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Business Models and the Importance of Communication

By Taylor Liao, CFP

As a financial planner, I have heard many discussions about business models: commission-based, or fee-based, or both ? It’s a different story here in Taiwan; this profession is quite new and some planners don’t even believe it can work out to receive compensation.But, if they can make a little change in the way they communicate with their clients, it will help them to get reasonable pay for their services.

Free Business Models Don’t Work

I have met many advisors who were new to the planning profession. They were afraid to ask for any compensation. Even though they were CFP certificants, they still didn’t believe that it was possible to get compensation from just planning. Some of them, with the background of insurance industry, would use “financial planning” as a tool to develop their business, and usually they would offer this kind of service for free. They would get their reward, mainly from product sales and not from the planning fee. Once they wanted to change to the role of an advisor, they found that it was difficult to ask for compensation from financial planning.

My opinion is that this kind of free model will not sustain for a very long time. If the advisor can’t get compensation from financial planning, he/she will be forced to get paid from product sales, and he/she will not make any progress in the profession, as a planner. The key-point is to communicate with the client is at the beginning when you contact them. You have to build trust by telling them what you are doing, why you have chose to be a financial planner, and what your mission is in the industry. The first conversation between you and the client is the perfect time for you to build trust, for both the financial planning profession and for your client relationship. Once the client knows we are different from product salespeople, and that planning is going to help them live in a better way, they will appreciate the opportunity to take your advice. They will also understand that your mission is to build an environment that is fair to the entire public, that offers professional service based on client’s goals and not based on a sales target.

As a CFP Certificant, we usually are too rational to handle a good communication with client. We are good on planning professional, but we may not aware that we are dealing with client’s dream of life, the way they want to live. When we perform a good discovery process with client, we need to be emotional to listen to their dream and goal, it’s not the timing to be rational to show how professional we are.

Make Sure Your Clients Acknowledge They Want to Change

The hard part about asking for compensation is that clients don’t feel it’s necessary to do a financial plan. When we talk with a client, we know that they have a problem in budget control and that they spend too much. We know that we can help with our planning. But, do they realize they have a problem? And do they want to solve it right now? If they don’t understand that they have something they need to change in their life, how will they know the value of financial planning? Once they understand that change is needed and you play a major role to assist them with that change, they never will question the fees you are charging.

The biggest issue I have seen is that some planners are so focused on their profession, that they forget to listen to their clients. When they identified a problem of their client’s, they would act like teachers and begin to preach. They talked too much and didn’t pay attention to the real situation of the client. We must keep in mind that our advice to the client is not “the panacea once and for all”. Maybe the client will agree with our suggestions for them: cut their budget and put more money into their savings account..etc., but the implementation of these goals will take a long time and it has to be done by themselves. In other words, don’t confuse our role. Our role is to help the client to clarify their ideas: what life they want to live, what dream they want to come true. Then, we can help them by using our expertise in financial planning.

In our business, we have a different way of communicating with clients. We listen to them and don’t make any subjective judgments. It is obvious to us when we meet with a client what the problem is. He spends too much and therefore, couldn’t save enough money to buy a house. Instead though, we listen and then ask a few questions: “Is that a problem to you now?” If the answer is ”yes”, then we ask, “Did you want to solve it?”

This process makes the clients say out loud what the problem is and confirm that they want to solve the problem with our help. With this kind of logical reasoning, we have their word that they want to make a change in their life and we are the guy to help them.

Be Transparent and Fair to Clients

Some planners choose to quote a very high fee to their clients. They claim that their clients will get a lot of value from their planning expertise. They may charge the client US$8000 or more. In our firm, we start by signing an agreement with the client. In this agreement, there is a list of basic financial planning items: setting the goals, diagnosis of financial status (analysis of cash flow, asset and liability..etc), risk management. Then we have another list for advanced planning, it includes: life event simulation, solution suggestion and implement, insurance policy overview and analysis, asset management, tax planning, will/trust setup…etc. Our business model is that we don’t quote a fee until we finish the data collection meeting with the client. We make sure to understand the situation of the client and what items he/she wants to include in their plan. The planner will discuss with their client and make a quote based on the efforts (manpower and labor hours) that we have to put into that case. We try to make it transparent and fair to our clients.

It’s natural for us to get compensation from clients, no matter what model we use: fee only, commission only, or both fee and commission. More important than the model though, is the way we communicate with the client. We need to listen to the client and make sure they understand our commitment to this profession. The best business model is the one that provides profitable financial planning services, so that the planner can stay in business to serve their clients.

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