Final Level (Mod. 2) - Book

CFP FINAL LEVEL ENGAGING CLIENTS IN THE FINANCIAL PLANNING PROCESS (MODULE - 2) Approved courseware for the Certified Financial PlannerCM certification education programme in India\" Published by 'International College of Financial Planning Ltd.' \"Every effort has been made to avoid any errors or omission in this book. Inspite of these errors may creep in. Any mistake, error or discrepancy noted may be brought to our notice, which, shall be taken care of in the next printing. It is notified that neither the publisher nor the author or seller will be responsible for any damage or loss of action to anyone of any kind, in any manner, there from. No part of this book may be reproduced or copied in any form or by any means or reproduced on any disc, tape, perforated media or other information storage device, etc. without the written permission of the publisher. Breach of this condition is liable for legal action. All disputes are subject to Delhi jurisdiction only.\" CFP Final Level Engaging Clients in the Financial Planning Process Module 2 Published by the International College of Financial Planning Ltd. © International College of Financial Planning Limited 2002

This subject material is issued by the International College of Financial Planning Ltd. on the understanding that: 1. International College of Financial Planning Ltd., its directors, author(s), or any other persons involved in the preparation of this publication expressly disclaim all and any contractual, tortuous, or other form of liability to any person (purchaser of this publication or not) in respect of the publication and any consequences arising from its use, including any omission made, by any person in reliance upon the whole or any part of the contents of this publication. 2. The International College of Financial Planning Ltd. expressly disclaims all and any liability to any person in respect of anything and of the consequences of anything done or omitted to be done by any such person in reliance, whether whole or partial, upon the whole or any part of the contents of this subject material. 3. No person should act on the basis of the material contained in the publication without considering and taking professional advice. 4. No correspondence will be entered into in relation to this publication by the distributors, publisher, editor(s) or author(s) or any other person on their behalf or otherwise. Author Sanjiv Bajaj CFPCM, MBA (Finance), International Certificate for Financial Advisors (CII – London) Content Developed by: Madhu Sinha CFP CM , CIWM Author (“Financial Planning A Ready Reckoner” and “Retirement Wealthy” Easy strategies for all, Campus Director, International College of Financial Planning, Mumbai Former Director, FPSB India \"Unless otherwise stated, copyright and all intellectual property rights in all course material(s) provided, is the property of the College. Any copying, duplication of the course material either directly, and or indirectly for use other than for the purpose provided shall tantamount to infringement and shall be strongly defended and pursued, to the fullest extent permitted by law.\"

TABLE OF CONTENT Chapter – 1: Introduction to the Discovery Process (5 - 11) Emotional Intelligence 6 Setting the Structure 8 FPSB’s Financial Planning Practice Standards 11 Chapter – 2: Appreciative Inquiry (12 - 16) Real Concerns 14 Appreciative Inquiry 14 Chapter - 3: Discovery Process Applied (17 - 26) Client Communication 17 Building Effective Communication Skills 18 Difficult Conversations 20 Telling Your Story 21 Effective Discovery Meetings 23 Data Gathering vs. Discovery 25 Chapter - 4: Goal Determination, Refinement and Setting (27 - 34) Dream Decisions 27 Goal Determination and Refinement 28 Mind Mapping 30 Financial Prioritization 32

Chapter – 5: Develop Financial Planning Recommendations (35 - 40) Analyze Information 35 Review Prospective Planning Strategies 38 Planner Biases 38 Develop Client-Based Recommendations 38 Chapter - 6: Presenting Recommendations to Clients (41 - 51) Communication Plan 41 Theory into Practice 43 Making adjustments without losing Focus 43 Construct a Plan of Action 47 Implement Financial Planning Recommendations 48 Applicable Practice Standards 49

Engaging Clients in the Financial Planning Process Preface FPSB Ltd. has restructured the content of the education requirement for CFP certification into three specialist education courses: FPSB® Investment Planning Specialist; FPSB® Retirement and Tax Planning; FPSB® Risk and Estate Planning, and the FPSB® Financial Planning Capstone course. FPSB Ltd. has designed the FPSB® Financial Planning Capstone course into three modules. Financial Planning Principles, Process and Skills is the first module. Integrated Financial Planning is comprised of two modules: Engaging Clients in the Financial Planning Process and Developing Effective Financial Plans. The FPSB® Financial Planning Capstone course will help to guide individuals interested in applying financial planning principles and process to meaningfully engage clients; identify client needs, objectives and goals; and develop effective financial plans. Course Introduction FPSB’s Engaging Clients for Life course is about the human qualities of the financial planning process that sometimes create the unknowns and difficulties contained within financial planning. The course should help students understand the relationship between the financial planner and the client as it comes to life. Prior to this course, students will have completed significant education on the “how to do analysis” of financial planning, such as: • How to do a personal net worth statement • How to do a retirement needs analysis • How to develop and implement an investment plan • How to evaluate and address clients’ risk management (insurance) needs • How to develop a wealth distribution plan These are all important things to know, and important to succeed as a financial planner. The “how to” that will take students to the next level of success is “how to BE” a financial planner. CFP Final Level: Engaging Clients in the Financial Planning Process Module-2 Page 1

We want students to move beyond the science and the numbers to the art and the being. This course is about taking the financial planning process and making it come alive in clients’ hearts and minds. Doing this is the objective of the discovery process. The discovery process focused on data gathering. While this is an essential step, data gathering has incorporated an unfortunate methodology. In many client interactions, the financial planner tends to focus on learning what may be missing or undone in a client’s financial life. For an example, the financial planner might emphasize the gap between amounts the client may have saved for retirement and the actual amount needed. Identifying the gap is important as part of the process, but it represents a poor focal point. Instead, the best financial planners concentrate on learning why the client wants to accumulate funds and what he or she wants to do with those funds in retirement and other situations. In other words, the financial planner wants to hear the client articulate dreams and goals rather than simply identifying a monetary amount needed. This more affirmative focus is known as appreciative inquiry, and maintains an emphasis on positive aspects of clients’ goals and dreams. Only after gaining an understanding of what the client would enjoy accomplishing will the competent financial planner is able to determine amounts needed to fund those dreams and goals. Goal-setting may seem simple and sometimes it is simple only. Assume an individual who wants to save money to pay for a child’s wedding. The financial planner will need to establish the timeframe and the amount the client desires to accumulate. After learning amounts already accumulated and determining appropriate inflation and investment return percentages, coupled with periodic funding amounts, the financial planner can easily help the client construct a goal statement that includes all those inputs. Many a times goal-setting is not always so simple. We have already understood that some financial planning objectives may be in conflict with other objectives. Money is almost always at least slightly limited, and time may be an additional concern. As a result, helping a client set achievable goals can become a somewhat difficult process—both for the client and the financial planner. It’s a process that will require effective communication skills and understanding the client’s motivations and needs. Effective communication with the client is necessary to facilitate the financial planning process. It may seem obvious to say that a financial planner must communicate effectively with clients, but it is a core truth. Regrettably, many financial planners struggle to communicate, at least in an effective manner. One of the reasons for this is that quite a few people do not know how to listen well; therefore they are unable to communicate effectively. Also, understanding and empathizing with a client’s emotional state can be difficult. Emotional intelligence is the ability to recognize and relate to your own and other people’s emotions, as well as to distinguish different feelings and how they may impact interactions and relationships. CFP Final Level: Engaging Clients in the Financial Planning Process Module-2 Page 2

Eventually, a financial planner must develop potential recommendations for strategies to achieve life goals. Commonly, this result in what we call a financial plan. In simple words a financial plan provides a road map and rationale for steps supporting client goal-achievement. A well-structured financial plan will have two main components.  The first, at least in a traditional plan, is all the supporting data, assumptions, and suggestions.  The second, which often can be used separately, is a road map or suggested plan of action to accomplish desired objectives. This course will not emphasize developing effective financial plans; that will be the focus of a separate course called Developing Effective Financial Plans, which will serve as a companion course to this one. In this course, we will emphasize discovery, developing recommendations/solutions and presenting them. The Engaging Clients for Life course will explore each of the preceding topics, beginning with an overview of the discovery process. By the completion of the course, students should be able to demonstrate that they have improved their ability to establish a trusted relationship with clients through: • Applying improved communication and client engagement skills, • Putting the interest of clients first, and • Demonstrating professional capability, credibility, and reliability. CFP Final Level: Engaging Clients in the Financial Planning Process Module-2 Page 3

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Chapter – 1: Introduction to the Discovery Process Learning Outcomes Upon completion of this chapter, students will be able to:  Describe elements of an effective discovery process  Demonstrate appropriate emotional intelligence  Apply the four “A’s” in setting the financial planning process structure Introduction The essence of personal financial planning can be found in well-developed client-planner relationships. Those relationships may begin prior to the initial meeting between the client and financial planner; however, they start to develop during the discovery process. Discovery is more than simply gathering data and introducing clients to the financial planner and the services he or she can provide. In fact, initial data gathering is often accomplished by providing potential clients with forms and guidelines specifically designed for that purpose. Many financial planners request that potential clients complete the data gathering forms and bring them to the initial meeting or forward them prior to the first meeting. You will need this information, but to be effective, you must learn more about the potential client than just the information presented on initial data survey forms. Discovery is the process of getting to know the client, understanding their dreams and life goals, and beginning the journey to achieving those goals in partnership. An effective client- planner relationship will move within the discovery process, through the steps in the financial planning process. As a reminder, these steps are: 1. Establish and define the relationship with the client 2. Collect the client’s information 3. Analyze and assess the client’s financial status 4. Develop the financial planning recommendations and present them to the client CFP Final Level: Engaging Clients in the Financial Planning Process Module-2 Page 5

5. Implement the client’s financial planning recommendations 6. Review and monitor the client’s situation Overview of the hierarchy of the financial planning processstarts with discovering the client’s goals and dreams and moves up towards achieving those goals and dreams by following a dynamic financial road map that is continually reviewed, revised, and changed as circumstances change. Discovery focuses on the first step (along with data gathering), and does so by keeping the ultimate goal in mind. That is, developing strategies to assist clients in managing their financial affairs to meet life goals. To achieve this goal, the financial planner must review all relevant aspects of a client’s situation across a large breadth of financial planning activities, including interrelationships among often conflicting objectives. The only way for a financial planner to learn about, understand, and develop strategies to achieve these objectives is to follow the steps of the financial planning process, beginning with discovery. Financial planners must also gather and analyze data before being able to develop recommendations. The focus on discovery does not eliminate the need for gathering data. Instead, it shifts the focus away from simply and solely accumulating quantitative information. Emotional Intelligence As you interact (listen and respond during a client conversation), you will want to capture more than just the raw data of what is said. Additionally, you should listen for what may be behind the words, even recognizing what is not being said. Emotional intelligence (EQ) is the study of joining feelings/emotions and rational thinking (Brad berry & Greaves, 2009). For many people, this is a skill that requires development. Emotional intelligence can, at least in part, be understood as having empathy. “Empathy is the capacity to share and understand another’s state of mind or emotion. It is often characterized as the ability to put oneself into another’s shoes, or in some way experience the outlook or emotions of another individual within oneself. Empathy is a powerful communication skill. Emotional Intelligence, often measured as an Emotional Intelligence Quotient (EQ), describes a concept that involves the ability, capacity, skill or a self-perceived ability, to identify, assess and manage the emotions of one’s self, of others, and of groups.” (Konstantikaki, 2008) One of the tendencies of most people is the desire to be recognized, especially for any accomplishments, knowledge, and abilities they may have. Financial planners are no different, and neither are their clients. It’s natural to desire recognition for professional knowledge, skills, and abilities. However, if you want to be effective working with clients, you will have to learn to embrace empathy. Part of doing this requires you to have a measure of humility (Maxwell, 2014). Maxwell says, “If your emotional abilities aren’t in hand, if you don’t have self-awareness, if you are not able to CFP Final Level: Engaging Clients in the Financial Planning Process Module-2 Page 6

manage your distressing emotions, if you can’t have empathy and have effective relationships, then no matter how smart you are, you are not going to get very far.” Maxwell continues by sharing what he refers to as an empathy test (Maxwell, 2014). He quotes speaker Tony Robbins, saying, “People are driven by one or more of the following six basic human needs: 1. Certainty: assurance you can avoid pain and gain pleasure 2. Variety: regular exposure to the unknown, change and new stimuli 3. Significance: feeling unique, important, special or needed 4. Connection: a strong feeling of union with someone or something 5. Growth: an expansion of capacity or understanding 6. Contribution: a sense of service and focus on helping, giving to and supporting others.” As you develop your EQ, you can (and should) use your improved abilities to focus on client needs, recognizing which of the six needs (and perhaps others) are most significant in their lives. By supporting the client’s basic human needs, you will be better able to communicate and more effective in establishing the client-planner professional relationship. Notice that EQ includes self-awareness and management as well as social, interpersonal awareness and relationship management. Both parts are important when developing this skill. Self-awareness allows you to understand your emotions in the current environment as well as in assorted additional situations (Brad berry & Greaves, 2009). To do this, you must invest time to focus on and explore your emotional responses in various situations. In addition to recognizing how you respond, it is important for you to look into why you respond the way you do. What are the life experiences that lead you to have a particular emotional response? The stronger the emotion, the greater amount of thought and introspection will be required. You are not trying to psychoanalyze yourself with this process; instead, you will be attempting to gain a self-awareness that can help you respond to situations in a more intentional manner (i.e., self-management). For example, if a particular type of individual almost always gets under your skin, you need to understand why this is so—the triggers—so you can shift your response appropriately. Also, don’t label yourself good or bad. Just recognize who you are and how you tend to respond. This is neither good nor bad, it just is. CFP Final Level: Engaging Clients in the Financial Planning Process Module-2 Page 7

Social or interpersonal awareness is your ability to correctly assess other people’s emotions and understand what’s happening internally to cause their responses. Don’t try to be a mind-reader, just be aware. The more you study people and are present in interactions, the better your social awareness will be. As you improve your abilities in this area, you can apply them to managing relationships. Essentially, you will try to improve your ability to communicate, including your ability to handle conflicts that may arise. Improved relationship management will also help you to build better professional connections and bonds with clients. The more you understand people—their triggers and reasons for responses—and adjust your approach accordingly, the stronger and healthier will be your professional relationships. Along the way, don’t be afraid to care about your clients and show them that you care. It will make a positive difference. For an example, consider a client or potential client who responds in a curt, somewhat disagreeable manner, and seems almost angry with you as you conduct a discovery process. What is your response?  Do you find yourself getting angry and defensive?  Do you pull into yourself and essentially shut down communication? You almost certainly have what amounts to a normal (for you) response to such situations. What is yours? Now, ask yourself why the other person is responding as he or she is. Are they angry with you? Are they just mean and nasty? Do they not care about you? Or, did they just get some bad news about their health, finances, or other important matter? Could they be nervous or afraid? Have they had a bad experience with a previous advisor and that is coming through with you? Is it possible they are not really angry, but just tend to be a bit abrupt or angry in these types of interactions? How you see and feel about them will tend to colour your interaction and responses. Instead of reacting to what you perceive as their anger, if you seek to understand what they are feeling and why, you may find the two of you can move into a better, more productive engagement. Setting the Structure Information is not knowledge, and knowledge is not wisdom. Information becomes knowledge through the organized application of discipline and intelligence. Knowledge grows into wisdom from skill, often developed through trial and error. We gain wisdom primarily from our mistakes and our willingness to learn from them. 1. Growth from information to knowledge involves the mind 2. Growth from knowledge to wisdom involves the heart Apply the Financial Planning Discovery Process CFP Final Level: Engaging Clients in the Financial Planning Process Module-2 Page 8

We are trained in a disciplined financial planning process. We own it. Believe it. Trust it, but … how do we apply it? Follow the four “A’s”: Aspirations, Alternatives, Analysis, and Activation. 1. Aspirations. Capture the Concept. A very significant client/planner relationship begins with hearing and understanding the client’s financial and personal goals. When working with clients on their aspirations, their goals and dreams, remember: • Respire (breathe, fill yourself first) • Desire (listen and care) and • Inspire (give loving direction) This is the heart and soul of financial planning. First… Capture the Concept—Let the client know that you care (and appreciate) because you have listened and you understand the client’s central goals and needs and can articulate them in a clear, concise, caring manner. Then… 2. Alternatives. Paint the Picture. Develop a picture of the client’s financial plan that shows you understand the central goals, and share the plan in a clear, graphic way how these goals could be achieved. Painting vivid word pictures and presenting the information graphically (i.e., artistically) helps clients visualize their financial plan.Imagining alternatives involves choices and priorities. Clients must learn and understand that they control the process. To succeed, they must own their own plan. There are no magic solutions and few easy answers to their difficult questions. More often than not, successful achievement of the client’s goals and dreams requires time, discipline, and hard work. Setting priorities can help the client make hard decisions. Clients will face a choice between current desires and future goals. You can help them set priorities by referring to their aspirations, and then recapturing the concept. Once the priorities are clear, decisions often come quickly. Reaching this point indicates the client has begun to own the plan. Now paint the CFP Final Level: Engaging Clients in the Financial Planning Process Module-2 Page 9

picture by sharing how the client’s aspirations can be developed into a practical, achievable, attainable financial plan. Use whatever learning techniques each client requires, which may be: • Visual—use pictures, drawings, graphs, and charts • Aural—enthusiastically describe the plan in detailed vivid language • Kinesthetic—use physical movement to help your client understand how the plan works 3. Analysis. Document the Decisions. The first two A’s of the process, aspirations and alternatives, often require strong listening, communication, coaching, and counselling skills. The third A, analysis, applies technical expertise in investments, insurance, taxation, estate planning, cash flow, and myriad other areas involved in financial planning, to develop a well- designed plan. This is the time to blend technical skills with what you have learned about the client to carefully craft a plan of action. Document the Decisions. There is no plan if it does not exist in writing. A written plan does not have to be overly technical or cumbersome. Most clients will appreciate a well-crafted, simple and direct plan. The plan may be simply stated, but always document all analytical processes and decisions. 4. Activation. Accentuate the Actions. This is the client’s plan, aspirations, and picture, and it is the client who must bring it to life by implementing the actions he or she has chosen. The financial planner can help with implementation by providing on-going guidance.Develop a written action plan (i.e., road map) that clearly shows what will be accomplished, by whom, and by what time, and set up a review process to encourage accountability. By accentuating the actions, you will be leading the client naturally into the on-going monitoring and review stage of the process, setting the foundation for a long and mutually rewarding relationship. The cornerstone of that relationship will be your ability to manage client expectations: • Never promise what you can’t or won’t deliver. • Don’t let short-term market trends distort your long-term vision. • Never confuse risk with liability. • Communicate often—both the good news and the bad. CFP Final Level: Engaging Clients in the Financial Planning Process Module-2 Page 10

Please remember to Set the structure (trust the process) and follow the four A’s: • Aspirations—(Capture the Concept) • Alternatives—(Paint the Picture) • Analysis—(Document the Decisions) • Activation—(Accentuate the Actions) Then, monitor (internally) and review regularly with clients. It should be easy to recognize that the Discovery emphasis moves beyond simple data gathering. What may not be quite as easy to recognize is how to effectively shift the focus. Applying appreciative inquiry will help, and will explore this in the next chapter. FPSB’s Financial Planning Practice Standards Financial planning is the process of developing strategies to assist clients in managing their financial affairs to meet life goals. The process of financial planning involves reviewing all relevant aspects of a client’s situation across a large breadth of financial planning activities, including inter-relationships among often conflicting objectives. FPSB’s Financial Planning Practice Standards establish the level of professional practice reasonably expected of financial planning professionals during financial planning engagements, regardless of practice type, setting, location or method of compensation. FPSB expects that clients of financial planning professionals will benefit from a globally accepted set of Practice Standards for financial planning professionals. Each Practice Standard is a statement that relates to an element of the financial planning process. The statement is followed by an explanation of the Practice Standard’s intent, which guides interpretation and application of the Practice Standard. This text will refer to the applicable Practice Standards but for the detailed statements, and explanations, please refer to the FPSB document Financial Planning Practice Standards. Applicable Practice Standards The applicable Practice Standards relating to the financial planning discovery process is Standard 1. 1. Establish and define the relationship with the client CFP Final Level: Engaging Clients in the Financial Planning Process Module-2 Page 11

1.1 Inform the client about financial planning and the financial planning professional’s competencies. 1.2 Determine whether the financial planning professional can meet the client’s needs. 1.3 Define the scope of the engagement. Chapter – 2: Appreciative Inquiry Learning Outcomes Upon completion of this chapter, students will be able to:  Compare appreciative inquiry to problem solving  Apply appreciative inquiry to the financial planning process Introduction The data gathering process often turns into one or more sessions where the financial planner attempts to identify problems to solve and gaps in the client’s financial plan. While it is true that some problems and gaps eventually must be identified, this is not the best initial focus to have. In fact, heavy emphasis on traditional data gathering may be overwhelming and somewhat off-putting to new clients at this stage of the engagement. An understanding approach, more in line with helping clients achieve life goals and dreams, is to focus on those goals and dreams. Rather than trying to gather as much financial data as possible (at least at this stage), it makes more sense to help the client articulate what they would like to experience in their desired future. The process of focusing on what’s good, what’s working and desired, can be identified in many ways. We identify the process as appreciative inquiry (AI). Appreciative Inquiry Compared With Problem Solving David Cooper rider first wrote about AI in his 1985 doctoral dissertation (Cooper rider, 1985). Although Cooper rider’s focus was on organizational change, AI has been recognized as being applicable to personal development as well. Problem solving is the more traditional approach to facilitating both CFP Final Level: Engaging Clients in the Financial Planning Process Module-2 Page 12

organizational and personal change. The two approaches generally yield very different results. Consider the following (Jackson, 2016): Figure : Problem Solving vs. AI What to fix What to grow Thinks in terms of problem, symptoms, causes, solutions, action planThinks in terms of good, better, possible Breaks things into pieces, leading to fragmented responses: AI keeps the big picture in view, focusing on an ideal and how its roots lie in what is already working Slow pace of change—requiring a lot of positive emotion to make real change: Quickly creates a new dynamic—with people united around a shared vision of the future Looking at the preceding table, it’s relatively easy to contrast the two approaches. Problem solving’s focus is on fixing problems; AI’s focus is on building a better, more positive result. For financial planning engagements, AI often is the preferable approach. As a financial planner, who is charged with the responsibility of developing solutions to help individuals achieve life goals, it is highly unlikely you will accomplish your objective by using an approach primarily based on solving problems. AI is a more life-centred, positive approach. This is not to say that financial planners never address problems nor consider negative input. It does, however, mean that the financial planner does not focus on identifying and solving problems. Instead, the focus is on helping the client consider what could be, leading to how to make it happen and what will be. To accomplish this, AI moves through four key phases: 1. Discovery: Mobilizing the whole system by engaging all stakeholders in the articulation of strengths and best practices. Identifying the best of what has been and what is. 2. Dream: Creating a clear, results-oriented vision in relation to discovered potential and in relation to questions of higher purpose, such as, “What are we being called to become?” 3. Design: Creating possibility propositions of the ideal you think, articulating a design that you feel is capable of drawing upon and magnifying your positive core to realize the newly expressed dream. CFP Final Level: Engaging Clients in the Financial Planning Process Module-2 Page 13

4. Destiny: Strengthening your affirmative capability, enabling it to build hope and sustain momentum for on-going positive change and high performance. All this to say that your focus is on getting clients to identify what has worked well for them, what they enjoy, what they would like to accomplish as they look into the future. Then, together, you can explore how to make their dreams a reality. Real Concerns As a Financial Planner, you will not be able to apply an AI approach to everyone in each situation. Some clients will require more of a problem-solving approach. This will especially be true in situations where clients have great amounts of debt, small amounts of income, and few assets. If you enter a financial planning engagement with this type of client, you will have to recognize the problems and develop plans to (as an example) get out of debt. You may be able to do so in the context of achieving longer term goals, but initially, your options will likely be limited. You will not be able to apply a single approach—even AI—with all clients. You have to adjust your approach to fit each client and their situation. Having said that, trying to embrace an AI approach as often as possible is a good way to develop your financial planning style. AI (Appreciative Inquiry) in Financial Planning AI’s objective is to cultivate hope and inspire positive change. The underlying concept is that people move in the direction of what they think and ask about. This is why focusing on solving problems misses the mark. If the financial planner and clients focus on funding gaps, problems, and difficulties, that’s likely to produce a problem-oriented result. On the other hand, if the collective focus is on possibilities, achievements, and positive change, results will likely move in that direction. When the financial planner asks positive questions and targets affirmative topics, clients will tend to think of those things. Appreciative inquiry differs fundamentally from traditional problem-solving approaches. The basic assumption of problem-solving methodologies is that people and organizations are “broken” and need to be fixed. The process usually involves: (1) Identifying the key problems; (2) Analyzing the root causes; (3) Searching for possible solutions; and (4) Developing an action plan. Page 14 CFP Final Level: Engaging Clients in the Financial Planning Process Module-2

The underlying assumption of appreciative inquiry is that people and organizations are full of assets, capabilities, resources, and strengths that can be located, affirmed, leveraged and encouraged. There are a variety of AI models that guide how Appreciative Inquiry is practiced, but all of them are based on the following: (Browne, 2012) • Choosing the positive as the focus of inquiry • Inquiring into stories of life-giving forces • Locating themes that appear in the stories and selecting topics for further inquiry • Creating shared images of a preferred future • Finding innovative ways to create that future Your choice of questions goes a long way towards guiding discovery outcomes. If you ask the equivalent of why a client has failed to achieve prior goals, you will be guiding the discussion into a negative realm. If, instead, you ask how the client managed to save any money when he or she was in such a difficult financial environment, you will be praising and encouraging the client to think more positively. You may get the desired information either way, but the second option shifts the focus in the direction you want it to go. You set the discovery direction as you decide the questions to ask. Let us understand the following guidelines: (Browne, 2012) • Ask about ultimate concerns (e.g., What do you value most?). • Use positive questions that build on positive assumptions (e.g., What about your dreams excites you?). • Give a thought-provoking, appealing definition of topics (e.g., “Constructive experiences of difference inspire new ways of thinking”). • Present questions as an invitation using expansive, positive, feeling, experiential words (e.g., What has inspired you?). • Enhance the possibilities of storytelling by asking questions about trusted personal experience (e.g., Thinking back on your year, please share a high point when…). • Phrase questions in a conversational, friendly tone (and listen eagerly as to a friend). • Ask open questions to which you do not know the answer, and expect to learn something interesting and important (Open-ended questions cannot be answered “yes” or “no”). • Good questions invite thinking—they stretch the imagination and inspire new thoughts without evoking defensiveness or hostility. Reach for the “um”! As you learn to incorporate an AI approach, you might try including one of the preceding suggestions at a time. After you are comfortable with the approach, add another, then another, etc. Also remember, you are not conducting an interrogation. At least at times, phrase questions in a way that shifts from questioning (per se) to sharing information. CFP Final Level: Engaging Clients in the Financial Planning Process Module-2 Page 15

Here are a few sample, rephrased questions to consider: • As you think about your life goals, I would be interested to hear about the accomplishments for which you are most proud. • Tell me about the goals have you succeeded in achieving. • Tell me more about what you did well that helped you achieve those goals. • As you dream about the future, I’d like to hear your thoughts about what would make those dreams become realities. • I would like to hear about what new or on-going goals that would produce a positive future you would like to achieve. • Tell me how I can support you to help you accomplish these goals. • Tell me anything we should talk about that has happened since our last visit. Each of the preceding asks a question without “asking a question.” The difference, though small, may be a positive adjustment in some engagements. These suggestions are not presented as the best or only options. They are listed to provide guidance and to get you thinking about how you can incorporate an AI approach in professional client relationships. Remember, the direction of your client engagement will largely be shaped by the focus and direction of your questions. Here are a few more question suggestions: (Dupree, 2011) • What makes you happy? • As you consider your life, what would create the best possible future? • If money were no object, what would you really like to do (or be, or have happen)? • If your life was working at its best, what would be happening? • What kind of legacy would you like to leave for your children/grandchildren? • What is the one thing that supports (provide or similar) the best possible future (or retirement)? As you proceed with a positive approach, the client may push you towards the negative by saying something like, “yes, but,” or “I couldn’t do that.” If this happens, try suggesting that the client simply consider options—whether or not they could be accomplished. “What if” can be a powerful phrase? Yes, I know it may seem unrealistic, but what if we could make it happen? Yes, I know money has been tight, but what if there was a way to reduce your debt load and free up some income to use? I know it may not seem possible, but what if it were? In using phrases/questions like this, you are opening the door for the client to consider a more hopeful outcome. CFP Final Level: Engaging Clients in the Financial Planning Process Module-2 Page 16

Chapter - 3: Discovery Process Applied Learning Outcomes Upon completion of this chapter, students will be able to:  Describe effective communication skills  Illustrate effective skills to deal with difficult conversations  Apply effective storytelling in a financial planning engagement  Demonstrate components of effective discovery meetings Introduction Now that we have understood the discovery process and the Appreciative Inquiry (AI) approach, we can look more deeply into what we want to accomplish during discovery. It’s helpful to remember that curiosity is a good skill to develop. When the financial planner is curious to learn about clients, the discovery process will be more beneficial and will tend to flow naturally. Think of the time you and the client share as being a meaningful conversation leading to greater insight and understanding, and a deepening of the professional relationship. As you envisage the discovery process, keep in mind that all recommendations must be targeted to helping the client achieve his or her life goals. As a result, the financial planner’s primary goal during discovery is to gain a thorough understanding of the client’s life goals to such a degree that he or she will have confidence developing strategies to achieve those goals. Doing all of this is not necessarily easy. In addition to employing effective listening, the financial planner must incorporate effective CFP Final Level: Engaging Clients in the Financial Planning Process Module-2 Page 17

communication skills. If you feel you are not a very good communicator, can you get better? The answer is yes, and we will explore this next. Client Communication Effective communication is a primary component of successful discovery. It encompasses a broad range of objectives, including: • Engage: The client recognizes that he or she has one or more issues worth discussing, and realizes the financial planner is one with whom the discussion will have value. • Listen: The client comes to believe that the financial planner understands them. • Frame: The client gains clarity on the (many) issues involved in his or her situation. • Envision: The client clearly identifies his or her true aim, understands the goal-achievement process and recognizes when he or she has achieved relevant goals. • Commit: The client understands, both rationally and emotionally, what it will take to achieve the vision, and that the financial planner is willing and able to help implement the plan. We can relate each of the preceding points to steps in the financial planning process. • Engage: Establish and define the relationship with the client. • Listen: Collect the client’s information. • Frame: Analyze and assess the client’s financial status. • Envision: Develop the financial planning recommendations and present them to the client. • Commit: Implement the client’s financial planning recommendations. And you must regularly review and monitor the client’s situation. Building Effective Communication Skills A Financial Planner needs to work on good communication as it does not happen automatically. As is true with many financial planning skills, effective implementation requires application and practice. Desiring to grow in this area is a big contributor to developing effective communication skills. You can know many things, but understanding only comes from effective questioning and listening. Listening is one of the most important skills you can master to improve communication. A key to effective listening is being present in the conversation. A simple way CFP Final Level: Engaging Clients in the Financial Planning Process Module-2 Page 18

to describe being present is to put 100% of your focus on the individual with whom you are having a conversation. Don’t think about what you want to say. Don’t run through your schedule in the back of your mind. Don’t be considering strategies to refute (or support) what they are saying. Just listen. Your sole objective is to hear and understand what the client is trying to communicate. You want to learn what you need to know about your client, including what your client wants you to know about them. A very simple way to focus on the client is to look at him or her. Maintain eye contact. Also, stand or sit in a way that expresses interest and attention. At the same time, keep your body position and posture open and approachable (e.g., no eye-rolling, slouching, tapping fingers on a table, crossed arms and legs, yawning, etc.). Body language counts—a lot. While you are doing this, you might want to take notes. It is hard to remember everything a person has to say, especially because people tend to speak in a way that may be at least somewhat scattered and disorganized. By taking notes, you can capture what is being said and have a record you can categorize, restructure, and refer back to. Note taking also will help you get clarification on statements made that may need additional information. If you ask permission to take notes, you do not have to apologize for doing so. Nor do you have to feel bad asking for clarification. In fact, doing so may help your client ensure he or she is saying what was intended, and will also let them know you are listening. That said, you don’t have to make a word-for-word record of the conversation. Capture main points and ideas. Get clarification as needed. Summarize and restate what you have noted to ensure you’re hearing what is being said (and meant). Depending on the client, you may want to wait until the meeting is complete to write a summary of what was said. Some clients do not like the idea of a financial planner taking notes (especially if the planner spends the majority of the time looking at the notebook rather than the client). This, like many aspects of client engagement, must be tailored to the needs, expectations, and comfort level of the individual client. The important objective is to listen well and capture points of the interaction when appropriate. Asking good questions is another positive communication skill. It is almost guaranteed that you will not understand everything the client tries to tell you, so ask for clarification. Also, be curious and express your curiosity by exploring what they have said and trying to flesh out the picture. First, ask the right questions in the right way to learn about the client and his or her life CFP Final Level: Engaging Clients in the Financial Planning Process Module-2 Page 19

situation and goals. Then, you can apply your knowledge and develop appropriate solutions. To begin the conversation, you may want to use one or a combination of the following questions: • How can I help? • What would be most helpful to you? • Would it be helpful to you if I . . . ? (Sullivan, 2016) Throughout our conversation, we should try to encourage the client to say more. If you are actively listening, you should be able to do this with little difficulty. Be sure to confirm and clarify what you think the client has said, to be certain you understand. Periodically, and certainly at the conclusion, restate and summarize. You want the client to know you have heard them, and you want to ensure you understand what you heard. It can also be a good idea to send the client a summary of the main points of your conversation, asking for clarification or correction as beneficial. Please note that bombarding clients with question after question can become tiresome for the client. There are ways to ask questions without seeming to ask a question. For example, rather than asking, “What are your goals for retirement?” the financial planner could say, “I’d like to know how you feel about retirement” or “I’d be interested in knowing any dreams or plans you have for when you retire.” The result is the same—the planner learns about the client’s thinking about retirement—but the client will likely feel less barraged with questions. Difficult Conversations Most client conversations will be friendly, although some may never seem to get off the ground. If you cannot establish any kind of connection to the new client, you may need to help them find another financial planner who is a better fit. However, even when you make a connection with the client (which will be what typically happens), you may reach a point where a topic of your conversation becomes difficult. It may be a sensitive subject for one of the people. Perhaps they previously have struggled with it. It is possible the topic is one that is hard to discuss (e.g., death, major illness, inability to save, out-of-control spending habits, etc.), and may reflect long-standing biases. However, difficult or not, some conversations must happen, and it is up to the financial planner to facilitate a difficult discussion. CFP Final Level: Engaging Clients in the Financial Planning Process Module-2 Page 20

Many a times you will also have to act like a counsellor to your clients. This will help you to take conversation further. Although making assumptions often creates problems, but sometimes it can be helpful. When facing a difficult conversation, you can safely assume: 1. More is involved than is first apparent. 2. The client has information you do not have, but you likely need. 3. The client may have a tendency to be resentful that you broached the topic. 4. The client may become embarrassed and (perhaps) defensive. 5. You may feel defensive also. 6. Each of you does not know what the other is thinking and feeling; you only know the result. 7. Both you and the client are likely to attribute intentions to the other. (Kofman, 2014) In difficult conversations with clients, you should respond rather than react andalso do so with the goal of understanding why the client is struggling and then helping him or her work through the difficulty. In part, this means you cannot assume a defensive or authoritarian stance. These situations demand even more than normal that you come alongside the individual as a partner. This also is a good time to rely on basic communication skills. Let the client talk. Ask for clarification. Be as empathetic as possible. Give them time to work through internal issues and let them know doing so is OK. In fact, letting the client know it’s even OK to defer further conversation on the topic may be a good choice. You can give them time to think and set a time to re-engage. You can also try doing some internal exploration and ask yourself whether there is something you could do differently or something you can do or say that might help the client. Remember, the two of you are working toward a common goal as partners in the financial planning engagement. The more you can keep that objective in mind, the better you will be able to facilitate the conversation, even when it gets difficult to do so. “Your clients want to tell you, if you let them…what it is that they want, what it is that they fear. When you are able to do that, you will increase their well-being immensely. You will increase yours, because you will get their gratitude, and you will get also to keep them as clients.” (Klontz, 2017) CFP Final Level: Engaging Clients in the Financial Planning Process Module-2 Page 21

We want the client to tell their story. At the same time, it can be helpful for the financial planner to relate his or her story as well. Additionally, when the planner wants to illustrate a concept, make a point, or encourage the client to become more engaged, telling a story can be valuable. Storytelling is both a skill and an art (much like financial planning), and it can be learned. We will look at this next. Telling Your Story The client and the client’s story should be the focus of any financial planning engagement. At the same time, it is important for the client to get to know you and make a decision about whether the two of you should work together. In the same way as you don’t really learn about the client by gathering a lot of dry data, the client does not learn much about you by reading or hearing a dry recounting of your years in practice, degrees and certifications, etc. This is important, in part, because in the first few minutes of the initial meeting the client will get a strong impression of you that will go a long way toward their decision to become or remain a client. You need to let them know your credential(s), background, etc., and this can be done via a brochure. What you really want to do is to give the client a reason to work with you and develop a professional relationship. Telling your story is one good way to do this. Every professional financial planner has a story to tell, though you may not have thought much about yours. You have studied and learned. You have experienced not only your own life, but your clients’ lives. You have had positive as well as negative life, and financial, experiences. You will want to share aspects of your life with your client. Among other things, doing so will illustrate for them your desire to get to know them and their life story. Consider taking your client on a journey—a journey of your life experience. Thinking through relevant parts of your life is a major part of preparing to do this. You might want to invest some time taking an inventory of life experiences and writing them down. Once you have such a list, you can use it to weave your story from the items on the list. Consider your perspective and the story you want to build. Ask yourself what you want to share and accomplish. Think about how your story can set the stage for the developing client engagement. As this will be your goal, be sure your story is relatable to the client. If it is not, it will be ineffective. Over time, as you tell your story, you can refine it to better facilitate client engagements. There are many ways to develop a story, but one element is necessary for all stories (in addition to telling the truth): You want to make your story interesting. In fact, you want to make your CFP Final Level: Engaging Clients in the Financial Planning Process Module-2 Page 22

story irresistible (Karia, TED Talks Storytelling, 2014). As your story unfolds, you want your client to step into it and join you on the financial planning engagement journey. A new client (or prospect) will make a decision about whether to work with you in the first few seconds of your first meeting (Karia, The Fine Art of Small Talk, 2015). People will pick up on your energy, so make the decision to be enthusiastic. Enthusiasm does not equal pretending to be overly animated. You should not try to deceive or manufacture false energy. Instead, if you are interested in the client and building a relationship, you can tap into the energy of that desired relationship and allow it to support enthusiasm. Doing this will also help control any anxiety you may have as you work with a client for the first time. In preparation, it may help to listen to certain music or practice affirmative self-talk ahead of time. Focus on the positive elements of your new relationship and allow the enthusiasm that result to pervade the interaction. Sitting in a good posture and smiling are important in helping the client to gain a positive impression. The same is true of maintaining appropriate eye contact. It helps to look at the client’s face, in his or her eyes. However, if you hold eye contact for too long, it can become uncomfortable. Looking down at papers or off into the distance also does not set the stage very well. Think of your task as creating what amounts to a 30-second commercial for yourself (Karia, The Fine Art of Small Talk, 2015). As you begin, share your name and position (e.g., financial planner with XXX organization, or a more descriptive title, such as “I help clients reach their dreams”). Then create a sentence about your unique strengths and accomplishments. Follow this with an example or two from your life list. Close this exercise with a sentence about how you want to serve the client’s needs and add value to their lives. That is all you need to do. Make it short, to the point, and relatable. As you transition into the next part of the interaction, ask the client to visualize something such as what would make a wonderful retirement for them, and have them share their visualization. This will take you right into learning about their goals and dreams. Remember to listen actively, occasionally using reflection and restatement as we have previously suggested. Ask questions to continue to draw in the client. If you do this from a place of honest interest and curiosity, the client will recognize your interest and desire to come alongside them on their journey. Effective Discovery Meetings CFP Final Level: Engaging Clients in the Financial Planning Process Module-2 Page 23

We have understood by now that a discovery meeting is more than a data-gathering exercise. It is an opportunity to learn about the client, their goals and dreams. Discovery meetings are important enough that you may want to schedule more than one—either at the initiation of the client engagement, or spread a little apart as you develop the professional relationship. Listening carefully will always be a key component of effective discovery. Asking insightful questions related to what the client is saying is another important factor. You should also maintain an emphasis on being candid and open (Jolly, 2012). Most clients want a long-term relationship, so your conversations should be truthful and transparent. This will allow you to individualize your approach and provide the proper focus. Although you need to be business-focused and professional, you also should show clients that you care about them. Be empathetic as they are sharing about their lives and concerns. Do not use technical jargon while interacting with clients as he may feel upset or embarrassed. It is usually best to interact on a more down-to-earth level. Be professional, but also recognize and adapt to the client’s financial literacy level (Jolly, 2012). Also, be willing to modify your approach to match the client’s comfort level with openness and transparency. Especially at first, some clients are not comfortable sharing real feelings. It is best to accept and work with this, but also continue to guide the client to become more open with you. Being open and transparent you will provide a positive example for the client. Sometimes, clients do not seem willing to implement your recommendations—and you know that doing so would be beneficial. At some level, the client may recognize that your suggestion is beneficial, but it makes little difference. You cannot convince people to do what’s in their best interest if they are not willing. Why would someone not be willing to do things that will help them achieve their life goals? There may be many reasons, including behavioral or psychological, but one is that client and planner have not bonded or gelled. They are not working as partners in the financial planning journey. A full discussion of how to solve this problem goes well beyond the scope of this course, but good discovery is an important corrective factor. Remember, discovery and data gathering are not the same. Data gathering focuses on that which is quantitative, and clients who only have the opportunity to provide data (e.g., income, investments, expenses, etc.) will not have much incentive to connect with and trust a financial planner. To be sure, quantitative data is required, but qualitative information is more important when the goal is to create real engagement. CFP Final Level: Engaging Clients in the Financial Planning Process Module-2 Page 24

Example. Data gathering will ask how much income and assets an individual has. Discovery might ask about the client’s first memory of money (Diliberto, 2014). Both inquiries will provide beneficial information, but the second will also give the client an opportunity to share insights into how they feel about money—their fears, concerns, biases, and perspectives. The following illustrates some of the differences between data gathering and discovery: Data Gathering vs. Discovery Data Gathering asks … Discovery asks … “When do you want to retire?” “How do you visualize your life in your “How much is your business worth?” 60s, 70s, 80s and beyond?” “Tell me about start and growth of your business and what are your future plans?” “How much do you contribute to charity?” “What challenges in your community do you care about?” “Have you made any charitable bequests “If you could make a difference with a in your will?” legacy that will last well beyond your lifetime, what would it be?” “Have you taken steps to reduce taxes at “How do you want to be remembered?” your death?” “Do you consider yourself a conservative, “What do you consider the greatest risk to moderate or aggressive investor?” accomplishing your goals?” “How much money is needed to educate “What are your goals for your children?” your children?” Can you see how each approach might lead the engagement in different directions? This doesn’t mean that data gathering is unimportant or irrelevant. It is absolutely necessary. However, by itself, it will not help you to hold one or more effective discovery sessions, and it will not help you to really understand your client and what’s important to them. CFP Final Level: Engaging Clients in the Financial Planning Process Module-2 Page 25

Why does any of this matter? It matters because doing this makes a positive difference in client engagements. “Research shows engaged clients are consistently more satisfied with advisors connecting in a more meaningful way to better understand their values, needs, and priorities. They are far more likely to sustain a long-term commitment to their advisors, as well as increase their assets with them, if they sense a strong connection and personal touch. Taking the time to listen and find out what your clients really want in life, and then helping them to establish purposeful goals, will build stronger relationships and reap greater rewards. In fact, 68% of engaged clients say their advisor understands their personal goals and dreams, compared to only 52% of content clients.” (AssetMark, 2015) Applicable Practice Standards The applicable Practice Standards relating to Appreciative Inquiry is Standard 2. For the detailed statements, and explanations of the Standard, please refer to the FPSB document Financial Planning Practice Standards. 2. Collect the client’s information 2.1 Identify the client’s personal and financial objectives, needs and priorities. 2.2 Collect quantitative information and documents. 2.3 Collect qualitative information. CFP Final Level: Engaging Clients in the Financial Planning Process Module-2 Page 26

Chapter - 4: Goal Determination, Refinement and Setting Learning Outcomes Upon completion of this chapter, students will be able to:  Demonstrate how to move from a dream to a SMART goal  Apply mind mapping to the financial planning process Introduction As you proceed through the discovery process, the client and you will need to determine desired goals. Then, you must frame them in such a way that they can be measured and reached. Goals have to be clearly stated/specific, measurable, achievable, realistic, and time-bound (i.e., SMART). The question for now is, how can you move from broadly stated dreams to SMART goals? Dream Decisions While having conversations with clients, you definitely have compiled a list of a few of their dreams. These reflect the client’s hopes and desires, although they may not think they are realistic or achievable. They may or may not be, and now is the point at which you can begin that determination. CFP Final Level: Engaging Clients in the Financial Planning Process Module-2 Page 27

The first step is to identify and list the dreams in an orderly manner. You probably will need to get clarification from the client and will also likely have to tidy up the list’s wording. Ask the client to work through the list with you and identify any items that are not actually dreams (or not at present). Then, ask the client to prioritise the list so that the most important items are at the top and those that are less important are further down the list. Now, ask the client to highlight the top dreams. How many? Whatever numbers both of you feel comfortable turning into goals and addressing. This could be one or two, or perhaps up to three or four. It is unlikely either you or the client will be able to apply the time and energy (and money for the client) to address more than that. It is not a fixed number, but one that, at the beginning, probably makes sense. After getting agreement on the dream list, it is time to formulate the list into actionable goals. Goal Determination and Refinement The financial goal needs to be quantified. Working through the SMART process is a reasonable method to quantify a goal. Some people disagree with specifying a SMART focus. It is not so much that they disagree with the concept; they just feel the SMART process can be too restrictive, and therefore not very inspiring. This can be true, especially if the process becomes mechanical, overly structured, and limiting. That said, the SMART goal process has an advantage in that it provides a framework for quantifying dreams and setting them into achievable goals. As such, we will proceed exploring the process. SMART Goal Application Let us assume one of the client’s dreams is to purchase a holiday home. To turn this into a goal, there are several questions that must be answered. • When do you want to purchase the house? • Will this become a permanent residence in the future or remain a holiday home? • Where would you like it to be located (i.e., what territory, town, or area)? • Should it be on a lake or waterfront? • Should it be in or near the mountains? • Is there a different type of location you would prefer? • Would you prefer to be located in an urban or community area, or somewhere more private? CFP Final Level: Engaging Clients in the Financial Planning Process Module-2 Page 28

• How large (and perhaps what design) would you like the house? • Do you have a purchase amount in mind? • What about expenses to remodel or make it more liveable? • Will there be significant on-going fees or maintenance expenses? • Do you want to pay cash (taking the money from existing resources), make regular saving contributions, assume a mortgage, or use a combination of acquisition methods? • If there will be a mortgage, do you have a target date to retire the loan? • If you will make regular contributions into a saving account, about how much will you contribute each month? • What type of account will you use (including assumed interest rate)? There are additional questions we could ask, but the preceding will take us where we want to go. How can we turn the list into a SMART goal? • Specific: Purchase a single story (ranch) holiday home on a private lake in XYZ resort community. It should be within walking or bicycle riding distance of the town center, and on a secluded lot. The house should have at least three bedrooms, an updated kitchen, a large outdoor deck, and a family or great room that can accommodate the entire family and occasional guests. • Measurable: Purchase the home within seven years for no more than Rs.2, 50,00,000. Use existing assets up to the maximum purchase price to buy the home. Save an additional extra Rs.50,000 per month to cover any additional expenses. • Achievable: They have most of the money and can save the additional amount. Seven years is a practical timeframe and the suggested purchase price is reasonable for several resort communities in their area. • Realistic: They already enjoy renting holiday accommodations on a lake in a resort community and have a few in their mind as potential options. They can afford the purchase price and on- going maintenance expenses. They are in agreement as to what they want and the suggested timeframe. • Time-bound: They want to purchase the house within seven years and will have the money to do so. CFP Final Level: Engaging Clients in the Financial Planning Process Module-2 Page 29

The preceding is a reasonable example of how the dream of purchasing a holiday home can be refined and recast as a measurable, and therefore achievable, goal. You can follow this, or a similar process, for each client goal. At some point, available financial resources will become a factor in the client’s ability to achieve additional goals. This may create a situation where the client needs to rethink all goals and perhaps reprioritize their list. This is a good place for a reminder that financial planning is the process of developing strategies to assist clients in managing their financial affairs to meet life goals. The process of financial planning involves reviewing all relevant aspects of a client’s situation across a large breadth of financial planning activities, including interrelationships among often conflicting objectives. This means that clients often may find themselves in situations where some goals conflict with other goals. Generally, there’s a limited amount of money and it must be prudently allocated. How can a financial planner help and recommend in situations where one or more client goals are in conflict? Working with the client to reprioritize goals is one helpful tool. Another is to refine existing goals to shift timing, financial allocations, scope, or a combination. The refining process can be a beneficial tool to help clients determine their real priority order. All this must be accomplished by working together—client and financial planner. A financial planner cannot refine or prioritize goals without client input and agreement. The planner can explain the situation and applicable factors, but the client must decide what to do. It’s entirely probable that the client will have different cultural background, family experiences, emotional or medical issues, life cycle stage and age, or education and personal experiences than the financial planner (Leimberg, Satin sky, Doyle, & Jackson, 2012, p. 91). Additionally, clients are almost certain to approach their priorities differently than the financial planner. Each of these factors help explain why the job of prioritization and goal-setting does not belong to the financial planner, it belongs to the client. The planner facilitates the process by helping the client do their part. Mind Mapping If you and the client are struggling to refine their goals, you may want to have the client work through a mind mapping exercise with you. There are several good apps and software programs available, but all you really need is a diary and a pencil. Mind mapping is a tool that allows users to move information from their minds onto paper (or a computer or app). A mind map can take several forms, but each follows a core concept. Start with a main idea, usually placed in the center of the map, and then branch out from the center identifying related ideas, topics, action steps, etc. Organization can come after first identifying the map items. Once on the map, users can move any items to any place on the map to organize related content and CFP Final Level: Engaging Clients in the Financial Planning Process Module-2 Page 30

steps. Mind maps use lines to join connected items, and sometimes also use varying shapes and colours to provide additional organization. If you visualize a city map, you can get a reasonable idea of a mind map. The city center is the main idea (items, concepts, action steps). Primary streets and roads leading from the city center can represent key thoughts in the process; secondary streets represent secondary/supporting thoughts, and so on. Special images or shapes can be used to identify special ideas (mindmapping.com, 2017). The image below illustrates a sample mind map (mindmapping.com, 2017): You can compose a mind map in a simple manner or you can create a fancier version. Several computer-based software programs and mobile apps can assist in developing a mind map. However, all that is needed is something on which to write (e.g., paper, whiteboard) and a pencil, pen, or marker. How can you use mind mapping in a financial planning engagement to refine goals? Start by listing the goal in the center of the paper. Include any descriptive language to help describe the goal. Now, begin listing criteria for the goal and steps required to achieve it. For example, assume the goal is for the client is to save money to purchase a holiday home. The goal can be placed in a box in the center of the page. Around the outside of the box, the client and you can think about and list all relevant items, such as: • Purchase price • Desired date of purchase • Down payment amount CFP Final Level: Engaging Clients in the Financial Planning Process Module-2 Page 31

• Monthly amount available to save for down payment • Location • Real estate agent/broker • Mortgage company To the list you can add size, number of rooms, building type, etc. The basic map might look something like this: Figure: Home Purchase Mind Map You can shift and add items as desired to reflect the preferred process flow. This simplified example shows how mind maps can be used to help clients identify the financial planning process and refine goals. This will guide clients to visualize potential steps and whether the goal is something on which they want to work—now or in the future, especially in relation to other goals. Seeing the required action steps written down sometimes can help clients see how much work or money will be required to accomplish a goal. You can also use a mind map to list all the client’s goals, along with process steps to help them visualize what they have identified as life goals. This mind map illustrates a more detailed overview of the financial planning process with the related practice activities. Financial Prioritization CFP Final Level: Engaging Clients in the Financial Planning Process Module-2 Page 32

In many situations, the client’s want list will be greater than their financial capacity. When this is true, the financial planner may be able to help by suggesting goals that should have higher priority than others. As an example, reducing debt load and increasing emergency funds should take priority over saving money for a vacation on an island retreat. Planning for the vacation is more attractive, but reducing debt and increasing emergency funds is more prudent. In the long run, doing so is most likely the better decision. Other goals may not be so easy to prioritize. Which is more important, saving for a child’s university tuition or saving to begin a small business in retirement? Both have value and both will require a substantial amount of assets. If the client only has discretionary income to fund one of the two, how can he or she make a wise choice? Deciding to focus on either goal will not be a bad or unwise decision. The client must determine which of the two is most important. As the financial planner, you can contribute to the conversation by identifying savings requirements, calculating investment earnings, and exploring funding options for both goals (e.g., student aid, loans and grants, small business loan or grant, etc.). Both goals may be important enough that the client may be open to restructuring existing debt service, reallocating cash flow, or perhaps developing a second income stream (e.g., second job, freelance/consulting, etc.). Perhaps it would make sense to start working on one of the goals and shift to the other at a point in the future. Likely, a combination of solutions will be required, perhaps including the decision to not work on achieving one goal so that the other can be reached. We cannot provide one solution to this concern that will be appropriate in all situations. Client preferences and financial well-being will be primary determinants of what can or should be done. Also remember, because financial planning usually is a lifelong process, a decision made today is likely to be a candidate for modification at some point in the future. Cash flow will change. Goals will be modified. Life events will come to play. This is one of the reasons why meeting regularly and monitoring progress, along with life changes, is an important on-going part of financial planning. CFP Final Level: Engaging Clients in the Financial Planning Process Module-2 Page 33

CFP Final Level: Engaging Clients in the Financial Planning Process Module-2 Page 34

Chapter – 5: Develop Financial Planning Recommendations Learning Outcomes Upon completion of this chapter, students will be able to:  Apply applicable Practice Standards when developing financial planning recommendations  Construct financial planning recommendations  Evaluate financial planning recommendations to determine the degree to which they support a client’s life goals  Prepare financial planning recommendations for presentation to the client Introduction So far we have learned about the client, their needs and goals, and gathered relevant information, it is time to begin analyzing and assessing the client’s financial information. As this is completed, you can start developing financial planning recommendations. Two of FPSB’s Practice Standards are specifically applicable to this stage. Analyze Information We have conducted one or more client discovery sessions, you will have compiled a lot of information. Much of it will be relevant and applicable at this stage, while some of it may find relevance at a later place in the financial planning engagement. How do you know what is applicable now and what should wait until later? You have to review, analyze, and assess the information in light of the client’s goals CFP Final Level: Engaging Clients in the Financial Planning Process Module-2 Page 35

and financial situation. You will need to do two types of analysis, or at least integrate both. You have to evaluate and understand the client’s financial data, and you must apply your understanding of the client’s goals, dreams, money psychology, and financial biases. For you to develop effective financial planning recommendations, you must include both aspects, integrating them so that one can be applied to the other. To analyze the client’s financial data requires you to apply all that you have learned from each of the financial planning topics and field experience. You must bring to bear understanding of: • Investment planning • Personal financial management • Risk management and insurance planning • Retirement planning • Tax planning • Estate and wealth planning Financial planning is an integrated and holistic discipline. You cannot develop recommendations for one area that ignores the impact on the remaining areas. It is true that not every financial planning engagement involves all financial planning topics. However, even when only developing recommendations for one or two topics, you must consider the potential impact on the other topics. Any solution that negatively impacts one of the topic areas must be revised or discarded. Otherwise, you will not fulfil your function as a financial planning professional. It is good to remember that few, if any, clients engage a financial planner only to analyze their financial situation. They come so the planner can develop strategies to help them achieve life goals. However, analysis and evaluation must also precede strategy development. Apply your knowledge and understanding of each financial planning topic area to determine the client’s current financial situation/status along with what may be required to help the client achieve life goals. Although this course focuses on interpersonal aspects of the client-planner relationship, the financial planner must correctly and effectively apply financial knowledge when evaluating the client’s financial situation (current and future). As you review the client’s financial strengths and weaknesses, you can consider the following list (Warschauer, Hampton, & Head, 2015, p. 628): Review Statement of Financial Position and Cash Flow • Is the client making normal progress in building an investment portfolio? • Is the client making use of any retirement and/or education tax deferrals? • Is an inappropriate amount of assets tied up in the client’s business or employer? CFP Final Level: Engaging Clients in the Financial Planning Process Module-2 Page 36

• Does the client have substantial unmarketable assets? • Is the client portfolio excessively concentrated in particular investments? • Is the client’s annual savings rate reasonable? • Is the client’s marginal tax bracket appropriate? Liquidity • Does the client have adequate liquid assets? • Has the client arranged adequate secured or unsecured lines of credit? Education Planning • Does the client have dependents for whom he or she plans to pay educational costs? • Has there been an attempt to fund these costs? Insurance • Does the client have vehicle and homeowners insurance with adequate limits and provisions? • Is flood or earthquake insurance indicated? If so, does the client have adequate coverage? • Is property and casualty (P&C) insurance replacement cost covered? • Does the client have or need umbrella liability insurance? • Does the client have or need life insurance? • Is the type of life insurance appropriate? • Does the client have disability insurance? • Is long-term care insurance appropriate? • Does the client have nursing home (extended care) insurance? • Is there a plan for post-retirement health insurance? Debt • Does the client have any loans with excessive interest rates or any loans that could be financed at a lower rate? • Is a disproportionate amount of income spent on debt payments? • Are investment funds available to prepay loans? Retirement Planning • Does the client have employer-based retirement plans? • Is the client covered by a social security (i.e., government-provided benefit) plan? CFP Final Level: Engaging Clients in the Financial Planning Process Module-2 Page 37

• Has the client built additional retirement savings? Estate Planning • Does the client have a will (or trusts if indicated and appropriate)? • Does the client have estate tax or settlement (e.g., probate) issues? • Does the client have living wills, health care powers of attorney, or durable powers of attorney? • Or whatever arrangements are applicable to your country The preceding list is not all-inclusive, but it provides a way to review a client’s financial health and well- being. There is a lot of information to review and evaluate. Once you have evaluated available information, and perhaps considered additional factors, you can begin to develop prospective strategies to help the client achieve their life goals. Review Prospective Planning Strategies There are many ways to achieve a goal. Likewise, a financial planner may have numerous approaches to considering appropriate strategies for a particular client. A strategy that you and your client adopt as being appropriate for them may be inappropriate for a different client. As a result, a financial planner must approach each planning engagement as a new and unique situation requiring customized strategies to reach individualized goals. That said, planning strategies developed for prior engagements can be used as a template or foundation for what must be accomplished with the current client. Planner Biases FPSB’s Investment Planning and Asset Management course included a chapter on Behavioral Finance (FPSB, 2018). Each of the biases presented can impact individual decisions and behaviours. These should be remembered when considering various planning strategies, because they often impact the acceptance and success of the financial planner’s recommendations. We should also address another area of bias that often colours strategy development: The financial planner is not immune to behavioral biases. These may include the financially based biases that often affect clients. Therefore, the financial planner must be aware of potential biases and attempt to neutralize their impact when considering prospective planning strategies. It does no good to deny that you have biases. Consider that you may have developed biases based on your gender, family history, personal experience, social and cultural background, and education. Planner biases also may result from his or her environment, firm expectations and practice, state of mind, money psychology, and many additional factors. As you explore potential strategies, keep this in mind. Financial planners can become accustomed to doing certain things in certain ways. Some of these are colored by personal CFP Final Level: Engaging Clients in the Financial Planning Process Module-2 Page 38

biases, and others result from repetitive experience. While the strategies may be worthwhile, it is a good practice—a safeguard—to think through multiple strategic approaches to developing client-based recommendations. Develop Client-Based Recommendations Knowing and understanding the client is very important. As long as you know the client, you can move forward in the direction you believe is best. If you head in a direction in which the client disagrees, he or she will let you know (if you have come to know the client well enough). So, focus on getting to know the client. Part of getting to know the client includes gathering, analyzing, and evaluating relevant quantitative and qualitative data. We have been focusing on qualitative information, and that remains the most relevant for our purposes. However, as you consider developing recommendations, you must incorporate quantitative data as well. Specific guidance on how to do this has been provided in other courses. However, as a reminder, your recommendations should include consideration of the following areas: • Cash flow management and the use of debt • Management of personal risks and insurance • Retirement issues • Investment strategies and products • Tax and estate distribution The specific amount of emphasis you give to each area will depend on the client’s goals and objectives. However, even if the client only wants to focus on one area (e.g., retirement issues), you must incorporate the other areas into your thinking and planning. Remember, financial planning is a holistic or integrated discipline. As such, financial planners should consider how each area may impact any other area. As an illustration, when doing retirement planning, a financial planner also must consider cash flow management, investment strategies, taxation, management of personal risks (including insurance coverage), and perhaps even estate distribution. The same would be true for most other financial planning areas. Within this context, the financial planner’s job is to develop strategies to help clients manage their financial affairs to meet life goals. In creating recommendations and developing financial plans, financial planners may review all relevant aspects of a client’s situation across a breadth of financial planning activities, including interrelationships among often conflicting objectives (FPSB, 2018). As a financial planner develops strategies and recommendations, several factors can affect the process (Lytton, Grable, & Klock, 2012, p. 200): CFP Final Level: Engaging Clients in the Financial Planning Process Module-2 Page 39

• Financial knowledge and experience • Attitudes and beliefs • Assumptions • Marketplace: Tax, economic and legal • Socioeconomic descriptors of the client’s situation • Business model: Restrictions or regulations • Planning goals and objectives • Temperament and personality Each of the points on the list can be integrated when developing recommendations. As you develop recommendations, be sure to base them on facts more than feelings. Have the research and data available to support a potential recommendation. You should be able to justify every recommendation you make. As part of the process you should ask yourself the assumptions on which you are making a recommendation. If they stand up to scrutiny, you should plan to include them as you talk with the client. If they do not stand up, you should evaluate reasons why and either make changes or discard the recommendation. A financial planning professional will not make recommendations solely based on his or her feelings or past experience. Remember that financial planning involves art, but its foundation is science, and recommendations should follow that path. Your recommendations should offer the client cost-effective, adaptable alternatives within the context of the scope of the financial planning engagement. Recommendations should address the following questions (Leimberg, Satin sky, Doyle, & Jackson, 2012, p. 201): • Who should implement the recommendation? • What should be done? • When should the recommendation be implemented? • Where should the client, or other party, implement the recommendation? • Why should the recommendation be implemented? Why is it important to the client’s financial future? • How should implementation take place? • How much should be purchased, saved, or invested to implement the recommendation? • Specifically, what is the cost of the recommendation? You may be tempted to ignore or slide past one or more of the questions. Don’t do it. Each question can form the foundation for developing strong, actionable recommendations. Using this process can also make the financial planner view each recommendation and determine if it is logical (in the current engagement and environment), and if the recommendations can be implemented in a manner consistent with the client’s resources and mind set. CFP Final Level: Engaging Clients in the Financial Planning Process Module-2 Page 40

Chapter - 6: Presenting Recommendations to Clients Learning Outcomes Upon completion of this chapter, students will be able to:  Apply desirable communication skills to more effectively engage clients  Modify recommendations to comply with client requests  Construct finalized financial planning recommendations as part of a plan of action  Present finalized plan of action to gain client agreement to implement financial planning recommendations Introduction By this stage in the financial planning engagement, the financial planner has: • Established and defined the relationship with the client • Collected the client’s information • Analysed and assessed the client’s financial status • Developed the financial planning recommendations CFP Final Level: Engaging Clients in the Financial Planning Process Module-2 Page 41

The next step in the process is to present the recommendations to the client. This is a time for discussion and for the financial planner to hear the client’s feedback and comments on the recommendations. It is not appropriate for the financial planner to attempt to force the client to accept recommendations as presented. Instead, a competent financial planning professional will want to hear the client’s reactions and carefully consider and discuss desired changes. Done well, this step in the process will lead into a time of shared implementation of the client’s financial plan. It all begins with good communication. Communication Plan Presenting financial planning recommendations requires sales skills. As a financial planner, you have listened well and worked hard to develop recommendations that will help the client embrace a plan of action to achieve life goals. To encourage the client to do this, you must employ a level of sales ability. By this we mean that you need to be clear and enthusiastic about the recommendations—what they are and how they can help the client. You should not try to convince without them understanding the recommendations. But attempt should be made to gain acceptance of the recommendations. The client needs to know how you arrived at the recommendations, including some degree of the background process. They also must recognize that you have worked on their behalf trying to develop recommendations to serve their goals. If they understand this, they are more likely to consider the recommendations in a positive light. The specific sales skills to which we refer are those grounded in effective communication. In this case, effective refers to communication that clearly articulates the recommendations and the goals they support. It also refers to ethically and intelligently presenting the recommendations in a way that appeals to the client. Neil Rackham, in his seminal book SPIN Selling, presented research into ethical, professional sales processes. He suggests four stages to a sales call (Rackham, 1988, p. 11): • Preliminaries • Investigating • Demonstrating Capability • Obtaining Commitment The financial planning process has followed these stages through: • Establishing and defining the relationship with the client • Collecting the client’s information • Analyzing and assessing the client’s financial status • Presenting the financial planning recommendations to the client SPIN Process Page 42 CFP Final Level: Engaging Clients in the Financial Planning Process Module-2

Now, it is time to further demonstrate capability by effectively presenting the financial planning recommendations, followed by obtaining the client’s commitment to begin implementation. Rackham suggests a model he calls SPIN selling. SPIN stands for (Rackham, 1988, p. 92): • Situation • Problem • Implication • Need-Payoff In his words, the seller uses situation questions to establish a context, leading to problem questions so that the buyer reveals implied needs, which are developed by implication questions. These make the buyer feel the problem more clearly and acutely, leading to need-payoff questions so that the buyer states explicit needs, allowing the seller to state benefits, which are strongly related to sales success. Depending on your background, you may feel a little uncomfortable with the sales-oriented language of the SPIN process. If so, let’s put it in terms that may resonate more with financial planners. Begin by getting to know the client, his or her goals and dreams as you establish and define the relationship. Use the appreciative inquiry process during discovery to explore the client’s concerns as well as what they would like to accomplish. Continue the conversation and gathering data as you refine your understanding and help the client to specify his or her real goals and dreams, along with any issues believed to be standing in the way of making these a reality. As you analyze and evaluate what you have learned, you will be able to identify and articulate goals, financial requirements, and timelines in which they can be accomplished. All the while, you keep the focus on putting the client’s needs first. As you present the financial planning recommendations, you do so highlighting the ways in which they can help the client reach their goals and dreams. These are the benefits of your suggestions. Working together, the client and financial planner can develop a plan of action to accomplish what the client wants to have happen (i.e., what’s in their best interest). Theory into Practice A word about turning theory into practice. The concepts being covered in this course may be unfamiliar to you. Hopefully, you will want to begin to include them as part of your normal practice. There often is a temptation to incorporate positive changes and try new approaches all at once. You will want to avoid doing so. Here are some suggestions to help you learn and apply new skills (Rackham, 1988, pp. 148-152): • Practice only one behaviour at a time (don’t try to incorporate too many changes all at once) CFP Final Level: Engaging Clients in the Financial Planning Process Module-2 Page 43

• Try the new behaviour at least three times (it will take a little time for changes to feel comfortable) • Quantity before quality (try a new behaviour often before attempting to refine it) • Practice in safe situations (don’t try to make significant changes with key clients first; practice with colleagues, friends, and family first) Making adjustments without losing Focus As the financial planning professional presents recommendations, the client will be listening, evaluating, and perhaps objecting to some of the recommendations, and wanting to include changes. No matter how closely the planner has listened and tried to keep the client’s interests in top of the mind, it is likely the client will not fully agree with every recommendation. You should welcome this as it happens, because it shows that the client is engaged and paying attention. It also indicates that the client wants to embrace the recommendations as a way to achieve goals. In fact, if there are no questions or suggested changes, you should be somewhat wary of the ultimate outcome. When the client suggests changes, how should the financial planner respond? First, it’s important to remember that the financial plan does not belong to, or highlight, the financial planner. It is all about the client. As such, he or she has every right to suggest changes. The financial planner should exhibit a behaviour that shows a willingness to make requested changes, as appropriate. Remember, the planner is the financial professional. If the client requests changes that do not make sense and will likely cause harm, the financial planner has a responsibility to let the client know. As a professional, you are not required to modify everything to the point of stepping away from good practice, simply to accommodate the client’s wishes. You may come to a place in which you must respectfully decline. We will look into this below, but for now, let’s consider how best to adjust the recommendations. Consider a plan to invest for retirement. You have suggested what, based on your experience, is a well- balanced portfolio that should accumulate the desired funds within the client’s timeframe. You are familiar with the investment options and comfortable that they fit the client’s risk profile. However, the client, although he or she can see the rationale, does not agree with the recommended path. In fact, the client is firmly rejecting one or more of the suggested investment options. What do you do? In most situations, there are many ways to invest and accumulate desired funds. Often, Stock B will accomplish the objective just as well as Stock A. Fund C will do the same as Fund D. As a result, if the client has a stated preference for one type of investment over another, it makes sense to accept. This is especially true in situations where the client may have strong emotional reasons for not investing in a given company. Their reasons matter far less than the fact that they object, but they may have good reason, and it is worth asking the client why they feel strongly about this. Don’t ask as part of an CFP Final Level: Engaging Clients in the Financial Planning Process Module-2 Page 44

attempt to convince them how your choice is the better option. Be curious about what is going on in their mind or what has happened in their background. As you do this you can demonstrate another way in which you are partnering with them rather than simply trying to sell them something. When the client objects to a recommendation and wants to make a change, carefully acknowledge the objection, seek clarification, and write it down. It’s perfectly acceptable to explain your rationale and attempt to respond to objections. Ultimately, though, unless the requested change is harmful, you should plan to make the adjustment. You don’t know what will happen in the future, so it’s best not to be too tied to any one path to get there. Remember, the objective is to help the client achieve his or her goals. If they do not agree with your recommendations, but you force the client to accept them, it is likely they will not follow through with implementation, and you will have failed in your objective (and potentially lost a client). However, there may come a time when you feel you should disagree with the client’s request, perhaps even to the point of declining to move forward. We will look at this next. How and When to Disagree Sometimes a client may make a request that is unsupportable within the bounds of good practice. Thinking of a retirement investment portfolio as an example, the client may have heard from a friend or family member about a particular investment option as being the best way to invest. While it is possible this is true, it also may be the wrong thing to do. Perhaps the investment has been shown to be fraudulent, or to not comply with applicable regulations. Maybe supposed returns are not realistic and the investment does not fit the client’s risk profile. Whatever the reasons, you know as a financial professional that what the client wants is not in their best interest. In a situation like this, what should you do? This is a time for open, candid discussion. You should acknowledge the client’s request, restate it to ensure your understanding, and write it down. Then, ask the client to tell you the reasons for requesting the change. Share your thoughts and understanding about why this is likely not the best option. When possible, back up your statements with research, and if you cannot provide this at the time, defer the conversation and decision until you can gather what you need. When people disagree with us, especially when a client disagrees, we may move into a defensive position. Internally, and perhaps even externally, we may think that the client does not agree with our well-reasoned, well-researched suggestions. It can become a matter of personal and professional pride. While this is a normal response for many people, the financial planning professional should guard against doing this. Instead of viewing client disagreement as something to be defended against CFP Final Level: Engaging Clients in the Financial Planning Process Module-2 Page 45

or avoided, look at it as a learning opportunity. The client is letting the financial planner into their thinking process and sharing some intimate feelings about one or more aspects of the recommendations. This is a good opportunity for the financial planner to more deeply engage the client by seeking to understand these thoughts and emotions. The disagreement may be coming from a simple lack of understanding. On the other hand, it may be the result of deeply held feelings and emotions. It is up to the financial planner to understand what the client is saying and why. When the financial planner is able to approach disagreement from a place of trying to understand the client, the relationship can grow healthier and deeper. The skills presented previously around communication, including the planner’s desire to be curious about the client, apply here. We can refer to what we are talking about as influence. “Influence is the ability to move a person to a desired action, usually within the context of a specific goal” (Burg, Adversaries into Allies, 2013, p. 5). The financial planner has the option to attempt to try to persuade. Persuasion works because, by its nature, it helps the person understand that the outcome they desire is the same as the one you propose. Part of your solution may require modification (e.g., picking a different investment option), but the overall recommendation is in the client’s interest. • Influence can be seen as having five principles (Burg, Adversaries into Allies, 2013, p. 11): • Control your own emotions • Understand the clash of belief systems • Acknowledge their ego • Set the proper frame • Communicate with tact and empathy The first bullet needs no additional commentary. It is crucial for the financial planning professional to control his or her emotions in all client engagements. The second bullet refers to something that happens often. The parties assign different meanings to the same words. Each party in a conversation sees the same words, but has a different understanding and response. It is not so important to determine who understands correctly. It is important, however, to clear the air and come to a mutual understanding. It is also a good idea to remember that everyone—including you—has an ego. Again, it matters more to acknowledge that ego is involved on both sides of the conversation, than to determine whether one or both parties is out of line. A frame, in this case, is the context in which the interaction takes place. When the financial planner is able to set the proper frame, he or she moves a potentially divisive conversation to one that is supportive and focused on achieving the best outcome (remember, client first!). Throughout this course we have highlighted the need for and value of communicating with tact and empathy. Doing so allows the financial planner to show the client that they are both on the same side, seeking the same CFP Final Level: Engaging Clients in the Financial Planning Process Module-2 Page 46