the prospect a letter prior to the second meeting. In the letter, request that the person bring all readily available financial information that might relate to asset management. This would typically include the last two years' income tax forms, recent financial statements, bank statements, mutual fund statements, brokerage statements, life insurance policies, employee benefit statements, plus any wills and/or trusts. Also ask the prospect to bring in any additional information that might be helpful in better understanding his or her financial picture.

In our training workshops for advisors, we are often asked how to get prospects to bring this information to the meeting, particularly if the presentation and fact-finding meetings are combined. These are the only two meetings that we ever recommend combining. The way to get prospects to bring in the information is quite simple: Ask. Tell them that you value both their time and yours and that to make the most productive use of both and to develop a professional IPS, you need to know as much as possible about their financial situations. Without this information, you cannot possibly do a high quality job. Never lower your standards.

If a prospect feels uncomfortable bringing in personal financial information to the fact-finding meeting because he or she has not committed to working with you, tell that person to bring it in a briefcase just in case. After a preliminary discussion, if you do not both agree that there is enough basis for doing business together, stop the meeting right there. On an extremely rare occasion, a prospect may still be unsure. Since you cannot properly determine if you can add value without this information, do not continue to work with that prospect. More likely than not, this is an indication that the person will be a difficult client down the road.

After reviewing all information necessary to complete the IPS with the prospect, schedule the next meeting. Go over the investment management process as a whole at the end of each meeting. Point out where you currently are in the process.

The IPS Meeting

Present your prospect's Investment Policy Statement and summarize your recommendations. You may wish to emphasize certain features of your program that are most relevant by going into greater detail. At this point, you should discourage immediate action. Instead, suggest that your prospect take the material home for review. Set up a fourth meeting where you can answer any questions and, if appropriate, set up accounts. In delivering the best for your client, money management can be designed to be simple, yet personal and comprehensive.

On occasion, a prospect will want to invest immediately after the IPS presentation. By not taking the account until after the prospect has a chance to review everything, a better long-term relationship is established. From the onset of the investment management consulting process, the prospect is informed that no financial decisions will be made until the "If Appropriate" meeting. This puts prospects at ease and allows them to focus on the overall process of working with you to solve their financial needs.

Creating an investment road map is an essential step in successfully managing client expectations. You must also take full responsibility for a client's investment portfolio decisions. Being responsible, however, does not mean that you need to become a bona fide expert in portfolio theory and make all the difficult asset allocation decisions yourself. Instead, the written policy statement will enable you to better define your client's investment expectations and put you in a position to decide how best to implement his or her asset class portfolio.

Creating an IPS embodies the essence of the financial planning process: Assessing where a client is now, where he or she wants to go, and developing a strategy to get there. Having a policy statement motivates a client to become more disciplined and systematic, increasing the probability of satisfying investment goals. It also serves you well in the differentiation strategy of becoming that individual's trusted advisor.

An IPS should include the following seven areas of discussion:

1. State long-term needs, objectives, and values clearly and concisely.
2. Include values from a "What is important about money to you?" discussion.
3. Define the level of risk a prospect is willing to accept.
4. Establish an expected time horizon.
5. Determine the rate of return objective and select asset classes.
6. Document the investment methodology to be utilized.
7. Establish a strategic implementation plan.

Establish the means for making periodic adjustments to the portfolio as needed. We re-optimize our clients' portfolios quarterly. The IPS creates a benchmark to measure investment portfolio performance. If needs and objectives have been clearly defined, it becomes much easier to determine how the portfolio is performing relative to these.

The "If Appropriate" Meeting

By the fourth meeting, the prospect ideally becomes a client. In preparation for the meeting, you should have all the paperwork complete, based on the assumption that the prospect is going to move ahead. Begin the meeting by discussing the agenda, review the step of the investment management process, review and answer any questions regarding the IPS, and discuss whether you and your prospect think it is appropriate to move ahead with the investment program.

Ask your prospect if there are any other items he or she has that should be added to the agenda. Ask the prospect to voice any objections. Fight the urge to address objections immediately, and simply add them to the end of the agenda. In most cases, you will address these as during the IPS review.

Proceed with your agenda. If the IPS is satisfactory, ask the prospect to acknowledge the formal beginning of your business relationship by signing the paperwork you prepared beforehand. This sets the stage for the next meeting in forty-five days.

The Forty-five Day Meeting

Before the forty-five day meeting, send the new client a notebook containing a copy of all the paperwork, including the IPS, and sections set up to receive your client's copies of upcoming communications. This notebook should be designed for a five-year period and will help your client think long-term. Advise the new client to bring all material received from the custodian to subsequent meetings so that you can help organize the information within the sections in the notebook. Show your client how to read the various statements he or she will receive, and where to file them in the notebook. After this, quarterly meetings should be scheduled as a matter of course.

The Quarterly Meeting

These meetings are an opportunity to resell the investment process and show just how the investment process is working. Continue to educate your client not to chase performance numbers. Explain again how attempts to beat the market by buying performance most often result in costly mistakes. This is also an opportunity to uncover new changes in your client's financial situation and to make adjustments.

The way to develop great relationships with your clients is to do it on purpose. Create a system of contact meetings, explain the steps of the investment consulting process, and discover your clients' individual needs. In this way, you'll not only build trust, you'll maintain it.

Reprinted from: FINANCIAL PLANNING