Translating crisis to opportunity
Among the expressions associated with the late John Templeton is “crisis breeds opportunity” – Sir John often pointed out that the Chinese symbols for crisis and opportunity are one and the same.I f you subscribe to the view that turmoil does indeed open the door to new possibilities, then seldom have markets presented us with better opportunities. The challenge is how to capitalize on them.
A U.S. survey by Consumer Reports conducted in the first two weeks of October and published this week indicates that today Americans’ biggest concern by far is the ability to retire when they want to – with 72% saying they’re uncertain about this. More Canadians are in pension plans and our housing market hasn’t been as hard, so the numbers would be somewhat lower in Canada , but the ability to retire is almost certainly the dominant concern here as well.
In my conversations with investors over the past month, there is a palpable sense of fear among many clients, with huge concern about what these markets will mean to their financial futures; even Canadians with company pensions are asking how secure those pensions will be. Contributing to that level of fear is the sense that the economy and markets have entered uncharted waters – many investors feel that they’re no longer in control of their financial futures and feel powerless to do anything about their situation.
For many, that combination of loss of control and sense of powerlessness is a terribly scary feeling. Even investors who don’t need to worry are anxious; on Friday for instance I talked to an advisor who got a call from a 60 year old client, retired with a full teachers pension, $3 million in savings, a modest lifestyle and a husband earning a good income – wondering if she needed to cut back on her spending!!!
So that’s the crisis part of the formula. What about the opportunity?
What many investors today want, more than anything, is to regain control of their financial future and to work with someone who will help them recapture a sense of confidence and optimism that they’ll hit their goals.
In a lot of cases, the key to doing that is revisiting the fundamentals of financial planning. Where investors had a financial plan in place, they often feel that market events and the beating that their investments have taken made that plan obsolete. And where they didn’t see the need for a financial plan before, many see the need for one now.
As a general rule, investors are looking for help on the basics – revisiting their retirement objectives and finding out if those objectives are still realistic, understanding how much they’ll need to save to attain their goals and identifying a path to get to that amount. Often they’re looking to get a handle on whether they need to cut back on spending and the impact of recent market events on their situation. Even if client circumstances haven’t changed materially, many still want that confirmed.
In his all-time best-selling Harvard Business Review article “Marketing Myopia”, Professor Ted Levitt of the Harvard Business School wrote that every business needs to answer the question: “What business am I really in?”
In talking to investors last week, I asked their reaction to a number of possible ways that advisors could position the value they bring to clients.
The one that scored the highest marks by far related to helping clients gain (or regain) control of their financial future.
Given today’s uncertainty, advisors have an opportunity to approach existing and prospective clients alike with the offer to sit down and work through their finances, to ensure they have a realistic plan in place to get them where they want to go. The key is to do this without sounding panicked if talking to existing clients or predatory and alarmist if talking to prospective clients – you need to maintain a calm, matter-of-fact demeanor through this conversation.
The actual words will of course vary – in part depending on whether it’s an existing or prospective client you’re talking to and whether there’s already a financial plan in place. Note that to be effective, you should accompany the description with a simple visual summary of the process you take clients through – a sample can be found under Client Commentaries in the right hand column, titled Seizing Control of Your Financial Future.
Using this one page overview, here’s what one conversation might sound like:
“Mary and Don, in the work that I do with clients, my primary focus is on helping people ensure they’re in control of their financial future. We do that in a series of stages.
First we spend a lot of time confirming your goals – when you want to retire and what you want that retirement to look like, for example how much time you want to spend down south at winter and how frequently you’d like to buy a new car. We also talk about things like helping your kids or grandkids, any special charities you want to support or significant expenditures you want to make. Any questions on this first stage?
Next, we run the numbers on what those plans are likely to cost and the target amount you’ll need to fund your retirement, adjusting for things like inflation and taxes. In this stage, we factor in other sources of income such as pensions.
In step three, we project where it looks like your savings will end up compared to the target amount we’ve calculated you’ll need. As part of that, we look at how much you already have saved and how much you’re saving. One of the key assumptions we make here is about the rate of return you’ll get on your investments between now and your retirement – and we dig deep to understand your comfort level with the greater volatility and risk that it takes to get higher rates of returns than are available simply by buying a Government of Canada bond.
So that’s steps two and three. What questions do you have on what we’ve covered so far?
In the fourth stage, we look at whether you need to adjust your plans to get the projected amount you’ll have at retirement in line with the target amount needed to support your goals. Now it might be that you’ll hit your target amount just fine and no adjustment will be necessary.
Or it might mean putting retirement off for a year or two or working part time after retirement. It could entail spending less and saving more now, cutting back a bit on how much you spend after retirement or downsizing into a smaller house or condo sooner than you’d planned to. It could also mean changing the kinds of investments you hold after retirement and living with a certain level of volatility to get better returns. Or it may mean a combination of all of these.
As just one example, in a recent conversation I had with clients, they concluded that they need to cut back on holidays and are going to stop leasing a new car every three years and instead are going to buy a car and keep it for five years or longer.
Good planning is all about understanding the different paths to reach our goals and making the right tradeoffs between things like the lifestyle we have today and the lifestyle we’ll have in retirement – this whole process is about clarifying those tradeoffs and the options available to us
I’ve talked to some people who say that this makes sense but they’re too busy to do this right now. And I understand how busy we all are. Just remember, though, making a decision to put off looking at changes is the same as making the decision to maintain the status quo. And by the way, the sooner we go through this process, the more options we have.
Does this make sense to you? How do you feel about this so far?
In the last stage, once we’ve gone through this process, we take a hard look at the kind of investment plan required to deliver the returns you’ll need leading up to retirement. Again, a key element of this will depend on the kind of risk and volatility you’re prepared to live with – you have to be completely comfortable with your plan. At this point, depending on your needs, we might also look at strategies to minimize your tax burden, ensure you have appropriate insurance coverage and spend some time talking about estate planning and cash flow management.
Just to be clear, this is not a one time process. This isn’t just about gaining control of your financial future now, it’s also about keeping that control in future – and to do that we’ll need to revisit and update this plan annually.
Mary and Don, does this sound like something you’d be interested in talking about in more detail?”
This process will seldom be fast, it will not always be easy and the news that comes out the other end will not always be good (although you may find that even tough news is less horrible than people had imagined it might be.)
In some cases, advisors will have to get up to speed on using financial planning software and beef up their knowledge around tax, insurance and estate planning.
And for some advisors anxious to get to the fun part where they talk about a prospective client’s investments, it will mean waiting much longer in a conversation than they have in the past. (As an aside, talking to prospects about seizing control of their financial futures typically works better if this is a continuation of conversations you’ve had in the past – but it can still work effectively from a standing start, especially if you’d been referred by an existing client or a prospect’s accountant, lawyer or other professional advisor).
Remember, it’s by helping clients and prospects seize control of their financial futures, by taking the time to go through this sometimes difficult process and by talking to clients and prospects about the hard realities and tradeoffs that come out of it that you’ll succeed in turning crisis into opportunity – both for you and for the clients you work with.
 Email This Post
|
 Print This Post
|
