In the past, clients had to meet with financial professionals to access financial advice. Now, clients can obtain information or advice on any financial product or strategy 24/7 using their mobile devices. Not only can they learn about any product or strategy; they can also implement it on their own. With advancements in AI technology, the DIY financial planning population is growing faster than ever. As financial advisors, this should cause us to reconsider how we create value for clients. If we don’t, we will soon become less relevant.
The first question to ask yourself is, “How do I define financial planning?” If you don’t have a clear definition of what you do, you will struggle to communicate how you can be valuable to clients’ financial lives. I’ve defined financial planning as “a formal process of organizing financial decisions.”
Technology has given consumers the ability to implement their financial plans without us. At the same time, technology introduces more confusion. With a universe of information at their fingertips, information overload is a bigger problem than ever. Additionally, polarizing financial opinions abound online.
In this context, clients need a financial advisor’s help making critical financial decisions – decisions they are uncomfortable making on their own. This is why a decision-making framework is crucial for an advisor’s success. I’d like to share my decision framework with you as you consider creating your own. My decision framework is a five-step process called “The First Principle Decision Framework.”
The first step is to identify all the parts involved in the decision and write them inside the framework. This involves listing, in no particular order, all the pieces involved in a specific decision. For example, the parts involved in retirement income are cashflow sources, expenses, taxes, inflation, etc. After listing the parts, do a first-impressions ranking of the importance of each piece. If you have listed twelve parts, rank them one to twelve in importance.
Next, you will group the parts you identified. In this step, you ask, “Are any of these parts similar?” Similar parts are grouped together. For example, living expenses and taxes are similar in that they both involve consuming cashflow. For this reason, expenses and taxes would be grouped. It’s common to have three or four groups in most decisions. Before you move to the next step, it’s essential to consider if any parts have not yet been identified. It’s common to uncover missing parts at this stage.
Now that you have the parts grouped, you need to prioritize the groups. For example, if you grouped two parts, one of which is ranked #1 in importance and the other is ranked much lower, say #9, you need to consider their priority as a group. Has the priority shifted at all? Another question to help you prioritize is, “Which part (or grouping of parts) is the most common failure point?” This will help you refine what parts are most important. It is not uncommon for priorities to change as you move through the decision framework.
In this stage, we identify which strategy or product solutions to implement based on the highest prioritized group of parts. For example, in a retirement income plan, the highest priority could be developing an Asset-Map so all the financial parts can be viewed on one page. The second highest priority could be creating a specific guaranteed income with the least deposit into an income annuity, providing cash flow for essential expenses. As you present the solutions, it is critical to connect them to the prioritized parts. When clients see how solutions connect to the parts they have prioritized, they become more confident and less resistant to recommended solutions. Once you have implemented
the solutions to address all the grouped parts, it’s time to move on to the final stage.
For long-term success, the plan must be monitored. The first task is to determine what parts of the plan need to be monitored and how often. To help with this step, think back to Step Three (Prioritize) and the parts that were identified as the most common failure points. Parts of the plan that are common failure points should be monitored on a scheduled basis. The most common review schedules are quarterly, semiannual, and annual. A best practice is to have guiding documents such as an Investment Policy Statement (IPS), Asset-Map, or Fi360 Investment Reports in the monitoring stage. These documents help communicate with the client about our responsibilities and how we decide when changes are needed.
The good news for advisors is that we’re not directly competing with AI. If our only value stemmed from clients asking us questions and we immediately had to reply with the right answer (as if we were ChatGPT), our careers would be in jeopardy. The decisions clients need to make about their financial future have significant consequences. These decisions are too important not to get right. It’s common for clients to feel overwhelmed with information and feel stuck between polarizing opinions. They want a financial advisor to help them make sense of their situation and walk them through an organized decision-making process. If you provide this service, I believe the opportunities are endless.
If you would like to learn more about developing a decision-making framework for your business, please contact me.
