When Marty Kurtz, The Planning Center’s founder and partner, talks with a new prospective client, he knows performance of the portfolio is the proverbial elephant in the room. And while Marty acknowledges the elephant, he doesn’t let it run wild. He has tamed the elephant because he has learned a simple truth: While performance is certainly a curiosity and will always take up space in the conversation, it must not be allowed to dominate the conversation.
When Marty meets with a prospect, he understands that they are coming in seeking expert counsel, so he controls the meeting. The advisor who controls the meeting sets the agenda, and Marty’s begins with process. He helps clients understand straight away what it will be like to work with The Planning Center, and why the firm has chosen to follow the investment methodology they do. There’s a lot of fact-finding up front. His objective? To determine the answer to a simple question: “Where are you today, and why are you here?”
An advisor’s role includes dealing with your clients’ behaviors, and helping them understand how their behavior will be a determining factor in itemizing what needs to be done concerning their financial goals to get them from where they are today to where they want to be in the future. Are we talking about money? Of course we are. Are we expecting that money to grow? Absolutely. But the journey is also about goals and plans.
Defining the Client Dilemma
Marty doesn’t like to focus on rate-of-return expectations at the beginning of a relationship, but that’s not because he is trying to hide something. On the contrary, his firm includes every client’s total lifetime advisory fees that have been paid to the firm on quarterly statements—an almost unheard of practice in the advisory world. Transparency is obviously not an issue.
While Marty is completely comfortable discussing performance if a client expresses interest in it, he finds most clients come with a distorted perspective of what the markets are like. For this reason, Marty believes that it is more important to focus on behaviors.
“Most people have a pretty skewed vision of what the markets are like. They tend to think of the movie Wall Street, where people are making phenomenal amounts,” he says. “We’re a financial planning firm, so we take a holistic approach up front. Everything is connected, and we need to look at all the levers that are connected, together: rate of return, amount of risk, taxation, spending.”
Marty approaches the initial client meeting much the way a psychologist might; the primary objective is defining the client dilemma. The two words that define the dilemma to him are vulnerability and uncertainty. Vulnerability refers to the realization we live in a world where we need to rely on others for our own well-being. In today’s world, vulnerability is increasing and self-sufficiency is becoming more difficult.
“We have to trust more people than we have ever had to in our lives,” he says. “We have to believe others will help us. Every time we expand our relationships and trust more people, we become more vulnerable.”
Uncertainty is rooted in the simple fact that most of life does not have a single, determined answer. Literally anything can happen. Financial planning includes helping your clients manage risk; however, investing is an exercise in uncertainty. No one knows what the markets will do tomorrow.
“We used to attempt to convince people there was nothing to worry about; now, we tell people that there’s plenty to worry about, but the fact that they have taken it upon themselves to visit a professional, in any subject, is in effect a risk management tool,” he says. “You go to an accountant because it’s risky to do taxes yourself. Risk is inherent in what we do. Advisors are a risk reduction tool in our own right.”
The advisor’s job includes evaluating what they believe their client’s risks are, and what their capacity is, and what the balance needs to become between risk and uncertainty.
When a relationship begins, Marty stresses up front that clients have control over the decisions they make and the behavior that causes different situations. Everything else is at the mercy of random order, including that mystical "always positive" rate of return that every client wants to see. The Planning Center keeps the elephant in its corner—but that doesn’t mean it will behave the entire time.
The Planning Center gauges client relationships by looking at their entire life. They use recurring satisfaction surveys to track how satisfied a client is with their budget, estate plans, life insurance, how well they understand the markets, and more. In this way, the client diagnoses their own issues, which leads to productive conversations where everyone is informed. That survey, among other tools, allows them to set major goals and put those pieces together into a connected life plan.
The surveys are revisited and updated because, as Marty emphasizes, working with a financial advisor is a 40-year conversation. The personal element cannot be overstated.
“Rate of return does not go away, but it is irrelevant the first 20 years. That’s why we must talk about more than rate of return,” he says. “Ken French said 15- to 20-year returns are statistical anomalies. People who look at it quarterly will never be able to deal with the uncertainty of everything else.”
Marty uses various software tools to help his clients manage uncertainty. Clients have always-on access to their client portal, so when they come to a review meeting, there’s no need to spend time on their returns because they already know what they are. If they have questions about those returns, they’ll be answered.
Giving clients constant, transparent access to their accounts allows The Planning Center to get into what matters most during meetings. He can discuss their life, what’s possible, and what’s not possible, instead of feeling compelled to explain the latest time-weighted return numbers.
The best way to address the elephant in the room and talk to clients about their portfolio expectations? Focus on what can be controlled.
“We used to tell people we have solutions. Financial planners don’t have solutions. We have things that might help in the right circumstance,” Marty says. “We do everything we can to build certainty into our lives, but the world has always been uncertain. There’s so much we can’t control. We control our behavior that causes decisions and decisions we make.”
Toss the elephant some peanuts from time to time; never pretend it doesn’t exist—but don’t let it control the conversation. If you let performance define you, you lose. The elephant is a character in your client’s story. Now go write the story around them.
Eric Clarke is the CEO of Orion Advisor Services, which provides software as a service and portfolio accounting services to registered investment advisors.