A Roadmap for a Value-Driven Financial Plan [Episode 13]

In this Episode of the Perfect RIA Podcast:

Matt and Micah communicate the tangible strengths of an effective, value-driven financial plan versus its counterpart, the impersonal and often software-reliant plans


No one wants to be talked down to. Yet, at the same time, being hit over the head with the technical jargon of a specialist can be just as burdensome. Medical doctors, astrophysics teachers, or financial planners can all assume their patients/audience/clients will achieve understanding–the majority will–but providing a slew of information, charts, diagrams, and formulae, all at once, will overwhelm anyone. Just like a teacher wouldn’t expect their students to demonstratively understand the entire syllabus and its contents after the first week of classes, so too the same expectations shouldn’t be piled onto a client in regards to risk management, retirement income, taxes, you name it.

Instead, as Matt and Micah say in this interview, to bring the most value to your clients, you should present a comprehensive financial plan on a piecemeal basis. The jury is not exactly out on the ‘correct’ and most ‘successful’ model for achieving this, but a good rule of thumb is to craft a one-page, executive summary that summarizes and minimizes the more technical noise that accompanies a comprehensive financial plan. And yes, sometimes you will get clients who want a more in-depth picture of where their money is going, but the majority just want to know that their relationship with their advisor is bringing them a tangible, measurable amount of value they can clearly see.

In short, this means that financial planning software should be used on a limited basis. For fulfilling compliance requirements, the technology is invaluable. But for bringing value to your clients, as a financial planner, you need to figure a way to effectively communicate the bullet points of a financial plan. If you spend too much time on all of the numbers, they can quickly blur together. A tailor-made, comprehensive financial plan shouldn’t be presented to clients at once. And yes, your clients are bright people. But bright or not, the brain is purposefully self-limiting for purposes of survival and sanity; don’t punch numbers into software and expect that just because the document weighs more than a brick that all the necessary preparation has gone into the financial plan. As Matt and Micah state, “size doesn’t matter when it comes to document size.” It is the financial planner’s job to translate the more esoteric meaning of the software-driven data. And this leads to one of the most interesting points made in the episode: a lot of FP’s think it necessary to justify their fee with as dense a book of data as possible. As if the hard-earned money they recieve is only justified with an equally impressive stack of financial documents. Quality over quantity should be communicated. Always.

Matt and Micah end this very important episode with actions points consisting of: take out any superfluous ‘noise’ in your financial plan, implement one-page summaries, and work on shaving down your entire financial planning process to 45 seconds or less. You really need to listen to this episode. And to read along, look below!

Full Transcript

Introduction: 00:01 Welcome to the Perfect RIA Podcast, the only show dedicated to helping you build a highly effective financial planning practice that delivers both an amazing client experience, and an amazing lifestyle for you, and your family. What you will hear today is not theory, but rather real world tested in the trenches systems that your hosts, Micah Shilanski and Matthew Jarvis, have developed in their own respective practices. Which have been recognized as some of the best in our industry. Before we get started, a quick reminder from our attorneys. This podcast is intended only for a professional audience and should not be considered as tax, legal, financial, investing, or even cooking advice. Past performance is no guarantee of future results and you alone are responsible for you. And now, lean forward and let Micah and Matthew show you how to build the perfect RIA.

Matthew: 01:15 Welcome everybody, welcome to another episode of the Perfect RIA Podcast. Today, we are excited to talk about what is real financial planning versus, I guess fake financial planning, or less than real. If you haven’t noticed already, Micah and I very much enjoy standing up on the soapbox, but hopefully it’s done in a way that improves your planning practice.

This episode is really inspired, I was talking to a colleague and she says, “Well, Matthew, some advisors do, real financial planning.” and I said, “Really? Well, what does that mean?” and she says “Well, real financial planning requires that you use software for your financial planning. And I know you don’t use the planning software, and so your financial plan,” and then she sort of realized what she had said. And, they do more in-depth planning.

So, what Micah and I want to talk about today is the distinction between or if there’s a distinction between fake financial planning and real financial planning. Or I guess really what we want to talk about today is, what are we solving for when we make a financial plan? How do we know a financial plan has been successful versus less than successful? Micah does that sound about right for our agenda today?

Micah: 02:24 Yeah absolutely does, now I’ll get on a soapbox too because I do think there’s people out there that hold themselves out as quote, unquote financial planners, and they don’t do a damn thing about financial planning. They may do investments, or they may do insurance, so I can understand one aspect when someone says real financial planning, but it’s really about fully engaging with the client and helping them achieve their goals and their dreams. That can happen many different ways and see if any software is used, it’s a very small portion of that plan.

Matthew: 02:52 And you make a good point there, Micah. That financial planning, if you will, sort of came about as a tool for selling inducement or insurance products, right? It was, let’s create a plan if you will, to figure out how much life insurance you should buy, or which annuity is best for you. And so, it definitely has been misused, if you will. Right, as more of a sales tool than a planning tool.

Micah: 03:13 Yeah, and that’s how most of the software really came about. When they first came about years ago and correct me if I’m wrong on this one but from my memory they were all insurance companies that were providing that. Then it evolved from insurance companies into other areas that did more comprehensive look, but it was all to sell insurance.

Matthew: 03:33 Yeah, that’s a good point. We kind of forget that as time goes on. But yeah, I remember all the early planning software, if you will, that I used was from insurance companies. So yeah, that is interesting. So today we have a whole litany of financial planning software programs, right? And, I had recently posted on the FPA forum to see if we could get some interaction on what is a real financial plan or not. And one gentleman aptly posted. He said, “If you asked 100 financial planners what a financial plan is, you would get 100 different answers,” which I would assume is true. In fact, Micah, how many financial plans have you seen from other planners?

Micah: 04:10 I haven’t seen too many actual plans. I think people are a little hesitant to give up an actual plan to somebody else because they’re worried that someone else is gonna butcher their saved model plan. I talked with a lot of advisors about their other plans. I probably only seen like 10 or 15 actual quote, unquote, plans from other advisors.

Matthew: 04:28 Yeah, because I was just trying’ to think. I think my numbers gotta be less than five, that I’ve seen from other –

Micah: 04:32 Oh wow.

Matthew: 04:33 advisors. And, you’re right, everybody keeps them very close to their chest. Whether that’s because they’re concerned about their intellectual property being stolen, even though they’re running the same money guide pro print out as everyone else or they don’t wanna be picked apart. Almost as an industry, we have this don’t ask, don’t tell when it comes to financial planning.

Micah: 04:54 And most of the ones that I have seen, this should be a good distinction. I got ’em from clients that have worked with other quote, on quote gee, here I’m doing it. I’m calling them on not real financial planning. Alright, but they’ve worked with other financial planners before they’ve hired us. And, I asked them for a copy of their plan because I’m curious as to what they saw, or what information was presented to ’em. So, that’s where I’ve got most of my plan. But I think it’s this aspect that we haven’t clearly defined, what is financial planning that’s out there. Nor do I know, if it really needs to be defined from a, should the CFP board might be freaking out right now. Because I’m sure they’re really trying to define what is that financial planning process.

But it’s really, in my world, engaging with a client to help them achieve their goals. This is financial planning which is my definition of it. Now because we specialize in certain retirement of federal employees, we put a couple of sub categories in there. We go through an estate planning, risk management, retirement income, investments, and taxes. So, in my world, I gotta hit all five of those areas for me to check off the box that I created a financial plan. In all, if I get the clients goals and dreams and figure out where they’re at, I hit all five of those areas, we come up with a game plan, and help them implement that game plan to achieve their goals while covering that. I check it off of the box as a successful financial plan. But because of my clients that I work with. And Jarvis, what about you? What do you look at as your successful financial plan working with clients?

Matthew: 06:25 Micah, with you giving that example, it’s a good reminder that the financial plan, and again, we’re agreeing this is a bit of nebulous term, really needs to be tailored for your group. For example, I work with all retirees. In my experience, very few retirees need a cash flow analysis. By this point in life, they’ve either figured out how to save money, live within their means, or they’re not coming to see me. For example, we’re not gonna look at their budget. I’m not gonna look at their spending other than on a high level. I suppose that could be in some people’s financial plan and not in mine.

When I do my financial plans, which I really advertise, I just do a one-page summary. There’re four areas covered there, well five. Their goals are listed. We talk about retirement income, risk management, income taxes, investment portfolio. Those are the areas that we cover and again, if we get a cease and desist letter from the CFP board off of this, because I didn’t add cash flow and debt management to that, I guess I’m guilty as charged.

It goes to your point, Micah, that these need to be tailored to whatever your audience is. Just because your planning software always generates 50 pages does not mean that that’s what’s appropriate for a client.

Micah: 07:32 Well, let’s speak on planning software for a little bit. Now, I want clear disclosure in here, we subscribed to MoneyGuidePro. I’m also in the process of building … we’ve actually kind of already built our own customized software that we use because we work with federal employees. They have a different pension system and so we built our own cash world calculator for that in retirement. Just to be fair, I do like my excel spreadsheets of doing cash world projections of retirement incomes. I do do that.

Speaking on financial planning software, really all it does is build a balance sheet. You get a network statement. It builds a projection based on some risk return level that you’re gonna put in there and it shows what [inaudible 00:08:11] for spending money. Okay, well that’s one segment of financial planning, right? But as you went through, Jarvis, in your area, you talk about other things that may not fit into that. So just because you’re using software doesn’t mean you’re doing a financial plan.

If someone just uses MoneyGuidePro and I’m not, I signed up for them, I have them their service, I like their software. I’m not ragging on them but in my world if you don’t do an estate plan, okay, we’re leaving potential issues out there and they do a crappy job of estate planning inside of MoneyGuidePro in my opinion because they just check a box. Do you have it or do you not? It doesn’t actually go through a whole concept of what estate planning is. So, in my world, right there, your quote, unquote financial planning software isn’t financial planning because it doesn’t do that. That’s how subjective this question is about what is a real financial plan.

Matthew: 08:56 Yeah and I haven’t looked at the planning software recently but you’re right, estate planning is not covered. In my experience, taxes are not well covered at all.

Micah: 09:04 Oh, not at all.

Matthew: 09:05 There might be some projections on a Roth conversion maybe, but those are pretty limited. I do wanna add another caveat and Micah already had this disclaimer about financial planning software, we are certainly not saying that you should not use financial planning software, right? Micah and I both have the advantage of 15 years plus of experience in industry and we are both very diligent students of the industry. I’m not saying that to brag just that we dedicate a lot of time and energy to become experts in these areas and so a lot of the things that Micah and I can do on a piece of paper or an Excel document, for a beginner planner, that would be very difficult to do if you don’t have that experience.

What I recommend to beginner planners, Micah, and I’d be curious to your thoughts as well. Go ahead and use financial planning software. In fact, a lot of firms require for compliance that you do that but then do up some kind of action plan. I like to do one page because I like the forcing mechanism of a page or a couple pages. In fact, I would challenge anyone listening to, next time you go to present a financial plan, have whatever ream of paper you would normally print out and then have a one- or two-page action or executive summary. Just ask the prospect, ask the clients, hey which one would you rather look at? I would be glad to geek out with you on 50 pages of detail or we can look at the executive summary. The reason I mention that example is, I promise you 99 out of 100 clients will pick the executive summary.

The other thing is a financial plan only counts if a client is willing to implement it. Right Micah? Would you agree with that, that it only counts if they’re actually going to take action based on it? If we’re just trying to numb their brain, it’s of no value.

Micah: 10:36 Absolutely. It’s only if you’re gonna take action. It’s only if you’re gonna implement it. One of the things I would encourage new planners to do this or if you’re relying on that 50-page financial plan and you’re delivering that to a client. When I say deliver, this is what I’m imagining because this is what I do. I’m imagining a client coming in and the advisor is so happy they have this plan. They’re opening up and almost going page by page explaining all the numbers. When you get to page three, have you looked at your client because I’d imagine their eyes are glossed over right? They’re really not picking up what it is. You might bring them back and reengage with them, this page is really important because X but really you’re just giving them so, I think this goes to your point Matt, you’re giving them so much information right there that they’re actually not helpful because they’re not taking away exactly what needs to get done to make sure they can accomplish their goals. That’s the problem with these massive documents.

Matthew: 11:33 Micah, when you’re doing your financial planning and I completely agree with your comments there, when you’re doing financial planning, do you try to cover in that initial plan everything that they ever will need to do in their financial life or are you doing it in phases? Kind of saying, alright, I’m gonna present to them a lot of things they need to do. Understand that there’s gonna be more down the road. What’s your approach to that?

Micah: 11:54 Well anyone that says they’re gonna cover everything is wrong because you never know what curve balls life is gonna throw at you and we don’t have enough time to do that with individual clients. So, you’re always customizing it to what pertains to them. Now, when we deliver ours, I’m gonna say this is where our delivery is fairly unique, and I’d love to hear people commenting on the way that they’ve done it successfully that delivers to other clients and all the planning is successful. Then clients walk away, not only happy, but they implement what you talk about.

So, we cover those five areas of financial planning, estate planning, risk management, retirement income, investments, and taxes. We break those down into individual meetings with one page on each one of what we’re going to do. Instead of a one-page document with just everything, we sit down and say with the client, alright, today’s conversation is just focused on estate planning. We’re gonna cover wills, Trump Healthcare directive, durable powers of attorney, beneficiary designations, funding, idling and we take it soft level all the way down. That meeting is solely focused on estate planning and we come up with what it’s supposed to be, all the action items, we get it done.

Then the next meeting we move on to risk management and we have found it’s a phenomenal way to implement the financial plan because now at the end of the day, it’s boiling down to five pages not one, right? It’s one page per meeting but the client engages with us at a high level the entire way through the financial planning process because they don’t get overload. We’re not talking about 50 different things that are hit and miss. We hit one topic at a time and our clients really like that complex.

Matthew: 13:27 Now, how long are each of those meetings, Micah? If there’s roughly five meetings for each of the areas, are those a day each? Are they 20 minutes each? What’s the general timeframe?

Micah: 13:39 You know, if you’re gonna do real financial planning and not commit at least a week per meeting then that’s ridiculous.

Matthew: 13:45 Just let them sleep at the office.

Micah: 13:48 That’s right.

No, I think an hour in a meeting. I have, in our master mind, we’ve disagreed with a couple of our advisors and everyone is different. I think you should really wrap your meetings up within an hour. It’s not about your time management, it’s about overload with a client. You hit a point with a client that you just hit a saturation level and it comes in times. Some clients are less. I know with some clients, I’ve got 40 minutes and at the end of that 40 minutes, they are done. I better be done with my point because they’re good. They need to move on to something else. Knowing your client is important for us, it’s right around that hour marker. We wanna keep our meetings succinct, less to an hour. We tell our clients this, by the way, when they’re on board and you bring up this is a financial plan and we bring them up on how you’re supposed to do a financial plan, what we’re saying is a financial planning.

I think this is the really big key here of quote, unquote real financial planning. Are you helping the client accomplish their goals and did you fairly accurately describe everything in which you’re gonna be doing at the onset of your engagement? Really, this is real financial planning. If you do that and you do what you say you were gonna do, okay, then you’re checking off the boxes that you need to be done because I’m gonna spend more time on estate planning but Matthew, you’re not, doesn’t mean you’re not doing financial planning and I am or vice versa. We’re both doing what we said we were gonna do with the client, what they hired us to do.

Matthew: 15:10 I love all your examples there Micah on how you do it.

Let’s change gears a tiny bit. Does size matter with financial plans?

Micah: 15:25 Does the size of the document … whoa, we took a big turn this way!

So, the size of the document, absolutely no. The size of the document does not matter. It matters in my world and this is what I tell my prospects and I tell my clients, the only thing that matters is the implementation. We could talk about everything. We could go through a billion pages and we could run millions of Monte Carlo scenarios and all of this stuff and if you don’t implement a thing, it was worthless. This is my problem with quote, unquote, big financial plans. A lot of other clients hire us after they’ve worked with another advisor and they come to us and nothing got done. They maybe did a will, but they didn’t change the beneficiary designation, so they didn’t get their insurance, or they didn’t consolidate … they didn’t do anything, but they have a financial planning document. Well, that was worthless. So, you have to implement. This is the key. It’s not about the documentation, how big it is, well I’m getting on my soapbox Jarvis, what do you think? Well you’re a one-page guy, so you have to agree with me, I guess, right?

Matthew: 16:21 I was baiting you there, I was baiting you there. Again, what we’re focused on is implementation and one of my philosophies there is that we want progress over this illusion of perfection. Sometimes we think, hey I’ve gotta map out their Roth conversions, every year from now until the end of time. Well, you know what? Probably not. Actually, why don’t I worry about income taxes with them with this year and let’s make progress. I have a client, and, in their situation, they need to eventually set up several trusts to avoid a significant estate tax bill. I went to them and I said, “First and foremost, you need to get a basic estate plan in place because you don’t even have a will. You’ve got nothing in place. So, our number one priority is getting something in place and then we can talk about eyelets and then we can talk about defective trust and then we can talk about granter trust but let’s get the step one in place first.”

One of the places where that example was most prevalent in my own practice was a client that I took on, very high net worth, tens of millions of dollars. They came, and they talked to me, almost by accident. They were referred to me. They said, “You know what? Actually, we’re in the wrong place. Our assets are way higher than any of your other clients. We’re gonna go downtown to Seattle. We’re gonna meet with these million-dollar RIA firms because they have CPAs and they have attorneys.” Actually Micah, this was one of the five financial plans that I saw. This person then called me back and said, “Matthew, you’re one-page financial plan was all that we understood. These guys, we didn’t understand.” They gave them a hard-bound book of a financial plan. It must have been 70 pages long, hard bound, with their name embossed in the top of it. A real financial plan signed off by attorneys, signed off by CPAs, and just for giggles I went through it. I didn’t wanna be this rude to them, but I went through and highlighted in my mind what was unique to the client and what wasn’t.

Basically, they do the same hard bound book for everybody and its just mail merged right? The couple of numbers and the name. They had just numbed the client’s brain. If this was the only person the client had seen, and they had gotten a real financial plan, they would’ve taken no action because it was just too much. As you mentioned earlier, they’re mind goes numb and they just give up, their brain just shuts down on the whole thing.

Micah: 18:27 Yeah and this is our key. We’re being hired to help improve a client’s life. That is why they are paying us. That is our objective. Very broad right? If you are not adding value to your client’s life, you are not doing your client service. Period. That is what you need to take and implement. I think the reason that, so I think compliance is one reason.

Matthew: 18:50 Sure. Of course.

Micah: 18:50 That so many people, big companies are gonna flock their bank, hey go do these 80-page financial plans, 200-page financial plans. But I think the real reason, Jarvis, is fee justification. People don’t feel comfortable getting paid the money that they deserve because of the value in which they’re adding, they feel they have to produce all of the things that justify their fee. That’s why, I think, other advisors are giving that.

Matthew: 19:16 Micah, have you, in your experience, and I’ll key in with mine. Have you had a client say, “Hey Micah, I want at least X pages.” I know I, one time, had a guy, a client or a prospective client, he’s an engineer and he say, “Matthew, I really like the numbers. I’m an engineer. I really wanna see the full, elaborate financial plan. I wanna see all the pages.” I don’t do that. I said, “You know what? Tell you what. I’d be glad to do that with you someday but let’s start with my one-page executive summary and if you wanna look at the details, you can look at the details.” We never got to the details because he says, “Oh I see exactly what I need to do. Let’s go ahead and implement.”

Like you said, advisors are doing fee justification but nobody’s actually asking for these long plans. We’ve all sort of bought into this myth that clients want long plans in order to pay a lot of money. That just hasn’t been my experience at all.

Micah: 20:08 I have had a handful of engineers who wanna see a little bit more of that detailed, longer term projection and it’s not an issue because we have it, but I tell them the same thing. I’m saying, “Look, here’s what we’re gonna do. We’re gonna agree on all of this high-level stuff. We’re gonna get down into the details. We’ll go as far as you want when we get there but we’re not there yet.” Often, they wanna jump the gun and get there before you’re ready in the financial planning or the client’s ready to really see and understand these numbers. So, we go through our prompt then. I had one client earlier this year, come back to me who emailed me, and his email was funny as an engineer, retired engineer. He goes, your numbers were off. We need to talk at our meeting. I was like, oh great, what did I screw up on? So, I called him up. We did a budget, a casual projection plan. Micah, you’re estimates were off in year three by about 93 dollars.

Matthew: 20:54 93 dollars?

Micah: 20:54 And he started laughing right? It was, I was like, that was a gross error on my behalf. I am so sorry. He was just amazed at how the cash flow worked. All it was, it wasn’t the details of the 50-page financial plan, it was understanding his spending. That was all he was looking at, it wasn’t all of the details over the pages. It was saying, whoa, this is how much you’re spending pre-retirement. This is how much you’re gonna spend post-retirement. No, no, no. I’m only gonna spend 80 percent of it. No, you’re not. You’re gonna spend everything that you’re making today because that’s what you’re spending now. It was understanding that in retirement. That was the number he was focused on, not the 50 pages of a cash flow timeline projection.

Matthew: 21:36 I totally agree. Since we’re talking about fee justification, let’s talk a little bit about charging for financial plans. Micah, this is where you and I have totally different philosophies on this and yet both our practices are very successful. So, in my practice, I don’t charge a separate financial planning fee. I don’t charge a separate financial planning up front, I don’t charge an ongoing financial planning fee. It’s all covered by the AUM fee. Sometimes when I’m talking with my advisors, they’ll say, “Well, Matthew, you can do this abbreviated financial plan because you’re not charging.” They say, “I am charging a financial planning fee of whatever and thus I have to do a longer plan.” Back to this idea that people are paying for the pages; a pay per page, almost.

Micah, you charge for planning up front and ongoing and yet your plan is just a few pages long. Could you elaborate on that for us a little bit?

Micah: 22:23 Sure. Well you just summarized it. I don’t know what else I need to say. Yes.

So, this, again, goes to setting client expectation. This, again, goes to accomplishing your client goals, right? When we engage with a client, we do not dazzle them with our printer’s ability to print pages. This is not part of the deal. What we’re talking about is discovering their goals and a lot of times, and you know this Jarvis, working with clients. They kind of know where they wanna go but they don’t really know.

Matthew: 22:50 Yep.

Micah: 22:50 That’s a big part of our job is to help clarify that future for them of where they wanna go, how they wanna do things, and I enjoy helping clients spend their money. I mean, going on trips and travel things they wanna do and saying, “You’ve got the cash flow to go do this. Go do those things that you want to do. It’s okay.” That is a big part of financial planning, is that discovery. That’s what we share. It’s not about the pages. We do charge separately for it, I explain it what they pay. We have an [inaudible 00:23:18] fee. We also have a financial planning fee. We explain how those fees are different and we explain how the financial planning fee is designed to cover those five areas. We also work with everything or nothing so that means you’ve gotta hire us on both fronts or we’re not gonna work together.

Clients like it. They like it, not because of the dollar amount that’s being charged. They like it because it’s transparent. They like it because they know exactly what they’re going to get. We deliver on our value time and time again. That is why they keep paying. Clients pay us on a credit card as well as on the AUM. They see their credit card statement, there’s no ambiguity about us getting paid. It’s not like some backend fee clients don’t see. It’s very up front and that’s what I like about the fee structure. That’s what clients like about it. They’re happy to pay and I’m still not having to give them 500 pages of a financial plan because you’re doing what you said you were going to do from the onset.

Matthew: 24:11 And something, Micah, that I know that you guys are really great at in your office and you mentioned it now just briefly but it’s setting expectations with prospects and with clients. I know this is something that your team does in every meeting, in every conversation. But as you mention, in that initial conversation, you’re telling them, “Hey, here’s how this financial plan is going to look. Here’s how it’s not going to look, by the way. Here’s how much it’s gonna cost and here’s what you can expect from that.”

So, when I’m presenting it to people whether I’m presenting for a financial plan or to work with our office, I’m just really clear. Hey, to work with our office is going to cost X. In our office, you can see this from our ADV and since this isn’t an FDA presentation, I’m not gonna get in trouble for sharing my fees. On our ADV, clients with less than a million dollars, we charge one and a half percent annually. Clients over a million, we charge one percent. So, let’s say it’s a client with two million dollars, say, “Hey, you know what? Our fee is one percent annually and it’s taken out on a quarterly basis. So, in your situation it’s going to be about 5000 dollars a quarter that’s gonna be deducted from your account. Now each quarter you’re gonna see that as a line item on the statement. It’s gonna say Jarvis Financial Advisory Fee. You’re gonna look at that number, I’m gonna look at that number and we’re both gonna decide, is the value of Matthew’s office, is the value they’re providing, does that exceed the fee? If it does, we keep going. If it doesn’t, we need to part ways as friends or at least have a really frank discussion.”

So, by doing that, I’m really setting the expectation with clients. Hey, here’s how much it’s gonna cost and here’s the matrix you’re gonna use to evaluate it. What happens a lot of times is advisors don’t set that matrix, that evaluation. They say, “Hey, my financial planning fee is 10 thousand dollars.” I don’t know what the number is, whatever the number is, and they don’t tell the client or the prospect how to deem if that was money well spent and I think that’s why they fall into this trap of, well I’m charging them 10 thousand dollars, they’re gonna wanna see a lot of information. No, really what they’re gonna wanna see is value that’s worth more than 10 thousand dollars.

Micah: 26:02 One of the things that I think really comes up too, in that meeting, they wanna see value that’s north of 10 thousand dollars. I love the way you put that matrix up there, that’s just says look, if you don’t think I’m providing this value, we need to have a conversation and potentially part ways as friends. I think that is great and it needs to be constantly blown up, the value in which you’re adding which I know, Jarvis, you do great in your office. You constantly demonstrate to the client the value you’re offering. Sometimes I get the question from clients, from prospects I should say, when they’re coming on when we quote our financial planning fee plus an AUM fee, they come and say, “Am I gonna make that money back up?” And I have to have the conversation with them, with a financial plan, there’s some ways in which you’re gonna make money. We’re gonna present to you some new factors, we’re gonna talk about different [inaudible 00:26:45] strategies that help provide, design retirement income plans where they can outlet their money.

There’s gonna be something that I can quantify like that. There’s a lot of things you cannot quantify like when you do a correct estate plan, how am I gonna quantify that? If you didn’t die for 30 years, wasn’t worth a whole lot for 30 years. Something really bad has to happen to you for this great estate plan or insurance that we’ve designed, to kick in. So, you have to talk to the clients about the nature of some things you can put dollars on and some things you can’t.

When you’re charging a financial planning fee, I think a lot of advisors don’t do that. You have to set, again, setting expectations with a client. Let them know how they’re getting return on their money, how they’re getting more value out of it and what is some intrinsic value that’s in the plan. I tell my clients this, “Look, if estate planning and taking care of your loved ones isn’t important to you, that’s okay. Don’t pay me because I’m not gonna work with you. We’ve gotta take care of your loved ones. You’ve gotta make sure these things are taken care of.” Set your expectations. That is the key.

Matthew: 27:44 You’re spot on, Micah, and again this is something that we talk about all the time but another trap that advisors will fall into in this area is letting the clients believe either, implicitly or explicitly, that you’re gonna give them performance, investment performance that exceeds your fee.

Micah: 27:44 Yeah.

Matthew: 28:00 Of course, no advisor would ever say, that right? It would be a compliance nightmare, but we’ve all seen clients or prospects who come in and you can tell that they have that in mind. And that’s another, when setting expectations is also dissolving unrealistic expectations. We’re not saying, pay us one percent a year and we’ll earn you two percent a year. Obviously, we’re not saying that because we can’t deliver that but it’s gotta be, hey, here’s examples of value we bring to the table, to Micah, you’re point, some of those you’ll see right away; tax strategies, improving your investments, others will take a long time to pay out.

Micah, if you don’t mind, I wanna shift gears just a little bit to charging for financial planning which is something I know that you do. It’s something I think a lot of advisor’s struggle with when they’re charging a financial plan. I was recently in a conversation with some advisors and they said that when they quote the planning fee, that’s when they meet a lot of objection in their office and that’s when they’re having a lot of prospects say, “I just don’t think it’s worth it. I’m just not going to pay.”

I’m curious on your thoughts but I explained to them, I said, “When you’re meeting with a prospect and you’re telling them you’re gonna charge X for a financial plan. They know what X is right? They know what five thousand, 10 thousand, whatever the dollar amount, they know what that is. But financial plan is the same to them as saying, we’re gonna give you a marshmallow. They really have no idea what a financial plan is. So, you’re asking them to take this enormous leap of faith, right? Give me 10 thousand dollars and hope that this mysterious, nebulous financial plan will be of value to you.”

Micah, in your practice, how do you help resolve that concern or set those expectations around paying you to create a stack of paper?

Micah: 29:38 Well, we eliminate that. We don’t create a stack of paper but that’s a great question. One of the things that a coach told me and I’m trying to remember his name because I’d love to give him credit, a while ago, is when you’re meeting with prospects and they’re looking at hiring you and you get to that point in the conversation about whether they wanna hire you. Ask them if they’ve ever hired or worked with a financial planner before. Then define or correct what that relationship looks like. So, same thing, setting expectations. We say financial plan because in our mind we know what it is, but you haven’t clearly defined that to the client.

So, there’s one of two things. Either you failed in your communication, if a client says it’s not worth it. You failed in your ability to communicate your value, right? Failure on your end. Or two, it wasn’t your ideal client and you’ve gotta evaluate which one that was. It’s okay. Somebody, oh we meet with prospects and unideal clients that don’t wanna pay our fee, that’s okay. There’s nothing wrong with them, they’re not bad people. It’s not a good fit, I’m glad we found out at the beginning but if you’re having a problem articulating your value, then you need to work on your communication ability.

You need to work on that prospect meeting of probably shutting up and listening. You probably need to listen more in that prospect meeting to what their actual concerns are, to what their problems are, and you need to be better at illustrating very quickly in that initial meeting, how you’re going to help eliminate those problems. You need to bring up things in which they haven’t thought of and explain to them how that’s going to work. So, these are things that you need to work with if you’re getting rejection on your fee, is you can’t communicate your value or they’re not your ideal client. Which one is it and fix it. Get better at identifying your ideal clients or get better at your communication ability in that meeting.

Matthew: 31:28 Now, Micah, when you’re charging for your financial plan, do you have people pay up front for that?

Micah: 31:34 No. It’s a key role that funds stop where we only charge up to 40 percent up front. So, we charge 40 percent up front then the remaining balance over the time period. What I tell my clients is I don’t care how you pay as long as it’s on valued credit card. If you wanna do monthly, if you wanna do quarterly, if you wanna do whatever. I wanna put it on auto pay in my system and not worry about it. That’s my only requirement. Other than that, I only work with good people and we’re not screwed. People take care of us. We provide consistent value, they’re happy to pay us and I don’t have a cash flow problem, so I don’t care if a client needs to do monthly payments or wants to pay up front or in the rears or anything like that. It’s not a cash flow constraint.

Matthew: 32:17 Now, Micah, and I know the answer to this question, but I think it’s relevant for the group. Listen, have you ever had somebody get to the end of the planning process and say, “You know what? Just didn’t meet my expectations. I don’t wanna pay you.”

Micah: 32:27 Yeah, yeah, actually, what they said … talk about getting me upset and this was my fault, alright? I didn’t identify they weren’t an ideal client because I was working mainly with him, she wasn’t really in the meetings, when she was, she was disengaged but I really liked him, he really wanted to move forward in the planning process. Went through everything, got through 15 months or so and I get an email from her that says you know what? We would like a refund of our entire financial planning fee. And I was like what? For what? I went through and I called her, and we talked, and I said look, do you not think it was of value? If you don’t think it was value, I’ll give you your money back without a question. She said no, it was value, but I want all of our money back. So, I said you got value out of it? She said, yes! I said, and you’ve done the things we’ve talked about. Yeah! And they’ve improved your life? Yes! And I want my money back.

So, yep, and guess what we did? We gave her her money back. Does it still bother me? Clearly, right. I just got really upset when you said that. So, you’re gonna run into that but how many, out of the hundreds of people we work with, this was one? Okay, next. It was a lesson learned. It was my fault. I failed to identify that wasn’t a good relationship at the beginning. It’s not hers, it was mine.

Matthew: 33:41 Something that, when I talk to advisors, they’re concerned about that. They say, “Hey if I don’t charge until delivery, what if the person doesn’t like it? What if they’re just trying to freeload?” I give them the same answer that you did Micah which is, I need to take ownership of either, I’m not identifying people correctly in advance, and or that’s just a cost of doing business. With that example you gave, maybe you could’ve put up a fight and said, “I delivered, I’m not gonna give you your money back.”

But A is that somebody you wanna keep on the books still? And B, do you really wanna pick a fight over however much money that was? I know in your office, that’s not an inconsequential amount but do you really wanna risk a formal complaint? Do you wanna risk … even, let’s take it a step back. Do you wanna risk having somebody out there that says, hey I paid Joe whatever for a plan and I didn’t think it was worth it and he kept my money. Is that really what you want out there or would you rather give that person their money back, say you know what? My apologies. Wasn’t a good fit, sorry if we wasted your time. Go in peace. Which scenario do you want? And to your point Micah, how often is that really gonna happen? Unless you’re really scraping the bottom of the barrel for prospects, very few people are gonna try to take advantage of you like that.

Micah: 34:45 Right. That’s one of the things that I think is really good about our promise. You have your sleep on it right? When you go through the process and they hire you, you want them to sleep on it. In our process, if they do wanna hire us at that initial meeting, I tell them, I say, “Look, this is 100 percent refundable. If you call me tomorrow” and say, let’s say they pay 40 percent up front or whatever the dollar amount, I don’t care. They pay something up front, I say, “Look, you call me tomorrow and you don’t like this, money’s going back on the credit card. Done. Refunded. Not a problem. You call me in six months and say that you’re not happy with it, I’m gonna ask why. I am. Just to be clear because I wanna know how to improve our process. If you think we failed to deliver value, I will refund 100 percent of your financial planning fee because this is how important it is to us.”

I tell them what you just said, Jarvis, I said, “Look, I would rather us leave and you say, I work with Shilanski, it didn’t really work out too well, we parted ways.” And that be the end of it versus that dirty, rotten S-O-B worked with me, he took my money, and he didn’t do a bloody thing. I don’t want that out there. I’ll give you your money back.

Matthew: 35:47 You know, we do, and we’re getting a little bit of a rabbit hole here, but we do the same thing on the rare occasion that we have a client leave for whatever reason. Instead of trying to calculate the prorated fee for that quarter, we just go back and refund the entire previous quarter’s fee. Again, just because we’d rather them, they’re leaving because there was some mismatch of expectations and reality and we’d rather them leave thinking, you know what, he ended with integrity and he left on a good note and that’s good. Like I said, that very rarely happens but when it does, I just don’t hesitate. I don’t wanna squeeze somebody for a dollar so that I’ve got all this bad karma or bad, somebody speaking bad about me out there in the universe.

Micah: 36:24 I know we did a podcast before on this, but it goes back to taking the high road. It’s really about going back, taking the high road, setting yourself above other people from your values and perspectives and say no, I’m gonna do what’s right. Sometimes it doesn’t feel very nice, but you still are always gonna take that high road, you’re gonna do it best.

Matthew: 36:45 Yeah and that is a great podcast to go back and listen to, that we recorded some time ago.

Micah, I’ve got one last thing I’d like to cover in this topic and of course, anything else that you’ve got. One thing I think advisors often forget is basically everything that is included in a traditional financial plan, if you will, whatever that actually means, is available on Google. No matter how vast your knowledge, no matter how many books you’ve read, no matter how many conferences you’ve attended, Google knows everything you know. Maybe not you Micah because you’ve got superhuman abilities but for the rest of us, Google knows everything that we know.

What Google doesn’t know, at least not yet, is how to take that knowledge and translate it into specific action steps. Google knows everything about Roth conversions. Google knows everything about tax law harvesting. It’s all in Google times a million but what clients are coming to us for, prospects are coming to us for is not information, right? Information is endless and basically free in our world. They’re coming to us for very specific, tailored advice. That, I think, is really the arch nemesis, if you will, of a typical financial plan, is that they’ve come to us for advice, they’ve come to us for personalized recommendation and really, we’re just giving them the exact same thing that Google’s giving them.

In fact, I’ve met people, if you go on the Bogleheads, all the Vanguard followers, they have their own forum and they talk about, hey don’t ever pay a financial planner from MoneyGuidePro, just go subscribe to it yourself for a month and use it on your own for a fraction of the price.

So even this software that you feel is really elaborate, anybody can buy it. It’s not like its proprietary to our industry. So that’s a bit of a rant but Micah, how do you apply that in your practice? How do you recommend that to other advisors?

Micah: 38:28 Absolutely. I agree with you. Everything is out there. It’s all information, right? All the medical information is out there too. All the tax information is out there so why are CPAs in business? All the legal information, well they got themselves pretty protected about only attorneys can do certain things but all the legal information’s out there. Yet, it’s not information your clients are seeking; it’s wisdom. It’s the application of knowledge. They wanna delegate to make sure everything’s taken care of.

Our clients, I’m gonna brag about them, they’re extremely smart individuals. Most of them have education far surpassing my level of education. They’re extremely smart at what they do. They do not do financial planning. This is why they’re coming to us. When I bring up conversations to a client, nine times out of 10, they’ve heard about these concepts before. They’ve heard about the terminology, maybe they’ve read something, but they don’t know how it applies to them. That is where we come in, is we can take that knowledge, that information, we can apply wisdom to it and experience and help them in their situation. You’re worth a tremendous amount to your clients when you provide massive amounts of value and you should charge for that in a financial planning fee.

Matthew: 39:40 That’s very good Micah. Really, really enjoyed this conversation today. Let’s wrap up with a couple of action items, as we always do. Our podcast, The Perfect RIA website, everything is about taking action not just learning. So, let’s talk about a couple of action steps.

The first one that I would offer is, take your financial plan, however it looks, and go through with a highlighter and highlight any place where you’re giving customized advice. To Micah’s point, wherever you’re providing wisdom. Just look at the entire document, be it one page or 500 pages, and just highlight where You’re giving specific advice and wisdom and then contrast that to everything else which I’m gonna call noise. So where are you giving wisdom and where are you giving noise? How can you cut back the noise and highlight the wisdom? So that would be action step number one.

Micah, how ’bout yourself? What action steps would you recommend to our advisors who are listening?

Micah: 40:33 I’d say, number two, can you effectively explain your financial planning process in less than 45 seconds to anyone and have them understand it?

Matthew: 40:43 Oh, I like that one.

Micah: 40:45 If you can’t, this isn’t an elevator pitch by the way, explain your financial planning process in less than 45 seconds –

Matthew: 40:52 Sorry, can I start the clock and hear yours Micah?

Micah: 40:57 No, not at all. We’re gonna have to save that for another one.

Sure, yeah, I’ll go through and explain what we do.

Matthew: 41:05 Yeah, I mean you’ve hit pieces of it throughout the podcast which has been great but I’m gonna put you on the spot here. Would you give us your, I wouldn’t hit a buzzer at 45 seconds but, I’m a prospect, Micah, I’ve heard I need some kind of financial plan. You recommended a financial plan. What does that mean?

Micah: 41:24 That’s not how prospects come to me, just to be clear. You would’ve hit the office before they come to me but sure, let’s talk about that. You know, Matthew, talking with you and Jackie, what we do is comprehensive financial planning services. Now, that means many different things. Here’s what it means to us.

We’re gonna sit down side by side and we’re gonna walk you through your estate plan; wills, trusts, healthcare directives, durable power of attorneys, and we’re gonna get the things done that you’re supposed to get done and you haven’t done it. We’re gonna talk about risk management which is my fancy way of saying insurance. We’re gonna go through risk management which is a talk about all your insurances, life, health, disability, long term care, all the stuff you don’t wanna talk about. No taboo subjects. We’re gonna talk about retirement income. Where’s your money gonna come from? What are your goals? What are your desires? What are the things you wanna do? We’re gonna get to investments and we’re gonna get to taxes and we’re gonna lower your taxes over the next 50 years. That is a comprehensive financial plan and that was 41.62 seconds.

Matthew: 42:20 Yeah and by the way, having worked with Micah a lot, he was a little bit rushed on that. When he’s doing it with a real person, he’s a little bit more empathetic in that. I don’t mean that in any disrespect to you Micah.

Micah: 42:30 No, that’s okay.

Matthew: 42:31 Notice how that came out. That’s not a sales pitch right? It’s not an elevator pitch, it’s not about manipulation. It’s about saying, “Alright, how can I make sure these people achieve their financial goals?” You might say, that’s kind of cliché, that’s what we all say. I know in Micah’s office because I’ve worked with him, I’ve worked with his family. That’s a sincere thing. When somebody comes in, they’re saying, alright how do I make sure this person achieves their financial goals, hopefully that’s with us but really the number one is how are they gonna achieve their goals? How does this financial plan, how does our process, how does our team, how is everything designed so they can achieve their financial goals?

Micah: 43:08 Exactly. So, what’s number three Jarvis?

Matthew: 43:10 Number three, shorten your financial plan. Unless you’re down to one paragraph. Well, number three is really do an executive summary of whatever financial planning you’re doing. So again, a lot of broker dealers, a lot of groups will require a lengthy plan for compliance, that’s fine. We’re not gonna try to skirt the compliance department but get approval to do some kind of one page or two page or five-page summary of the action steps. So, no noise, just pure, I recommend that you do this because of that.

Micah: 43:42 Right. Because is important. Tie it to the why, tie it to the client’s goal because that’s how you get clients to implement is when they see how it helps them achieve their goals. That’s what you’re going for.

Matthew: 43:55 Yeah and we’ll do a whole podcast on benefits versus features. Something where a lot of, not just advisors, everyone everywhere gets hung up on that. I’m gonna do up a financial plan for you, that’s a feature, a benefit, and Micah had this, by the way, in his 45 seconds. A benefit is we’re gonna reduce your lifetime tax bill. Oh, well that’s something I want. Tax analysis, what does that mean? Reduce my tax bill, that’s a benefit. That I can clearly see. So, the action step for number three, shorten your plan or do some kind of executive summary of your planning process.

Micah, do you have a fourth one for us or are we good with three?

Micah: 44:29 I don’t. I say let’s leave it on three. Those are three really powerful things and again, this is about implementation. It’s not enough just to listen to this podcast but you have to go out and implement it. Actually, this is the fourth one, maybe this is the first one you should do, I’m gonna lie. Go rate this podcast five stars. If you haven’t done that already, give us a five-star rating in iTunes. If you don’t think it was worth five stars, don’t even waste your time rating us. Just five stars only, that would be great.

Matthew: 44:56 Just five stars or nothing. On that housekeeping note, I think, as we mentioned on our last podcast. Despite only having done a few episodes, we’re already in the top 50 percent of podcasts so thank you to –

Micah: 45:05 Very much. Thank you.

Matthew: 45:06 Everyone who’s listened and downloaded. Also want to mention that if you are not on our email list, you want to get on it. We’re releasing a series of videos including our presentation at the FPA retreat. So, if you wanna get copies of videos that we’ve recorded, make sure to go to our website and subscribe so that you can get those awesome videos.

Micah: 45:25 I think it’s been, for one, great talking to you again Jarvis. It’s always fun. I hope this information was great benefit and we add value to client’s lives. Go and add that value every day.

Matthew: 45:36 Okay, thanks so much everybody. We’ll see you next time.

Micah: 45:38 Bye.

Speaker 1: 45:41 You have been listening to The Perfect RIA podcast. For more information on how you can build a highly effective financial planning process, please visit theperfectria.com.

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