Not financial planning: Throw away your clients

This blog post follows on from two in the series:

In my quest for a life assurance policy, Mike (not his real name), my new-found ‘financial planner’ has done the first meeting and a second meeting.

Neither of those experiences has been great in my view. You can judge for yourself.

But let me say that Mike is genuinely a nice guy. He means well, I believe he wants to do the right thing for me, and he’s done nothing wrong from a compliance perspective. All totally legal.

Despite the poor experience, I’ve decided I like him, and have made a commitment to ‘give him the business’ – call it compensation for the work he has done and the opportunity he has given me to write about it.

First, diagnose

It’s right that the professional planner should not blindly accept what a client has self-diagnosed for themselves, and it’s important to do the research, to provide a professional recommendation.

But remember from the first two posts that Mike hasn’t really asked me anything useful. All he has done is ask me to fill in a form, which we all call an FNA (Financial Needs Analysis – if there are any clients reading this).

He hasn’t really asked me any questions, and we haven’t talked about what the information on the FNA means, or what’s missing ‘between the lines.’ He hasn’t clarified what he understands about us. He still doesn’t know that I work with financial planners, or that I’ve been a financial planner myself for more than 30 years.

And yet, he’s managed to produce a ‘financial plan’… which, in his haste to sign me up, he skipped in the second meeting… and which I was itching to read!

The Financial Plan

Page 1 says, and I’m paraphrasing slightly, “My analysis of your goals and the recommendations I make, are based on the personal and financial data, and it’s important that you reveal accurate and complete data. The more comprehensive, the more accurate the plan.”

It then goes on to explain that I’ve restricted the planner to advising only on risk cover (which is true, but we didn’t get the chance to talk about what financial planning really is, and it was never presented, so if I’m a typical client I’ve got no idea what that is, or why I might want it).

Pages 2-5 are carbon copies of the initial compliance disclosure documents which are repeated.

Artificial goals

Pages 6-7 describe what I’ve apparently said I wanted, and what Mike understands my objective(s) to be.

It says “He (that’s me) doesn’t want to burden his wife or family with this ‘loan’, and having them pay back the loan. However he does want to make sure the maintenance and school fees he is paying for the children is covered from his Estate.”  

There’s a monthly number quoted for the maintenance and the school fees which is correct “plus annual escalations.”

The objectives are incorrect. My wife and children would not have any liability.

I did expand on this in the second meeting by volunteering the detail, but the detail isn’t important right now, because Mike didn’t know it before he produced the ‘plan.’

The words Mike has used to describe my apparent objective are his words not mine. Are these words simply used to justify what he’s about to recommend? I see this on most records of advice. 

Garbage in, garbage out

The remainder of pages 6-7 show a table of numbers, designed to demonstrate how the sum assured has been established, and it’s wrong.

An assumption is made that the kids school fees and maintenance payments will be payable for 20 more years. My eldest son is 10 and my youngest is 8. There’s been no conversation about this.

The result is a sum assured that is at least 200% more than necessary.

Not one point is personalised to me

Page 8, and half a dozen lines on page 9, represent the record of advice.

Seriously? 1 page of bullet points, which look like cut and paste or a template. It’s just product guff. This is the justification for the recommendation and nothing is related to my personal circumstances.

Pages 10 -12  summarise an Estate duty tax calculation, CGT and SA Retirement funds and an Accrual claim.

Despite telling Mike that I have UK retirement benefits which pay out tax-free on my death, and which go into a Trust for my children, the benefits are described as an “investment” and SA CGT is applied at 40%. These figures have been used to arrive at the sum assured on pages 6-7 and there’s an assumption that my wife will be entitled to 50%.

Of course, Mike doesn’t know anything about UK retirement benefits, but he didn’t ask any of those questions and we never discussed it. If it’s not important, why is it in the plan?

In addition, we are married out of community of property.

Make sure the client is liable

Page 13 is a client declaration, where I sign off to say I’ve read the plan, understand it, it’s been explained to me, I understand the limitations I’ve placed on the planner, and have decided to proceed with, all, none, or some of the recommendations.

These documents place as much of the liability on the client as possible, presumably so that the life office can defend itself as easily as possible, should there be a problem. What we attempt to gain in legal defence, we lose in the client experience.

And that’s it. That’s a financial plan.

I made all the various notes and changes, and took the trouble to send it back to Mike with my comments. I’ve asked him for his thoughts. I wonder what will happen. Several days have passed and I’ve heard nothing as yet.

I spent the rest of the day filling in the application form and putting together all the documentation I know he’s going to need, and that he should have asked for, but didn’t.

He’s a broker, not a financial planner

Despite what it says on his business card, Mike is an agent for a large life assurance company, not a financial planner. He’s a broker. An intermediary who acts between the company that manufactures the products and the customer.

And there’s nothing wrong with that, but there is something wrong with describing yourself as something your not.

We might be wondering why I bothered to work with a broker, when there are a growing number of online options that exist for me to do things myself. Well, I would have done that, but local online services currently seem to require a South African ID number to get past the first screen, and as a UK expat, I don’t have one.

If I had a South African ID, I would probably have gone direct, and that’s a potentially big risk for brokers in the future.

I’ve already said I was willing to give Mike some insurance business. That’s why I agreed to speak to him, and that’s what I wanted, but there’s no chance we’ll be doing any financial planning or asking him to deal with investments.

What can advisors learn?

This was intended to be a single post about the importance of a great first meeting.

It’s turned into three posts, and I think, clearly demonstrates that many of the problems that advisors face across their business, and in their face to face client experience, can all be traced back to what happens (or doesn’t happen) in the first meeting.

The first meeting is absolutely crucial to setting the scene correctly, positioning your service, explaining your fees and setting clear expectations that can be managed, as the relationship develops.

Getting this wrong causes all sorts of problems, and probably means you’re throwing away client relationships. If you’re having this experience, please get in touch. I can probably help you.

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