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“Old school works.” If you are fan of the CBS series NCIS you’ve likely heard the quote. Many prospects and clients think retirement is something in the distant future. The pandemic has gotten people focused on the uncertainty of life and employment. How does the advisor create a need?
The easiest way to create a need is to identify a problem. Once your prospect sees the problem, they know it’s there. It’s not going away. They can decide not to take action, but the problem still remains. Think about your car. You bring it to your mechanic. They say “Your brakes are bad.” You can decide not to take action, but as you drive away, your brakes are still bad.
Lets look at how this classic strategy works.
Step One. Ask the question. “Are you comfortable you will be ready for retirement in (10) years?”
The prospect might answer. “Yes” or “I think so.”
Step Two: How comfortable? 100%? 50%?
It’s a serious question. It’s difficult to quantify unless the prospect has done financial planning previously.
Step Three: Lets find out. You do some basic financial planning. What is the prospect’s desired level of income in retirement? What assets do they have in their retirement accounts? How are they invested? What about outside assets? How much are they putting aside each year?
You should have access to retirement planning tools using Monte Carlo analysis. Using indexes you can roughly project how much their money should grow by asset class. You can also determine how much their income needs to increase over time in retirement to keep pace with inflation.
Step Four: It’s not looking good. In many cases the analysis shows they aren’t saving enough. Their money will run out. The tools you use might also give a best case and worst case scenario to provide perspective.
Step Five: Let’s consider three options. Your prospect is years away from retirement. There is still time.
You present three logical solutions. Would they consider working longer? This increases their savings years and reduces the number of years retirement assets logically need to last. Next approach: Would they consider taking less money in retirement? Drawing down less should get their money to last longer? Third option: Would they consider increasing their savings between now and retirement?
Step Six: Enter the fourth option. Often the prospect’s answer to all three options is “No!” You have identified a problem. (retirement shortfall.) You have presented three possible solutions. They don’t like any of them. Put another way, they want the problem to get solved with the assets they have and are currently contributing.
Would you be interested in another option which could increase the probability your assets would grow more as you approach retirement? This may involve taking on a higher degree of risk.
Step Seven: Round peg, round hole. This is where you present your proposal. It might involve rebalancing for more equity exposure. Maybe total return stocks. Managers with certain track records, although past performance doesn’t guarantee future results. You rerun the retirement analysis. Hopefully the numbers are considerably better. They might still need to increase savings or make one of those other changes, but their probabilities are greater.
Step Eight: You ask for the order. They arrived unaware of a problem. You identified the problem. You have delivered a proposal. You haven’t said it will achieve their goal, because you cannot predict the future. You have shown it should increase the probability. The prospect still needs to make the projected retirement plan contributions and follow the plan.
Step Nine. The relationship begins. They agree. The prospect becomes a client. You are committing to work alongside them, helping monitor progress towards goals.
Why has the classic strategy worked?
- You identified an issue important to the client.
- You have proposed an approach to help make progress towards the goal.
- You have committed to a long term relationship. You aren’t just selling a product.