Planning guru makes a business case for investing time to build a plan with lower-net-worth clients
Advisors who put the time and effort into building financial plans for all their clients have proven their value through this downturn and set themselves up for growth in the ‘new normal,’ says one financial planning guru.
Shannon Lee Simmons, founder of the New School of Finance and public advocate for financial plans says that lower net worth clients who had been set up with a financial plan by their advisor are sitting in a stronger position after the downturn. She says that some of the least exciting aspects of planning have proved themselves essential and that advisors who built these plans for even the lower net-worth clients on their books have proven their value and established a trust that will pay dividends in future.
“What I'm hearing from my clients who aren't high net worth investors, but have a financial plan is that when the downturn came they we're either paying down debt or debt free and had emergency funds,” Simmons says. “People get really frustrated about emergency funds because they're so boring until you need them. They just seem like money sitting on the sidelines earning barely anything and you're like an interest and then all of a sudden, there's something like this and you're so grateful for it.”
While advisors have a fiduciary duty to best serve their clients’ interests, no matter how small the account, Simmons says there’s a strong business case to be made for setting clients up with a plan, especially now as we move into a recession. Putting that work in while a client is establishing their career or their family, as they begin to save, sets up the advisor as a trusted and essential figure in the client’s life as they begin to build a bigger portfolio. Planning for millennial clients, too, sets up an advisor with a client likely to inherit significantly from their boomer parents.
Simmons also says advisors shouldn’t overlook the benefits that come from positive word of mouth. Setting up a lower net worth client to weather this storm will see them singing your praises. As Simmons says, you never know who someone is friends with or related to.
At bottom, though, Simmons says that building plans for lower net worth clients is the right thing to do.
“Everybody's working really hard for their money,” Simmons says. “I think that it's really unfortunate that people who maybe aren't at that million-dollar mark don't necessarily have access to somebody who is caring as much as they would if they were worth a million.”
When building financial plans, Simmons says advisors need to look first at a clients’ cash flow management. Simmons says clients who are aware of what’s coming in and what’s going out, even if they’ve suffered a job loss, are in a better position now than someone coming to her for the first time. With an understanding of cash flow, clients can build that emergency account over time. They can also build sustainable investment accounts through monthly contributions, establishing a risk tolerance informed by a real understanding of their cashflow.
When markets do turn down and client anxieties reach new heights, Simmons says the financial plan serves as a touchstone, a source of comfort and reassurance that can stave off the irrational decision making that proves so costly in the long term.
“The downturn is a reminder that we make we make decisions differently when we're in panic mode versus logical mode,” Simmons says. “That plan was made at a time when you weren't panicking, when we weren't in a situation where everything just got turned upside down. At the time the decision you made was very logical. It made sense. You were like you were excited about it. And now this is the first time we've tested that risk tolerance, it’s a learning opportunity.”
Simmons says the projection side of planning allows advisors and clients to have a logical conversation about what’s actually possible. She says that plans need to include reasonable projections, accounting for the likelihood of sudden changes, to communicate what a client’s goals should be. The projections can quell anxiety, too, as accounting for the downturn means the client knew this reality was possible and had already accounted for it.
For all the good a plan can do, Simmons says the best plans are backed up by a human presence. Through this downturn, she says her biggest takeaway has been a reminder that human contact is essential to this business.
“I think people in times of panic and anxiety want to speak to someone, to tell them it's okay nd to remind them about why they're in this plan in the first place,” Simmons says. “I think that the communication piece with clients is worth its weight in gold during these down times.”