The human side of outcome-oriented investing: Do your clients hear about the value you may add?

Several years ago, I was doing a presentation for an advisor-client of mine at his year-end appreciation event. As his guests were gathering, I recognized a gentleman in the crowd, but I couldn’t for the life of me remember how I knew him. 

As the evening progressed, I presented a light year-end wrap up on the markets and global economy, as well as our firm’s outlook. When we moved to questions and answers, the gentleman raised his hand and took the conversation into a different direction: Fees. All sorts of fees: Active funds versus passive vehicles, the advisor’s fee versus the cost of building a portfolio himself, diversifying versus simply investing in an S&P 500® Index (which was doing great that year and enjoying a period of unrivaled success).

That’s when I realized why I recognized the gentleman. He had attended a similar client appreciation event the advisor had hosted several years ago—and he had asked very similar questions back then, too!  My mind immediately went back to the answers I had given then. I had spoken about the cyclicality of active and passive investing and how leadership switches every few years; about the times when the S&P 500 Index (or any U.S.-based equity index) was not the preferred market to be invested in; about periods when all equities—domestic and international—were unattractive; about the potential dangers of building your own portfolios versus hiring a professional, and how the real value would manifest itself in ways not immediately obvious.

Now, all these points were correct and true.

But in that split-second I realized I had taken the wrong approach in my answer all those years ago. My points were too rational, logical, technical.  They were too impersonal—only appealing to the mind, not the heart. These answers weren’t going to resonate for a question that was coming from the heart.

As I quickly came back to the present moment, I heard other clients beginning to pile on and chime in with similar questions. Remember, this was an appreciation event! It wasn’t sounding very appreciative anymore. I had to turn this around, fast.

I did the opposite of what I had done last time: I shared my personal experience.

I answered from the heart.

Demonstrating the value of advice. Here’s why I work with a financial advisor.

“I have a financial advisor myself. I’m fully licensed, knowledgeable in the realm of markets and investments, and can do much of this on my own. But I don’t. Why?  Because I have a full-time job that I love and that takes up much of my time. I don’t do it myself because I would rather spend my free time doing the things I enjoy, with the people I enjoy doing them with. I also like having someone helping me through the tough decisions, keeping me honest with myself and holding me accountable.

Let me tell you about my situation a little bit. I have several portfolios, but I don’t know if I outperformed the S&P 500 Index this year, or any other index. Maybe I should.  I also don’t know exactly what I paid my advisor this year in fees. Maybe you think that’s foolish as well. But here is what I know: In the past year I have gotten married, bought a home and welcomed my first child into this world, and am planning for a second.

I also have aging parents, who both just retired and have developed medical issues. We’ve had to make some serious decisions about their longer-term plans quickly. Do we sell their current home? Do we move them to an assisted living facility? Do we build out my brother’s garage into an apartment? Rent a new home or buy a smaller one? Oh, and we also need to consolidate all their accounts and develop an income stream in retirement, while also respecting their legacy preferences.

The brother I just mentioned also has medical issues of his own that will need to be dealt with in the coming years (more on this in a minute).

With all this going on in my life, do you know how much I actually had to worry about in terms of planning and handling? Nothing. Zero. Zip. Zilch. My advisor took care of all of it. By anticipating certain needs, as well as responding to others with well-researched and thought-out options, he took much of the work off my shoulders.  Could I have done it most of it myself? Sure. But I would have lost a year or more of my free time dealing with it. Not to mention the stress of it all.

So, you ask me if I outperformed the S&P 500 Index this year? I don’t know and I don’t care. But I do know that I’m on track to achieve the goals I’ve set out in my family wealth plan and am prepared for many of the what if’s that will pop up. And no, I don’t know how much I paid my advisor this year. But I bet it wasn’t enough based on all that he’s done for me and my family (but let’s keep that last part between us!).”

Why clients hire you: Because that relationship may be one of your client’s best investments

Suddenly, the event took a turn back toward appreciation. Several clients raised their hands and shared times when the advisor had helped them through their own tough circumstances—a divorce, a death in the family, loss of a job, transitioning to retirement, etc. Even the gentleman who had started the whole conversation sat back and recalled all the times an advisor had helped him. He confessed that he hadn’t thought about it in this way.

You see, it wasn’t that the advisor wasn’t serving his clients well. He clearly was—the clients’ spontaneous stories testified to that. But so much of the work advisors do happens behind the scenes. If we don’t remind clients about all the ways—many of which have nothing to do with performance and fees—in which we are helping them track to their goals, it’s easy for them to forget. That is especially true in this age of low/no fee, do it yourself, everyone is trying to rip you off financial world that we live in.

When I get asked about fees today, I share my story. And I have the benefit of hindsight now, too—I can share how those decisions my advisor guided me in making have turned out. The decisions we made for my parents were the right ones: they are still living on their own with some help, they still have medical issues but can afford the assistance they need, all while still enjoying retirement and keeping their plan on track.

I referred my brother to my financial advisory team and he and his wife began working with one of my advisor’s associates. But instead of simply focusing on the investments, asset allocation and performance of their portfolio, they tackled tougher topics like insurance needs, college planning, budgeting, cash flow, debt, etc. And thankfully they did. A couple of years into their planning relationship, my brother was diagnosed with stage 4 colon cancer. He wasn’t given a good prognosis and told to get his affairs in order. Luckily, he already had. He passed away this past September, 15 months after his diagnosis.

Had it not been for the conversations and planning he had already done, his wife and kids would not have the financial stability they have now and the conviction and confidence that they could achieve the future vision they set out for themselves and their kids.

A month before he passed away, my brother and his wife had a meeting with their advisor one last time together. There were no conversations about arbitrary benchmarks beaten or not, no debate on U.S. versus international equities, no requests to tweak the asset allocation, or whether the advisor was worth the cost (he clearly was worth every penny, and then some). They focused instead only on what mattered most: whether my brother’s loved ones would be financially secure when he was gone.

Shift the conversation to focus on outcomes 

This is why—to me—having an outcome-oriented conversation and mindset aren’t simply a snazzy tag line or clever marketing slogan. They’re a way of defining how we engage with our clients, helping them cut through all the noise so they can focus on what is truly important to them in their lives.

I often hear responses like my clients don’t ask about outcomes, they ask about performance. My reply is, Have you helped them define what outcomes are important to them and if they are on track to achieve them? If not, then all they have to go on is performance.  

So, in the spirit of new year’s resolutions, are you engaging clients in this way? Are you helping them define their outcomes, both planned and unplanned, and sticking with them every step of the way, providing guidance ahead of time, and sound options in times of uncertainty? If so, great. You will become a resource for clients searching for a new type of financial relationship. If not, then begin to think about the risks to the future of your business and your current client relationships. Ask yourself: Are you really an advisor to your clients?

The bottom line

At Russell Investments, we’re committed to the advisors we serve. One of the ways we believe we can provide meaningful value is through your trusted Russell Investments representative—someone like me—giving you access to our in-house experts. We want to provide you with insights that you can share with your own clients. Our Business Solutions Team has created sets of cards and tools to help advisors improve their client discovery—to dig deeper into the human side of outcome-oriented investing and discover what truly matters to the client. Contact us if you’d like to learn more.