I have a suspicion: Not all financial advisors conduct annual reviews with their clients. Their might be a transactional business. Perhaps they own insurance products without a performance element linked to the stock market. Annual reviews are one of the ways advisors bring value to the relationship.
When I was in production, I had an executive as a client who said: “One of the things I like about you is you make me focus attention on my investments.” The annual review is also an opportunity to show the client they are recognized as an individual, not merely an account number.
If you buy into the idea annual reviews deliver value, here is more good news. You have three opportunities to deliver annual reviews during the year. Why do you need three, you might ask? Can’t we get it done in one sitting? Yes you could, but like a sponge, people can only absorb a certain amount of information in a single sitting. After a while, they tune out.
The three review opportunities are:
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Annual performance review (How did I do?)
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Retirement planning review (Am I on track?)
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Wealth review. (What am I worth including assets held away and hard assets?)
Let us look at the annual performance review. Logically you are holding this with every client in the first quarter of the year, but ideally in January.
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How did I do last year? Everyone is interested in performance. Clients will see news stories about how the market did. They want to know how they measured up. Your firm likely produces a formalized annual report document with plenty of disclaimers built in. Clients want answers in simple terms. They need to know how much they added during the year and how much they withdrew. A client might be dissatisfied with their year end number, assuming their stocks underperformed. They might have forgotten they pulled a lot of cash out. Before today’s technology existed, I would hold up a lined pad and explain: “This is where we started. This is what you added and withdrew. This is where we ended. Your return was somewhere between these two numbers.” Today’s technology makes getting the exact return much easier, but this is basically the answer the client wants to hear.
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How does this compare to indexes? Clients see indexes on TV all the time. The NASDAQ Composite is riskier than the DJIA or the S&P 500 because of the technology weighting, but clients can often look at their total return across all asset classes, comparing it to an all-equity index. Clients need to see a blended index comparable to their asset allocation.
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Are you on track? Your firm likely does performance to goals reporting. This often ties into retirement planning because you want to build up a certain asset base before you enter retirement. What is the rate of return the client needs to hit to achieve their goals? This number is often a more attainable target, especially if the client has a longer time horizon. It can get the conversation away from “beating the indexes.”
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What did it cost me? You might not think this is important. You might think it is a touchy subject. You are a professional. Your role might be described as a relationship manager. You deserve to get paid. Everything the client pays does not end up in your pocket. They pay the firm and the firm sends a portion in your direction. Their accountant will let them know how much they paid in fees. It might seem high when they explain it. Competitors will talk fees with your clients. In most cases, not all the client’s assets are in fee-based accounts. Municipal bonds, US Treasuries and CDs might be in other accounts. You advise in these areas too. What’s the percentage when spread across all the assets where you are providing advice?
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What does the firm think, going forward? People often work with advisors because of their access to expertise. Has your firm won awards for it’s research? That might be a reason your client is a client. What do your firm’s analysts think about 2024? What are their projections for the economy and the stock market? What about inflation and interest rates?
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What has changed in your life? You are getting your clients to focus on their investments. You are doing most of the talking. Your client holds vital information. What is happening in their lives? Have they received a promotion? Is one of their children getting married? Are their aging parents coming to live with them? Are they changing employers? Are they getting a bonus? Are their medical issues developing? These need to be factored into their financial planning and can affect your future recommendations.
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What action should you be taking? Now it is time to present your recommendations. Their asset allocation might need rebalancing. You have some new ideas. You might be happy with everything they currently own. These new ideas need fresh money. Spell out what you would like your client to do. Ask for the order. Repeat it back to them.
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When will we meet again? Earlier, we discussed additional review meetings. There might be one more concerning a revision of their financial plan. When you leave your doctor’s office, they always get your next appointment on the schedule. Set a date and topic for your next meeting.
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Who else needs help? You have done a fine job for your client. You have let them know you understand their situation and their goals. This is a good time to ask for a referral. Who do you know that needs help and is not getting this level of attention? Stop talking.
You will find your reviews can be structured, simplifying the preparation process. You will also find they often uncover plenty of business opportunities. Your client might say: “I am glad we got together. I have been meaning to tell you something. It is good news…”