6 Key Value Propositions A Good Financial Planner Can Provide For Clients Seeking A Better “Return On Life”

From: kitces.com

The Varying [Not Always Unique] Value Propositions Of Financial Advisors

In the world of investment advice, defining a value proposition is relatively straightforward. Advisors can offer superior investment selection, better investment analysis, effective diversification and risk management, built on the foundation of a quality investment process, all in pursuit of the investment holy grail: alpha. Generating alpha by definition means the client’s risk-adjusted returns have been improved, and in the process also means the client who pays the advisor’s fee is generating a “Return On Investment” (ROI) in the form of higher returns over and above what was paid in fees.

While generating alpha is certainly difficult, the process of evaluating an advisor and whether he/she is delivering the desired ROI is rather straightforward. Investment results can be measured, quantified, benchmarked, and evaluated. A track record of prior performance can substantiate that results have at least been delivered in the past.

When it comes to financial planning, though, defining a value proposition becomes far more difficult. After all, trying to sell an intangible service is difficult, when prospective clients can’t see or feel it (as they could a tangible product). And it becomes exceptionally difficult to differentiate an “invisible” service that the prospective client has never experienced in the first place. While some focus on traits like the expertise and experience of the advisor as the “value” of working with him/her, that’s really more about the traits of the advisor than the actual value to the client. For others, the value proposition may be defined in more client-centric terms – benefits like “we provide you [financial] peace of mind” – but it still leaves something to be desired. How much peace of mind can an advisor give, really? And how exactly do you measure that to substantiate a track record of success?

At this year’s AICPA Personal Financial Planning conference, one of the general sessions was led by financial life planning pioneer Mitch Anthony, who put forth what may be the best set of terminology I’ve ever heard for articulating the true client-centric value proposition of financial planning. Framing it in the context of an (admittedly still unmeasurable) goal of improving a client’s “Return On Life” (ROL, as opposed to the traditional approach of trying to improve the client’s portfolio ROI), Anthony suggested that the six key value propositions of financial planning are that we provide:

Organization. We will help bring order to your financial life, by assisting you in getting your financial house in order (at both the “macro” level of investments, insurance, estate, taxes, etc., and also the “micro” level of household cash flow).

Accountability. We will help you follow through on financial commitments, by working with you to prioritize your goals, show you the steps you need to take, and regularly review your progress towards achieving them.

Objectivity. We bring insight from the outside to help you avoid emotionally driven decisions in important money matters, by being available to consult with you at key moments of decision-making, doing the research necessary to ensure you have all the information, and managing and disclosing any of our own potential conflicts of interest.

Proactivity. We work with you to anticipate your life transitions and to be financially prepared for them, by regularly assessing any potential life transitions that might be coming, and creating the action plan necessary to address and manage them ahead of time.

Education. We will explore what specific knowledge will be needed to succeed in your situation, by first thoroughly understanding your situation, then providing the necessary resources to facilitate your decisions, and explaining the options and risks associated with each choice.

Partnership. We attempt to help you achieve the best life possible but will work in concert with you, not just for you, to make this possible, by taking the time to clearly understand your background, philosophy, needs and objectives, work collaboratively with you and on your behalf (with your permission), and offer transparency around our own costs and compensation.

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