Questions Great Financial Advisors Ask
Alan Parisse is a seasoned speaker and advisor in the financial services industry. He is an exceptional public speaker. If you have the opportunity to book Alan or see him live, do so. He is clearly one of the very best at what he does—using common sense and great stories that provide insight and motivation to brokers and advisors across the country. Below are excerpts from his most recent book (which we strongly recommend).
The real service a financial advisor offers today is not the product—it is you and your ability to make a difference in your clients’ lives. It is the questions you ask rather than the products you recommend that will distinguish you from your peers and increase your bottom line.
Try searching the Internet for investment advice. We googled it and came up with more than 56 million entries.
“Most investment mistakes are driven by emotional missteps, not intellectual ones. Great advisors can wring the emotion out of client decision making.” (source: Parisse)
A great doctor would not merely ask patients what they think. He or she would tell patients what they should do. As a financial advisor, you should do the same.
Ask the Right Questions
A good opening question for a client or prospect might be, “How do you make investment decisions?” A good introduction might be the following:
“I thought we would start by asking you some questions about you, your family, your goals, and your financial experiences. Then I’ll tell you a little about our firm, our philosophy, and resources. Then we will discuss what potential next steps we want to take from there.”
A great financial advisor can learn an enormous amount about a client’s current portfolio by asking questions similar to the following:
Why do you have that particular stock?
What is that fund doing for you?
Why are you so heavily invested in bonds?
What is the strategy behind your focus on pharmaceuticals?
Is there a reason you do not have significant international holdings?
When you are with a client, take your attention off your ideas, your products, and your presentations. Do more than simply listen. Pick up on unspoken communications: the subtext that lies in a client’s face, body language, and tone of voice. As one great advisor puts it: “I listen to my client with the attention and excitement of a first-time skydiver in a parachute-packing class. I hang on every word, notice every gesture, and ask any questions that pop into my head.”
When I present the plan to my client, instead of using words like volatility and negative correlations, I use words like up and down and zigs and zags. For example, you might tell a client, “We have selected these managers because, historically, when one zigs, the other zags. And that will reduce your risk and help you sleep at night.” (You can also add to this once you know a client’s interest by saying something like, “These managers will dance well together” or “These managers will function as a team in your portfolio. They will play well together for you.”)
“What we think of as the moment of discovery is really the discovery of the right question.”
—Jonas Salk, twentieth-century scientist who discovered the polio vaccine
“Every time you meet with a client, make sure you notice the color of his or her eyes. If nothing else, it will force you to look at them and see them.”
—Nicholas Boothman, author of How to Connect in Business in 90 Seconds or Less
Ask your questions, restate them, confirm them, listen to the answers, and then probe further. Use questions and follow-ups such as:
- So what you’re saying is…
- Let me see if I understand.
- How would you feel if circumstances changed?
Establish eye contact that engages without being overly intimate. Mirror the client’s body language to create a connection. Nod when appropriate; use comments such as “I see” or “Hmmm” or “Oh” or “Please say more.” Adopt a tone that matches your client’s mood and message. Embrace silences, turn down the media noise for your clients, dig into family matters, keep your clients focused on what is important, diagnose thoroughly before prescribing, wring the emotion out of investment decisions, use plain English, tell your client what you really think, and take a stand.
Hiring an investor advisor is like buying risk-management insurance, with the advisor’s fee as the premium. In a bull market, the do-it-yourselfer or cut-rate advisor may yield acceptable results, but what happens when things go wrong or get tough? Value is not defined by the easy stuff—it proves its worth in the difficult time. Most of what a medical doctor does day to day can be done just as well by a nurse or physician’s assistant. So why bother with the doctor or question his or her fees? Because we want the best we can get—just in case.
Money is a personal matter, and so is whatever you or anyone else wants to do with it. Great advisors know that. They also know the questions to ask to help steer their clients to the right financial decisions for their situations with their ultimate purposes or visions in mind. One great advisor asks, “What do you want to do in your life?” Another top advisor asks, “What worries you?” Still another advisor asks, “What’s your money for?” (instead of having the client prioritize their goals and objectives).
“I finally know what distinguishes humans from the other beasts: financial worries.”
—Jules Renard, nineteenth-century French writer
Purpose vs. Goal
A goal is tangible, with a clearly defined end point. Such goals are what many people give as the reason for investing. A purpose goes much deeper. It is not an end. It is a direction you would like to take over the long haul with specific goals serving as mileposts along the way to help monitor your progress. Purpose sets the context within which priorities are determined. Putting purpose first makes decision making much easier.
A seasoned advisor points out: “Discussing goals limits the conversation. Asking about the purpose of their money is much more open-ended. It gets them to open their hearts and allows me to become more intimate with them right off the bat.”
“Every client contact relates to a discussion of risk. Let’s look more closely at why risk plays such a dominant role.” (source: Parisse) One advisor describes a client’s mailbox risk. Many people are afraid to open their mail and read their statements. I ask them, “How can I help you so you will never be afraid to open your mail and read your statements?”
The Sleep Quotient
“It’s taken me 37 years of this business and of watching people get beaten up to understand one simple truth: if you cannot sleep with your portfolio, you will never enjoy your return. There are no perfect answers, but what’s critical to learn is your client’s sleep quotient.”
—John Mayer, Commonwealth Financial Group
Always ask your clients, “If your plan requires an X percent return per year for you to achieve your goals, would that be your only measure of success? If not, how would you measure success?”
“I take a page from the hedge fund people and put it in tangible absolute returns. They use terms such as drawdowns, recovery periods, and high-water marks. I look at how much money a client would have lost in the worst stretch of time and how long it would have taken for them to recover and ask the client if they could live with that. If the client can’t, I adjust the plan before the fact rather than after.”
One of the distinguishing characteristics of great advisors today is that they work hard to eliminate fear and greed from their clients’ investment decisions.
Almost everyone says they are a long-term investor, but few act that way.
If you planted a garden and examined the roots every day, what would happen to your carrots? This question helps make the point that both vegetables and investments need time to grow and flourish.
Perhaps the best definition of an aggressive investment stance is one that has a low probability of achieving a person’s financial goals.
Thoughts on Value Propositions
What is your value proposition? Here are some good answers:
I am a risk manager.
I protect my clients from blowing themselves up financially.
I help clients wring the emotion out of financial decision making.
I help clients maintain an even keel.
I help clients keep their expectations in check.
I get the fear and greed out of investing.
I maintain the discipline to rebalance portfolios in good times and in bad times
“If I’d known I was going to live this long, I would have taken better care of myself.”
—Eubie Blake, musician who reportedly died at age 100