Planning for success: Protect clients’ wealth and your business with a formal financial plan

(November 14, 2003)The wealthy seem to have a problem with planning. According to a 2002 study by LIMRA International, an insurance and financial services research organization, and McKinsey & Company, only 50% of high net worth (HNW) individuals have a financial plan. Of those who do, only half have a formal written plan prepared by a financial professional. The others have an “informal” plan — anything from unspoken goals to a list of financial priorities scribbled on a napkin.

This needs to change. As financial professionals know, the lack of a cohesive financial plan is a profound threat to wealth. It can also be a profound threat to financial professionals. Without a formal financial plan, there’s a greater chance for oversights and omissions — not a good business strategy in the ultra-competitive HNW market. Perhaps more important, the lack of a formal plan makes it difficult to define the way you want to be evaluated as a professional. That can leave you exposed to competitors.

But many HNW individuals simply don’t see financial planning as a priority. HNW business owners are too busy running their businesses. Others fail to see the need for a plan when they already have “enough.” Still others have difficulty confronting their own mortality. How can you break through this complacency? Here are some ideas:

Address the procrastination.

As the report makes clear, most HNW individuals don’t object to financial planning. They’re simply procrastinators. Moving past that procrastination will require candour and tact.

With business owners, highlight the inconsistency of having a business plan, yet not a personal plan. With family-oriented clients, present a formal financial plan as a means of protection — should the unthinkable happen. Provide a real-life example of what can happen without a formal plan — such “horror stories” can make the threat more tangible.

But explain your approach: As a professional, your number-one job is to secure client wealth. A formal financial plan is the best way to do that. Period.

Establish the need.

Show HNW clients the necessity of a comprehensive financial plan by introducing them to important planning concepts early in your relationship. Invite other specialists on your team to client meetings — your estate planning expert’s presence, for example, will demonstrate the need for a closely coordinated estate plan.

Reinforce planning concepts in all client communications, and relate investment decisions to broader planning goals whenever possible. Include a brief planning rationale with your quarterly statements. Over time, these notes will form a running commentary that connects the portfolio to concrete financial planning goals.

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Be persistent.

While most HNW clients will welcome your push to plan, some will continue to put off the planning process. Expect this, and establish a follow-up protocol at the initial client meeting. Ask permission to remind clients of unfinished business from time to time. When you send your account statements, include a personal note to remind clients about loose ends.

Establish an official timetable for completing the planning process and ask clients to sign an agreement to stick to this schedule. Your goal is to be what I call a “professional pitbull”: a polite yet tenacious defender of client wealth who’s not afraid to “bark” a little to get the job done.

At the end of the day, financial professionals are judged by their ability to secure wealth. Insist that your clients complete a formal financial plan, and you’ll be doing more than protecting the wealth of your clients. You’ll be protecting your business, too.

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Thane Stenner, CIM, FCSI, is a first vice-president and investment advisor with The Stenner Group™ of CIBC Wood Gundy. The views of the author do not necessarily reflect those of CIBC World Markets Inc. This article is for information only. CIBC Wood Gundy is a division of CIBC World Markets Inc., a subsidiary of Canadian Imperial Bank of Commerce and Member CIPF. Thane can be reached at thane.stenner@cibc.ca.

11/14/03