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The universally accepted 6 stage process for financial planning is depicted below:
Planners who charge an annual fee understand the importance of an annual plan review as it directly drives their income. Those who don't charge fees but use financial planning as their core advisory proposition are perhaps less diligent, as trail commissions are not dependent on completion of annual plan reviews.
Wise planners understand the true importance of annual plan reviews - for clients as well as for their own practice. Annual plan reviews, if diligently done and meticulously executed have the power to drive your business on both counts - enhanced wallet share from existing clients and referrals from satisfied clients.
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More than the preparation of the plan the first time around, what really builds client confidence and trust is the way you conduct your annual plan reviews to ensure that you make all the course corrections required to keep your clients on track to meet their goals as well as accommodate changes in goals and aspirations over time. Change is a way of life - how you adapt the plan to changes is what defines your success.
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Look for changes
So, what does an annual financial review consist of? It is an opportunity for both the planner and the client to measure the progress on the client's plan of action. The goal of the review is to examine the many changes that typically occur within any given 12-month period such as the birth of a child, the death of a loved one, the loss of a job, a major purchase and evaluate if the client's financial plan needs to be readjusted based on those life events. The planner also needs to evaluate if changes in the client's attitudes and priorities dictate charting a new course for the financial plan. If there are no changes, then the planner can affirm the client's progress towards their personal financial plan.
The annual review meeting with the client should contain the following three areas:
#1. Goal review: The planner reconnects with the client and assesses short-term, long-term, discretionary and non-discretionary goals and changes in circumstances. These conversations are intensely personal - and these are the ones that actually build trust and confidence.
#2. Market review: It is best if the planner creates the context prior to any discussion of the investments so the client is aware and understands the background before leaping to any conclusions. So the planner can briefly review macro and micro-economic environment as well as relevant equity and fixed-income markets. The planner should review, evaluate changing tax laws and economic circumstances and asses if there is any impact on the client's financial goals. In today's context of declining interest rates, their impact on goals need to be carefully assessed and corrective actions need to be discussed, agreed and implemented.
#3 Investment review: This is where the planner will review performance of every component of the portfolio, in the context of the market and goal reviews already concluded. Doing an investment review before the earlier two steps can sometimes lead to unnecessary portfolio action. Decisions to switch should normally be taken only when the planner is convinced that one or more investments no longer carry his/her conviction in their ability to deliver the long term performance required to achieve the goals.
On track?
Just like with the initial plan building where client's data, goals, resources and information were collected, the financial planner does the same during the annual review to check for changes. A planner will first typically examine a client's progress against the plan's time frames. This sort of monitoring benefits both planners and their clients and ensures that the clients are on track to meet their financial goals. It is also an opportunity for the clients to review if their goals and priorities have not changed. Planners have a chance to reconnect with their clients to affirm their positive actions towards goal achievement or to help refocus them so that they don't get too far off track.
While some planners choose an annual review, it is really up to the planner and client on when they want to conduct a review. Some set up a regular appointment on a quarterly or semi-annual basis where short-term goals are reviewed and a planner will make changes to a client's investment portfolio in light of tactical or strategic asset allocation models in place.
Clients often want to measure the performance of the investment portfolio to reassure themselves they are on track but what is the yardstick for measuring that performance? While the performance can be measured against several benchmarks like the market index, ideally, the most important benchmark is the client's own personal goals
Not just performance
A mistake many planners is to simply concentrate on the investment performance, investment policies, and market outlook during the review. However, successful planners expand the review meeting beyond the financial numbers to connect with the client's needs and concerns and deepen the trust. Using the meeting to assess unmet needs and identify areas of dissatisfaction ensures the client walks away satisfied and remains loyal to the planner. So a planner should ask the question on what are the client's current financial concerns and see if any changes needs to be made to address those concerns.
Seek feedback
Wrapping up the annual review, the planner should ask for feedback on services provided. However, asking the question directly during the review may not yield any answers if the client feels shy or put on the spot. So some planners choose to use an online questionnaire that they mail to the clients after the meeting. Since the clients have time to think about their service experience, answers that can be useful to the planner may be more forthcoming. This mail must be sent within 24 hours of the review meeting, while the experience is still fresh in your client's mind.
Feedback questions can include the following:
Are there additional services we can provide to help you achieve your goals?
Are we meeting/not meeting/exceeding your expectations?
What are two or three ways that we can improve how we serve you?
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Seeking feedback shows the client that you care and are eager to listen: both of which go a long way in building confidence, deepening the relationship, enhancing wallet share and driving referrals.
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