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Paul Armson: Make clients responsible for their financial assumptions

Paul ArmsonDo not be afraid to challenge clients. Doing so is vital to ensuring their secure financial futures

With the use of cashflow modelling software growing, many advisers, while conservative and prudent with their own, often make the mistake of being too keen to include a client’s assumptions without really testing them. This can cause serious problems for both adviser and client. Here is how to avoid them.

Many a time advising a client using cashflow modelling in a meeting, I have found they have not quite liked the picture on the screen. The picture shows what their financial future looks like based on my prudent assumptions. They see they have a problem because it looks like they are going to run out of money.

They then say something along the lines of “ah, but… you’re forgetting about my inheritance”, or “you’re forgetting about the sale of my business”. Sound familiar? For them, this one-off future inflow might have a positive effect on their finances. If you include their assumption, it may fix their problem. But does it? Or have you just become part of their delusion?

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How can you handle these clients? Easy. Challenge them. You are a professional financial planner.

Ask them “what are the chances of you selling your business for X amount of pounds?” or “how much inheritance are you expecting? And when exactly?” Try to put some doubt in their mind about the reality of that happening. Discuss. Question. Challenge. As a professional, it is your job to do so.

You might find the client will quickly concede and agree a lower, much more prudent figure just to be on the safe side.

Here is a further tip to help you do this. Explain to clients that it is your job to help them become (and remain) financially independent. Emphasise the “in” in financial independence versus financial dependence.

Say “Mr Client, it is important to understand what I mean by financially independent. You see, if we include the assumption that you will sell your business for £1m, you are no longer planning to be financially independent at all. You are planning to become financially dependent on the sale of your business or on your ‘inheritance’. Quite simply, if it does not happen, you will be in big trouble”.

Just communicating this to a client can often make them reconsider whether it is wise to include the assumption in their financial planning at all. Or it might quickly encourage them to further reduce the assumption to be on the safe side.

They may still want to include an assumption – and that is perfectly fine. As long as they sign for it.

Here is another tip. Many a time after I have challenged them, I have said to a client: “Mr Client, I’ll be happy to include this assumption but I’ll first need you to sign this piece of paper.” And I would quickly grab a blank piece of A4 and write out the following: “Dear Paul, please include in my financial planning assumptions the fact that I will sell my business for £1m in today’s terms (2018), net of tax, on my 55th birthday. Signed <Name of Client> <Date>.”Paul Armson: Do your priorities lie with helping clients or the industry?

Then say: “If you could just sign this, Mr Client, I will happily include it in your financial plan. You see, Mr Client, as a professional financial planner, I take my job – and my clients’ financial futures – very seriously, so I can’t go around including in clients’ financial plans any assumption without them agreeing to them and, where necessary, signing for them.”

This will normally get the client’s respect. And they will be even more reasonable in the amount they wish to include. It becomes their duty, not yours. So assumptions are fine as long as a) you test them, and b) the client signs for them. If not there and then, certainly make sure you communicate all of this in a covering letter or bold paragraph in any suitability report or printed financial plan. Make sure the client signs for it.

While on the subject, another corker is when the client looks at the lifetime cashflow and says: “My situation looks worse because you are planning to age 100. I won’t live to age 100. I’ll be dead by age 85.”

Your answer? “Certainly Sir, if you could just sign here”, and then pull out your A4 paper. “Dear Paul, please include in my financial plan the fact I will be dead by 85. Signed <Name of Client> <Date>.”

Suddenly they get it. Using professional cashflow modelling software properly gives you power. You can stand up to often-stupid assumptions like “my business is my pension”. Clients say this because they do not want to be sold a pension. They do not want traditional product-based advice.

But they do want to secure their future and become financially independent. It is your job to make that happen, even if that means being brutally honest.

We must not avoid challenging clients when necessary. That is why detailed expenditure analysis is so important. Done right, clients love this. After all, it is their life you are talking about. The more basic the software, the easier mistakes can happen. More sophisticated software, like Truth or Voyant, forces you to ask better questions, and therefore helps you become a better financial planner.

Do not be afraid. Step up to the plate. Challenge clients. We cannot play a part in their delusion. Remember, you are not an order-taker. You are a professional financial planner.

Paul Armson is founder of Inspiring Advisers, creator of the Lifestyle Financial Planning 7 Step Success System and co-founder of Life Centered Planners



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There are 3 comments at the moment, we would love to hear your opinion too.

  1. I have to agree….

    what are your views on counting in the state pension income later…..can we guarantee this won’t be means tested in the future….?

    I don’t even like to count this in! we don’t get many clients complaining that they are planning for too much income later!

    let me know what everyone thinks..

    • Surely depends on how close client is to SPA – if a client is reaching SPA in three years time I think it’s prudent to include it, but if a client is 15 years from SPA then it could very well change/become a means-tested benefit.

      • Agreed, but we tend to still put it in when it’s between 3 and 15 (I am currently 15 years away and it’s in my plan) anything over that and probably not very wise.

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