Building Your Business with the Investment Consulting Process

By John J. Bowen, Jr. and Sharla D. Hamil, CIMC

Retaining clients in a down market. Managing clients' emotions and expectations. Correctly understanding clients' risk tolerances. Getting clients to take action. Finding innovative ways to add value to the client relationship. Growing new assets under management. Differentiating your service from that of your competitors.

Do these concerns sound familiar? They should—they were all cited by respondents to a recent Investment Management Consultants Association member survey as major business challenges. And based on our research with thousands of financial advisors of every kind, we can tell you that these concerns are shared by advisors throughout the industry.

In response to these challenges, our firm has formulated five essential strategies for financial advisors seeking to move to a higher level of success. Each strategy is designed to allow financial advisors to turn today�s challenges into significant opportunities. Our research has shown that those advisors who use these five strategies enjoy substantial net incomes and are continuing to grow their practices, despite the downward turn in the market. These strategies include:

1. Focus on affluent private clients.
2. Use the investment consulting process.
3. Manage your practice as a business.
4. Partner effectively with institutions.
5. Commit to ongoing learning.

In this article, we'll focus on the second strategy: using the investment consulting process to create more satisfied clients. (For a full overview of the first strategy—focus on affluent private clients—please see Surveying the Future in the November/December 2002 issue of the Monitor.)

The Benefits of the Investment Consulting Process

Clients, and in particular, affluent clients, can acquire investment products anywhere. If you simply provide these products, not only will you fail to set yourself apart from your competition, you�ll also fail to deliver what clients truly want. Industry research has told us over and over that what clients are really looking for are long-term relationships with trusted, expert advisors who can look at their "big picture" and provide comprehensive investment solutions.

By using a systematic investment consulting process, you'll not only have the ideal vehicle for building the kind of trusting, long-term relationship that clients want, you'll also begin to successfully manage many of your biggest business challenges:

• You will accurately identify clients' true financial goals and risk tolerances.
• You will determine and execute the most appropriate investment program for meeting those goals while addressing risk concerns.
• You will be so thorough in your approach that clients may want you to handle more of their investments.
• You will delight your clients to the extent that they will become your marketing apostles, providing you with an ongoing stream of referrals.

All of these benefits directly translate into more successful consulting practices for those advisors who successfully adopt a consultative process. According to our research, nearly three-quarters (72.2 percent) of surveyed independent representatives who net at least $150,000 a year use a consultative approach. Not surprisingly, our research did not find a single advisor using a consultative approach who earned less than $75,000 a year. (See Figure 1.)

The Investment Consulting Process, Step by Step

A true consultative approach will not just happen by itself. It requires a systematic process that you can implement and then replicate again and again. The investment consulting process we recommend is based on a series of five scheduled meetings with each client.

Each meeting is designed to win, service and retain the client while, at the same time, fostering trust, growing the relationship and delighting the client�not to mention providing you with numerous opportunities to assist your client on additional assets and receive referrals for qualified prospects. And by delivering a consistent, high-quality client experience, the process will enable you to easily differentiate yourself from your competition.

The following is a brief overview of the five-meeting consulting process that we recommend.

1. The Discovery Meeting

In the old way of doing business, advisors would spend the bulk of their initial meeting with a prospect describing in great detail all their abilities and qualifications. The prospect wouldn't even be given a chance to speak for the entire first half of the meeting or so.

The first meeting of the investment consulting process turns that model on its head. Your primary goal at this meeting is not to build rapport or to sell the prospect on how good you are. Instead, this meeting qualifies new prospects and sets their expectations for your service. During the first half of the meeting, you'll uncover the values and concerns of your prospect and decide if you have a basis for working together. Prospects will judge you by the quality of the questions you ask. We suggest you use the following questions to uncover the prospect's true values. This process was developed by Bill Bachrach, which he shares in more detail in his book, Values- Based Selling.

Begin with the question, "What is important about money to you?" and let the prospect respond. Let's say that they say "security." Then ask, "What is important about security to you?" Assume that they respond "Knowing that I can take care of my family." Then ask, "What is important about taking care of your family to you?" Continue the questions until you have heard their final answer. We have found that this method creates a strong emotional bond with the prospect and differentiates the advisors from their competition since few advisors ask these questions.

If you believe that the prospect would make a good client for whom you could add substantial value, you�ll use the remainder of the meeting to explain the key aspects of your investment strategy and how its implementation will meet the prospect's needs.

In the second half of the meeting you'll use a systematic, detailed interview process to define the prospect's true financial needs, goals and current position. It also provides you with all the information you will need to create a comprehensive investment plan for the investor. By the end of the meeting, you will have secured a precommitment from the prospect for moving forward to the next step.

Here are the step-by-step actions for the Discovery Meeting:

• Have your employees greet the prospect by name, using a formal greeting.
• Acknowledge the prospect's desire to explore a basis for working together
• Explain how you will conduct the meeting, which will include audiotaping the interview.
• Clarify the prospect's values and overarching financial goals
• Gain a precommitment from the prospect to moving forward.
• Conduct the client discovery interview. The interview will include questions that allow you to determine the client's goals, understand their relationships, assess their assets, know their other advisors and the type of relationships that they have, determine how involved they want to be in the process and determine their outside interests.
• Reassess whether you believe you could add enough value to the situation that it makes sense to work together.
• Agree to and schedule the next meeting.
• Close the loop.

  The Discovery Meeting should be a part of working not just with prospects, but also existing clients. If you have primarily worked with clients on a transactional basis in the past, this meeting is your opportunity to begin to transform those relationships into consultative ones. And if you have not met with clients in some time, this meeting will help you uncover exactly how their financial situations may have changed.

  Whether you are meeting with prospects or current clients, the Discovery Meeting will help you to immediately establish trust and to position yourself as an expert at solving the investors' financial challenges.

  2. The Investment Plan Meeting

  In this meeting, you will present the document that will be at the heart of your ongoing relationship with your clients: the investment plan. This plan will fully establish you as an expert in the eyes of your clients and serve as the roadmap that will maximize the probability that each client achieves everything that is important to them in their financial lives.

  You will walk the prospect or client through the plan and then ask for a firm commitment to take the action required to move ahead. However, you will not implement the plan at this step. Because you want to ensure that you have captured all the issues important to the client and have given him or her time to study the plan, you will not ask the investor to implement the plan at this stage. Your goal is to build a lifelong relationship with the client, a process that cannot be hurried.

  Each investment plan should include these six important areas of discussion:

  • The client's long-term needs, objectives and values. Long-term goals can consist of anything from early retirement to purchasing a new home to achieving financial independence. Because these goals are the bedrock upon which the portfolio will be built, work with the client to define them clearly and concisely.
  • A definition of the level of risk that client is willing to accept. It is important for your clients to understand the amount of risk they're willing to tolerate during the investment period. In designing a portfolio, determine the absolute loss your client can sustain in any one-year period without terminating the investment program.
  • The expected time horizon for the client's investments. Help each investor determine the investment period in which his or her capital will be placed. The minimum expected investment period should be at least five years for any portfolio containing equity securities.
  • The rate of return objective and asset classes that will be used. Identify the specific return/risk profiles of each optimized model portfolio and use these ranges of returns for each risk level as the framework to determine your client's return expectation for the portfolio, as well as its component asset classes.
  • The investment methodology that will be used. There are three basic investment methodologies: security selection, market timing and asset class investing. Clearly state the reasons for whichever method you recommend.
  • A strategic implementation plan. Establish the means for making periodic adjustments to the portfolio as needed. We recommend reoptimizing your clients' portfolios on a defined basis. The investment plan 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.

  A well-drafted investment plan will meet the fiduciary responsibilities between advisor and client, address prudent investor guidelines and reinforce the client education process. It should provide clients with the sense that they are making smart decisions about their money.

  3. The Mutual Commitment Meeting

  At this meeting, the prospect will ideally become a client. Or, if you've been working with a client, he or she will move ahead to implement your investment plan recommendations. During the meeting, you will answer any questions or concerns about the investment plan, execute all documents needed to begin to implement the plan, and begin to educate the client about reasonable investment expectations. Because trust is very high at this meeting, you may also ask the client for referrals of other qualified investors.

  4. The 45-Day Follow-Up Meeting

  Because clients can get overwhelmed by the amount of paperwork they receive, particularly if they have multiple accounts or a lot of money is being transferred, you'll use this meeting to help them get organized and understand exactly what is happening. You'll show the client how to read the various statements they've received, and provide a notebook to file them. You�ll also take the opportunity to continue the client's education in long-term investment returns by encouraging them to not focus on short-term results. And you'll again ask for referrals.

  5. Regular Progress Meetings

  These meetings, which ideally will be held quarterly, are the foundation for building a relationship with each of your valued clients. Each periodic meeting is an opportunity to resell your investment process and to demonstrate how it is working. They also provide you with ongoing opportunities to educate your client about remaining on track and not chasing performance. And they serve as your openings for uncovering changes in the client's life, which will allow you to adjust the investment plan if required and to suggest additional assets if appropriate.

  If you hold the five meetings as we've just described, you'll have an extremely effective investment consulting process. You will earn and maintain your clients' trust by truly impressing them at every stage of the process, and will be in position to leverage the strength of the client relationships you are building. If you follow the steps and go slowly but deliberately, your clients will feel confident at every juncture and will feel comfortable referring new business to your firm.