Overcoming objections

Water Cooler
#1

This question is directed for all the FAs out there, but I’m keenly interested in hearing everyone’s opinion.

(FYI - I am no longer employed by the CPA firm. I didn’t like their business model and they didn’t like mine. So I left to start my own firm. I had laid all the groundwork for the investment & financial planning firm, but it has evolved now to include tax compliance, which will *technically* be performed by my CPA firm.)

#2

Uh-oh. I hit the “save” button. And it posted my unfinished post. I have to run, but I’ll finish up in a bit.

Opinions still welcome, even though you haven’t heard the question.

#3

Objection.

#4

You’d have fewer objections if your advice were better, G. Check Advisor’s Perspectives for the latest protips on being an FA, as well as improving your social media presence. Tank.

#5

Sorry. Had a luncheon and a doc appointment. Back to the business at hand.

As noted before, my “financial planning” firm now has a sister company, a CPA firm that does full-service bookkeeping and tax.

One thing I’ve noticed is that when I tell people “I’m a CPA with my own bookkeeping and tax firm,” they generally respond very positively. They usually warmly embrace it and say that they’d love to do business with a guy who can help them with taxes and bookkeeping.

However, as soon as I shift the conversation to “oh–I also provide full-service financial planning and investment advisory services”, the conversation takes a drastic shift. You can almost literally see the change in their countenance as they change from a warm embrace to a cold shoulder. And it doesn’t matter whether I start with investment advisory or financial planning–the general attitude is the same.

Any idea why that is? Should I just give them what they seem to want, which is CPA-style work, then ease into the other over time? Or is it important that you tell them up front that you do all three services? (Tax, financial planning, and investments–I can do one of the three, two of the three, or all three.)

I’m not necessarily trying to replace any of their exisiting professional help (such as their CPA or estate attorney or investment guy), but rather to work alongside them and make sure that their efforts are coordinated, rather than one professional accidentally “blowing up” an otherwise perfectly good financial plan. (I have plenty of examples of this, BTW.)

Also, any help on the standard, “I already have a financial planner who does comprehensive planning. And he’s very very very very very very very good.” (In other words, he threw all your money in American Funds and extracts a 1% annual fee for it. And he may have paid some very thinly veiled lip service to the other parts of your financial life, but there’s no real meat on them bones. No real detailed, technically proficient advice. Just some appropriate verbiage and an urge to go see a “real” professional.)

Any well-informed and helpful thoughts or opinions are appreciated.

#6

i think one key issue is that accountants, while they have a reputation for being boring, they are generally revered as competent and trustworthy. this is likely due to the nature of the industry itself. accountants aren’t seen taking chances or gambling.

brokers, likely due to media depiction, are seen as degenerate gamblers. most of that is due to the nature of the business, i.e. it effectively is gambling but a game that can be consistently won over long periods. also, many high profile brokers are just bad people.

i can probably name 20 off the top of my head that are coke heads and blew everyone’s money whereas i can’t think of one single accountant.

it could also be that many people have had a bad experience with a broker and have written off investment professionals. i have come across many of these burned people who no longer trust anyone with money. sometimes it is the person who burns themselves and then to protect their ego, they say the whole game is rigged and everyone who is a broker is a criminal.

the only way to beat the “my guy is so good” argument is to start talking about planning issues. talk about how the portfolio is set up and is it tax efficient. talk about estate planning and if the investments and other assets are set up in the most efficient way. and so on. if their “good guy” has not addressed some of the major planning issues, then you can lean into him.

#7

You need to tighten up your value prop. Depending on how you set up your business, ideally you’d offer one fee on assets under management for a “holistic” financial partnership. You’re not a CPA (of course you are, but I mean to the prospect). You’re not a financial advisor. You’re a financial professional that can assist clients across their many different areas of need.

Basically, explain all the services you offer (it’d be really nice if you could add estate planning in there somewhere) and the fee you charge. Definitely hammer the benefits of having one person/team reviewing all their financials. Then ask your prospective client to go back to their current FA and ask him/her if they provide all the same services. The chances are very good - if you frame it correctly - you’ll look much better by comparison.

Barron’s does an annual survey and consistently finds people are willing to pay a higher fee for better service. Say something about how you’re solutions oriented and don’t just put people in a 60/40 portfolio after filling out a short risk questionnaire.

Be differentiated. Don’t act like an advisor but more like a life coach (I know how it sounds, but it works) and you’ll beat 95% of the other FAs out there.

#8

This is my biggest beef. The client answered a seven-question risk tolerance questionnaire, and gets thrown in a house model that the “advisor” can’t understand, with 15 mutual funds, 14 of which are virtual clones of each other. But because he hasn’t lost any money in the last ten years, he’s “very very very very very very good”. (Of course he hasn’t lost money in ten years. Nobody has. A monkey throwing darts at a list of mutual funds would have made money during the last ten years.)

#9

Would you basically be providing that service? How much time do you have to spend researching companies when you are not punching the clock with the tax work?

#10

Maybe do a comparison between the s&p 500 and his portfolio over time net of fees. That is usually one guaranteed way to show how anyone sucks dicks. Also the easiest time to sell your services is during a downturn when they are panicking.

#11

@GOAB - For straight investment management, I’m pretty much just like every other advisor in the world. Answer a seven-question risk tolerance questionnaire, and we’ll put you in the X model. The major difference being all the stuff that Sweep mentioned.

EG - most “advisors” may ask, “Do you have a will? Check yes or no.” If the answer is “yes”, then no further guidance needed. If the answer is “no”, then you need to see a lawyer and get a will. This is not very helpful, and does not rise to the level of truly technical, competent, personal financial advice.

Here’s what you need to be asking clients (and it needs to be done every year):

  • Do you have a will?
  • When was the last time it was updated by a professional?
  • Is it still valid? (most people have no idea what that means)
  • If it is still valid, does it still make sense, given all the changes in federal tax law and state law?
  • Does it accomplish what you intend for it to accomplish?
  • Where is it located? (hopefully not the safety deposit box)
  • Does your executor know where the will is located? (Most lawyers will not keep a copy of your will. They’ll have the last will they drafted, but a PDF or Word document cannot be probated in Texas.)

And this is just talking about the will–not the durable POA, medical POA, HIPAA release, advance medical directive or living will, etc. And this is just the basics of an estate plan. Once you get into taxable estates, philanthropic intent, and intergenerational wealth transfer, your problems exponentiate. And the average consumer does not have the knowledge needed to understand the estate plan, much less to integrate all the moving parts and apply them to real-life situations.

I’ve seen advisors (even good, well-trained ones) blow up a financial plan unintentionally, and cost clients millions of dollars.

  • One guy opened an ILIT (irrevocable life insurance trust) with the intent of purchasing life insurance outside of his estate. Then he went and purchased life insurance in his own name instead of inside the trust. Cost his kids $800k in unnecessary estate tax.
  • One guy set up a Family Limited Partnership where he was supposed to make payments to his grandkids’ GST (generation-skipping trust). Instead, he made payments directly to his two kids. This will cost somebody approximately $5m when the kids die, due to estate tax. (And appreciation on the assets may increase this to several multiples of that, depending on how the assets are invested.) All because grandpa wrote the wrong name on the check.
  • One guy put oil & gas royalties in a GRAT (Grantor-Retained Annuity Trust). Ultimately, the assets decreased in value (because that’s what oil & gas royalties do–they deplete) and the GRAT failed. So he did it again, this time with municipal bonds paying 1.7% (with an IRS hurdle rate of 2.4%). Unsurprisingly, the GRAT failed again. Meanwhile, stocks increased by what, 15% over the past decade? This means the client retained $40-50m in his estate, which will generate $15-20m worth of estate tax when he dies.
  • Another guy set up two trusts–one for his wife to receive income, and another for his kids to receive appreciating assets. He had a $20m securities portfolio. The idea was for the equities to go to the kids’ trust and the fixed income to go to the wife for the rest of her life. Then he went and added his wife as a beneficiary, which blew up the entire plan. (Because now the assets go to the beneficiary and not to the trusts, like he anticipated.)
  • Another guy “semi-retired”. He was 66 and left his job, but kept working as an independent contractor, making $250k/year. The plan was to put 100% of that money away in a cash balance plan (since you can deduct about $300k at that age) to increase his retirement savings. Then the CPA went and filed an S-Corp election, thereby artificially reducing his self-employment earnings to $30k per year, and reduced the deductible amount to $30k along with it.

These are just the things I think about that happened recently. And I promise that there’s no Edward Jones advisor discussing these things with the client.

#12

when i think financial advice. i dont think that. ^

thats more what lawyers do. advisors usually recommen lawyers to handle that crap. which i imagine is what you do. like you have a rough idea on what they need. and you recommen them a lawyer.

#13

No means no Greenie.

#14

What do you think when you think of “financial advice”?

In cases #1 & 2 above, the client had an estate lawyer draw up the documents, and presumably explain the plan to him. He still dropped the ball. Moreover, the client actually is a lawyer. And his son’s also lawyer. Three lawyers involved, and none of them saw the mistake (until I pointed it out to them).

Yes–I can’t give legal advice. I can’t be a lawyer. You need an attorney to be an attorney. But attorneys don’t do what I do. They don’t help the client actually implement the plan, and they don’t hold hands. (Or if they do, they charge twice as much per hour.)

99% of what lawyers do is transactional and not proactive.

#15

My knee jerk reaction to your question is that you wanted to take assets and charge a management fee while providing little differentiation from indexing, i.e. the business model of most FAs. However, the trust and tax optimization program above seems much more valuable to some rich person who hasn’t thought about those issues. If it were me, I would be more receptive to some kind of “trust management” package with some headline number of the results, like what amount they could save with your service. All this estates stuff is esoteric to most people who are not lawyers or high power Midland accountants.

#16

Greenie, as you may remember I’m also an Advisor and one of our branches also provides a tax service (available to my clients).

If I were in your position, I would take on as much as the Accounting and bookkeeping work (for now) as you grow the investment and planning business. I mean, you have to keep the lights on, gotta support the family etc. One you reach the point where you have enough AUM where you are comfortable, then you can always decide to change the business model or service level, or fees etc.

Transitioning the discussion from the Accounting side to the investments / planning can be tricky, as the accounting client will see you primarily as the “Accountant”, not IA or planner. So, I’d be asking all the (investment and planning) prospect type of questions to them as the “Accountant”. For example, if the Accounting prospect is coming in to meet with you, ask them to bring a copy of their written financial plan, estate documents, previous years taxes. If they ask why, tell them you’ll explain when in the meeting. (I always like to just ask a lot of questions in the first meeting, about everything in their financial plan. I’ve yet to have a prospective client walk in the door and provide me a written copy of their plan. They don’t have one.)

Once you start to discover all of their investment and planning concerns, issues and opportunities, then you can transition the discussion into your investment and planning business. Oh, and ask about fees. How much are they paying for investment advice and portfolio mgt, both in $$ and %.

You certainly don’t want to turn away a investment prospect whom your currently doing the tax work for. (Especially if they have a lot of $$. Just keep working them, poking holes in their plan/ strategy). After a few years if you’ve grown to a certain point you can always go tho them and say - listen now I only do tax work for investment and planning clients, here is the value proposition, here is what I can do for you, do you want to become a client or not? (And, do you want to work with them)?

#17

^This is the goal. All clients are financial planning & investment advisory clients. If I have to give something up, I’ll give up the bookkeeping (yuck) and tax, because I hate bookkeeping and don’t really have a competitive advantage in tax. And there’s plenty of tax accountants who’ll take the work.

And yes–making the jump from “tax accountant” to “full-fledged financial planner” is difficult. I have no idea why. I mean, if all we do (like Ohai said) is determine an asset allocation and place the client in a few mutual funds (index or otherwise), then I can’t do anything that’s very good nor bad. I just get what the market gives me, which is pretty much the same as Edward Jones.

Alternatively, if I fail in my tax strategy or entity structuring, I can cost a client millions, or save them millions (as noted earlier). But I don’t really know how to get people to realize the value of multi-dimensional, multi-year planning. And I certainly don’t know how to get them to pay for it.

#18

You are 110% correct.

And this the trouble I have–how to get in front of the right audience. It’s hard to walk door-to-door and say, “Hey! Nice to meet you! Let’s discuss your most intimate personal details about your inevitable disability and death. Meanwhile, I’ll invest all your money that you’ve slaved for for the past 40 years.”

Then, once you actually are in front of the prospect, how do you create a need and fill a void without sounding like a salesy douchebag?

#19

Well, you could always just hire a bookkeeper on staff, or, sell off that portion to someone whose business is just bookkeeping. (Or outsource it to someone, on contract). But it may be difficult to divest from that service if your doing the tax work. Like how do you half fire a client right?

Its difficult to make the transition because the prospective client, doesn’t know what they don’t know. They don’t know what services they need, may not understand their planning issues and opportunities, and what the planning strategies should be. I use the prospecting meetings to have a deep discussion with the prospect so I can uncover all of these issues/opportunities, and then start to ask questions etc.

It also sounds like you have a lot of good planning examples that you have come across in working with existing clients. I like to share/ use those types of examples in talking with prospects who share similar characteristics. Gets them thinking.

#20

In those examples, its important to quantify the value of the planning advice.

For example,

One guy opened an ILIT (irrevocable life insurance trust) with the intent of purchasing life insurance outside of his estate. Then he went and purchased life insurance in his own name instead of inside the trust. Cost his kids $800k in unnecessary estate tax.

opps. His “Advisor” who is good, should have caught that. That advisor should be fired.