When to review a client’s financial plan

Has your dentist ever tried to sell you an electric toothbrush? This corresponds to their mission, to take care of the health of your teeth. Using it will be good for you, but selling the toothbrush is a transaction that makes them money. The electric toothbrush is not an integral part of the current relationship. Financial planning should not be the same as this situation. It should not be considered a one-time transaction. It is an ongoing process that adds value to the customer relationship.

Set reviews

A financial plan review is not a portfolio or performance review. When the stock market is volatile, clients often wonder how they are affected, asking, “How am I? Answering this question is not the same as a financial plan review. House prices are also dynamic, but customers do not worry about daily fluctuations in the price of their house because the price is not published daily in newspapers and online, while stock prices are published.

Different people and companies use different terminology. Think of a financial plan as a roadmap to help the client get from point A to point B. A portfolio review examines the performance of investments. Progress toward goals is self-explanatory. You review the objectives defined in the plan: are you on the right track? My former company used the term Wealth Report, which examines areas such as net worth and projected retirement income using Monte Carlo analysis.

Initial development and implementation

If your accounting practice offers financial planning as an advisory service, you understand that it is not a one-time transactional product like an electric toothbrush. Financial planning is an ongoing service. An ocean liner crossing the Atlantic is a good analogy. You have a starting point and a destination. GPS technology allows you to know your position during the journey. The ship’s captain sometimes makes course corrections to avoid storms. Other times they have to stay the course and endure the bad weather, struggling to keep to the schedule. The analogy contains another important point: buying a ticket for travel does not guarantee that you will arrive safely or on time. In other words, paying for a financial plan does not guarantee client success. There are always unknowns.

A major value of financial planning is the ability to deal with unique situations. If a client lives a simple life, they could probably do with an online scheduling tool. Most people think their situation is unique. As an accountant, you’ve heard the expression: “More money, more problems”. Financial planning can help deal with scenarios such as supporting children from a previous marriage or children with special needs or caring for aging parents.

Once a financial plan has been prepared and reviewed with the client, the implementation process should occur over a series of several meetings. These can be spaced a month apart. Why the delay? Imagine saying, “We need to talk about retirement, planning, portfolio management, income replacement insurance, and estate planning. Let’s do it all today! The customer would be overwhelmed. They would feel like their life was turned upside down. They would be faced with many decisions. Their eyes would glaze over. They would say, “Stop. I’m not sure I want to do that!”

If you divide the implementation into segments, it’s like slowly eating a series of small meals. The client can digest the last segment and be ready for the next one. Most accountants and financial planners are unable to implement all of the recommendations internally. They may need the services of an estate planning lawyer or a mortgage specialist. You may recommend a few qualified professionals, but you must follow up to confirm that the relevant aspects of the plan have been completed. Your client wouldn’t be the first to set up trusts as part of an estate planning strategy, but neglect to fund them because no one followed suit.

Financial plan review

The client’s financial plan should be reviewed at least once a year. Twice is better. A large portion of the meeting should be devoted to reviewing progress toward goals. This helps clients focus on the big picture. It’s easy for customers to worry about daily stock market movements, especially if they watch financial news channels on cable TV. They may want to beat the indices. They wonder if they should pull out of the market. Maybe they should buy the hot stock everyone is talking about. It’s not healthy for many reasons.

By focusing on progress towards goals, you are able to calculate the return they need to achieve their investment goals. I heard a financial adviser use the term “the family index”. Now you don’t worry about beating the market, but about maintaining the performance you need to reach your goal. If the time is long, often the output required seems modest. Here is a big advantage of the concept: if you exceed the required yield and recalculate, you now need a lower yield in the future. This is useful as clients age and should theoretically reduce investment risk. Here’s the downside: if you have bad years in the stock market, you need a higher return in the future (or add more money) to stay on track.

Portfolio review frequency

Portfolio reviews focus on asset allocation as well as buying and selling investments. These should be done at least once a quarter. Years ago, statistics showed that clients perceived they were getting good service if they had a meaningful conversation with their financial advisor six or more times a year. Portfolio reviews are meaningful conversations. Asset allocation revisions are an opportunity to take money off the table if stocks are doing well and stocks are now overweight. In declining markets, it is an incentive to add stocks when prices have fallen.

The importance of being proactive

If you offer financial planning services, it’s important to be proactive. You have other reasons to speak with clients than to conduct reviews of financial plans or portfolios. Ask if there have been any life-changing events or major changes since your last conversation. Your client may have decided to retire early. Maybe they inherited the money or their in-laws moved in with them. This means that their financial plan needs to be updated. It is a dynamic document. In this case, the life-changing event would trigger an unforeseen review of the financial plan. Even if there are no major life events, plans should be updated every three to five years.

On-demand exams

If you provide financial planning or investment services to your client, you must respond to their requests. It’s also important to understand that life isn’t all about pop quizzes. If they call you home at 10:00 p.m. on a Friday night, it’s unreasonable for them to expect you to be able to answer detailed questions involving numbers. (Actually you can, if you have access to an online account.) You need to be responsive, though you may have to delay a detailed response until Monday when you’re back at your desk and have access to the data you need. Another approach is to schedule these periodic reviews in advance. Now you can say, “I can get back to you with answers on Monday, but we have an exam scheduled in eight days.” Do you prefer to wait until they are?

In conclusion, financial plans should be reviewed once or twice a year. Portfolio reviews should be quarterly and you should respond to client requests. Scheduling revisions in advance helps relieve demand pressures.