Simplify Your Advice
We have recently been working with advisers on trying to understand how you can simplify your advice. All to often we find that the adviser can get stuck in the complexity of what they are trying to achieve, when really, it is just a series of smaller strategies.
To demonstrate this, we will go through a recent client scenario:
The Problem:
The adviser wanted some guidance on structuring the advice as the objective was a little unusual.
The Solution:
Scoping:
Firstly, ask yourself: Do we need to address all these needs now (scoping)?
The first 3 objectives seem the most immediate in the short to medium term. Once the kids leave school and debt is paid down, we can then concentrate on creating wealth and retirement.
Ask yourself, or ask the client: Are they client seeking your advice in all these areas now? This is just clarifying the clients priorities.
If the client is not seeking your advice in all areas at this point in time i.e. ‘Retire Comfortably’, then you can scope it out at this stage and address it when it is relevant. We don’t need to jam everything in all at once.
If they are seeking your advice in all areas, we need to know what investing to create wealth and retiring comfortable actually means (it is a big ambiguous at this stage).
The client may be able to do all this at once, but they would need a strong cash flow. The first objective (start saving money) indicates that isn’t the case? It is difficult to start investing to create wealth when we can’t save any money as a starting point.
Objectives:
Now let’s look at the objective:
“You would like advice on how to efficiently fund your childrens secondary education costs, extinguishing debts by Bruce age 60 and building wealth for the future. You would like advice on how to order these potentially conflicting objectives to ensure they are achieved.“
It’s a funny one, because the client was seek advice on how to order these objectives, which is exactly what the adviser was seeking advice on too….. There is too much going on all at once.. It’s a bit of a mixed salad of objectives.
We would suggest something like:
Objective 1: You are concerned about where your money goes each month and would like to start saving money. You would like to know how much you need to save each month.
Recommendation:
We recommend you set a budget to save $XX,000 per month.
Reasons:
Setting and maintaining a budget will help you understand your cash flow to utilise the funds for paying down debt, paying for school fees, and creating wealth.
Objective 2: You want to pay down your non-deductible debt within the next 15 years, when Bruce is 60. You would like to know how you can achieve this.
Recommendation:
Use your savings of $XX,000 to pay down your home loan each month.
Reasons:
By making extra repayments of $XX,000 you will save on $xx in interest and repay your home loan in 15 years’ time, when Bruce is 60.
Paying down debt is a forced savings for kids school fees.
Paying down debt will give you a guaranteed rate of return on your savings, as you will save 6.5% on your home loan each month.
Objective 3: You want to send your kids to a private GPS school costing $20k per annum for each of your 2 kids. You would like to know how you can fund your children’s secondary education costs.
Recommendation:
We recommend you redraw on your home loan as these fees fall due.
Reasons:
You will have saved up a significant redraw of $XX in your home loan from the extra repayments made.
You are able to redraw the funds to meet your school fee expenses.
Objective 4: You would like to start investing to create wealth for your future. You would like to know how to invest tax effectively invest over the long term.
Recommendation:
Redraw $200k for your home loan to invest in a diversified portfolio.
Reasons:
By redrawing from your home loan and investing in a diversified portfolio you can invest tax effectively by claiming a tax deducion on the interest repayments.
We estimate the investment will grow to $xx by XX date..
We discussed the effectiveness of using your home loan is a tax effective investment .
Objective 5: Retire comfortable – scoped out. We would address this once you get closer to retirement.
Key Take Outs:
Try to structure your advice as follows:
The Problem: Outline the client’s problem or what are they concerned about. Use their language here so they can resonate with the problem.
The Question: What advice they are seeking from you? Set it up so you are going to provide them with a solution
The Solution: What is your advice to solve the problem? What action does the client need to take to resolve the problem?
Why The Solution Is Appropriate: Clearly outline the reasons why the solutions is appropriate and any benefits the client will receive i.e. tax savings, interest savings etc etc.
Other Tips:
Prioritise the clients objectives and clarify what they want advice on now. Don’t try to advise on variables in the future… If you can’t answer it now the client might not want the answer now.
Don’t focus on your recommendation and try to massage the objective around it.
Don’t try and jam too much into the one objective.
If things are looking a little too complex, try and break it down into more simple chunks. Your client wont immediately see the big picture. We need to break it down into more simple chunks they can understand.
Don’t rely on standard text templates. An objective that gets to the point will be much easier to answer.
Looking Forward:
In a post QAR ‘Good Advice’ world, things will be much more subjective.
We can’t rely on the 7 steps of safe harbour process to structure our advice. To demonstrate good advice, you will need to be able to clearly articulate the clients objective, and then simply address the that objective. The good thing about that is that you should be able to do it in very few pages.
If the objective is too vague or confusing, you will have great difficulty in demonstrating how your advice was good advice.