February 21, 2011
Easiest way to make tough clients pay FP fees
Sadique Neelgund
Most of us have one ‘huge complaint’ about getting started as financial planners i.e. “people in India are still not ready to pay financial planning fees, there is no demand for financial planning services.” Tell this to any of the established financial planners, they will thrash your opinion and hold you responsible for not being able to make your clients pay. Though I am not established yet, personally I have been fairly successful in collecting fees in the range Rs. 15-25 K from around 25 clients during my stint with Sykes & Ray Financial Planners and I believe the onus of communicating the value of financial planning is on us. If we are passionate, knowledgable and have a strong belief that we can make a difference to clients’ lives, we dont have to wait for the market to mature and people to start calling us or walking into our offices.
Clients pay us when they see some concrete value in our services, we need to quantify the value in some way. Here is one of the ways to show prospects the value that we bring to table. Most people have a habit of procastinating and they know it – show prospective clients what they might loose by not getting a financial plan done “now”. I have tried it selectively and it has worked well. Try it out yourself, communicate it through mailers, during first time meetings, in public speaking, in your media writings etc – make sure your communication is polished, firm and impactful. Below is a transcript of an article I had written in Business Standard on similar lines with an example of a 30 year old Rajeev, quantifying what he could loose by not getting his plan done for the next 5 years.
Trust me many people have miserably gone wrong with money management because of 2 things – one, they are just too lazy/busy to do it themself and second, they have heavily been misguided by their agents/disributors/brokers/bankers. If you are genuinely offering FP services and learn to communicate its value, you will emerge out with cheques!
Start
‘Stop Procrastinating’ is the 3rd most popular goal on 43things.com which compiles & tracks what people want to achieve in their life. We aspire to achieve difficult things and taming ‘procrastination’ is definitely one of them. For success with money and investments ‘time’ is the most critical factor after proper asset allocation and right products.
Do make a choice between “do it yourself” or “hire a professional” but not between “I will start now” and “I will start someday”. There is no day in a week called ‘someday’, it has to be ‘now’. Let me explain this to you with an example of 30 year old Rajeev Kumar who decided to have a financial plan in place. He is a typical clueless investor busy with his career; gets a good paycheck, but doesn’t know how to channelize it effectively.
Imagine if Rajeev had got down to getting his financial plan done ‘someday’ instead of ‘now’. The opportunities lost because of wrong financial decisions are called the ‘opportunity costs’.
Cost of delaying retirement planning
Rajeev’s current monthly expenses are Rs. 30,000 and needs to build a corpus of 4.25 crores to meet his 20 years of retirement expenses independently. To build up this corpus, Rajeev would have to invest only Rs. 7,700 p.m. in equity oriented investments over the next 30 years. The power of compounding would ensure he achieves his corpus requirement.
But if he delays this action and starts after 5 years, he would have to shell out Rs. 15,800 p.m. for the remaining 25 years. Rs. 20 L is the additional outflows and the cost of delaying your retirement planning for only 5 years! Why not spend it on a super holiday soon after retiring?
Cost of choosing a wrong asset class
The simplest & most effective asset allocation strategy one can follow is ‘debt for short term goals & equity for long term goals’, but it can be the most difficult thing to do if you do not have a plan in place. Rajeev wants to accumulate Rs. 20 lakhs in today’s value to fund his son’s education which would be Rs. 65 lakhs by the time child is 18 and ready for higher studies.
Rajeev would have to invest Rs. 7,000 pm for the next 18 years in equity oriented investments like mutual funds, blue-chip stocks or ETFs which are likely to give a return of around 14% CAGR. Like most people if Rajeev had invested in Fixed Deposits or lousy traditional insurance products yielding around 8% for this long term goal, he would have to invest Rs. 14,000 p.m. The additional outflows would be Rs. 15 lakhs which is the cost of choosing a wrong asset class! Why not gift it to your son or spend it on his marriage?
Cost of keeping your money idle in savings account
Thanks to lethargic behaviour, hectic life & a lack of clarity on future goals, monthly savings get accumulated over time and stay there safely…cheers to your bank! One fine day, you wake up to realize there is too much money lying idle in account; either you buy a car or a life-size LCD TV. And if you are mindful, fall prey to those touchy advertisements by financial institutions.
Rajeev had been maintaining a balance of around 3-5 lakhs in his savings account yielding 3.5% which had accumulated over last 6 years since he started earning. Now with a no-brainer if he keeps aside Rs. 1 lakh as emergency fund in SB a/c and invests the remaining 4 lakhs in a Fixed/Corporate Deposit at 8%, he can easily earn an additional Rs. 1.2 lakhs in 5 years. Why not hire a professional financial planner with this extra money?
Cost of buying wrong insurance products
Rajeev is happy that he has 6 insurance policies and he pays the premiums regularly, but the total cover is only Rs. 15 lakhs and premium outgo is Rs. 75,000. Needless to say all of them are traditional policies with abysmal yields or ULIPs with higher charges. And on other hand his need-based insurance requirement was 75 lakhs. One will know the cost of being under-insured by 60 lakhs only when the ultimate uncertainty strikes and the family faces the heat.
Cost of getting into bad debt/loans
Borrowing is “spending future uncertain unearned income today”. Many of the debts can simply be avoided by delaying the buying decision. Say you want to go on a vacation to Europe which will cost Rs. 3 lakhs. Now if you can’t hold back your craving for instant gratification you may end up opting for a 3 year Rs. 10,700 EMI option by the tour operator which will eventuality lead to Rs. 3.85 lakhs outflow. Instead if you had delayed this trip by 3 years and invested Rs.8,800 pm @ 10% to build up a corpus your net outflow would have been only Rs. 3-15 lakhs. Why not utilize the savings to fund domestic vacations for first 2 years?
A ‘financial plan’ gives you a roadmap which helps you take the right decisions and avoid expensive blunders. Act now and start working on your financial plan, there are many better things you can do with the extra money saved or earned. Start somewhere, you will find the next steps automatically. ‘Stop procrastinating’ and take the first steps. By the way first & second most popular goals on 43things.com are “losing weight” and “writing a book”!
End
Let’s not wait for consumers to come to us, let us go to them. This is just one of the ways to communicate value of financial planning. What are the other ways in which you think we can do it and get our practices rolling? How to show the value of 15-30 K fees? Leave a comment below and share your ideas.
Authored by,
Sadique Neelgund
Founder
Network FP
Mumbai
Hi,
I wish to make financial plans on excel sheet so the same could be customised. Would you have something prepared which could be used. I plan to venture out something of my own very soon. Could you help how to go about the same.
@pooja I highly recommend you develop your own templates. It may take time and a lot of learning, but in the process you master using the Excel and create financial plans in short time.
I have developed comprehensive excel worksheets (excel calculators) which i use for making plans. I shall be putting them up now and then in the files section. Do track it regularly, learn how to use them and modify them to suit you planning style. Currently I have put a retirement calculator and EPF accumulation calculator.
Good one and the right manner to target your prospective customers.
Thank you Jitendra, have you used this way before?
And can you think of some other ways in which we can ensure financial planning appeals to prospective clients.
Hi sadique,
Very insightful article indeed. Though i have orally communicated on the loss to the customer for delaying the financial plan, calculations like the one mentioned by you can create quite an impact. Keep up the good work.
Thank you Steven. We really dont have to sit with the client with these kind of calculations. During the data gathering usually we can gauge the areas where the client has gone wrong and will go wrong.
Its good make on the spot simple calculations and make them aware about it. Like for example when we are jotting down assets and client says he has 5 lakhs in bank balance, we know what is the opportunity cost of not channelizing this money.
I appreciate the Article . You have clearly highlighted the facts. Excellent !!
Thank you Mona. Picked up some real good stuffs from the former team (Kairav, Priyesh & you) of Sykes & Ray Financial Planners:-)
Ravi Kumar posted on LinkedIn Groups;
Dear Sadique, this is really good and has lot of impact when u deal with clients ,
ANIL PUNJABI posted on LinkedIn Groups
Dear Sadique,
Good writeup. I hope this starts the new trend and give more weightage to this FP profession.
Amit Trivedi posted on LinkedIn Groups;
Very well written article, Sadique. I have interacted with many advisors, who are struggling to collect fees from their clients. The most common reasons they fail are: (i) Many are not comfortable asking for fees. Getting clients to pay may be difficult, but most find asking for fees to be even more difficult. (ii) They are not comfortable asking for fees as they themselves do not know what value they bring to the table. Your write up should act as a guide.
Good work. Keep it up.
Posted on LinkedIn Groups;
Ashish Ramesh Bhave – A very good article
Shilpa Jain – Very nicely written! Keep it up Sadique!
Morwenna Clarke – Excellent article
Prabir Sharma – I Agree With You & So Good Thought & Reading Also.
Thank you everybody for the encouraging words.
Ashish Ramesh Bhave posted on LinkedIn Groups;
I think when you start a Financial planning practice in fee based approach, you should be the person to chose the right kind of client for you , with whom you feel the working would be comfortable.
I totally disagree to convince the client to take your services and pay fees, these type of clients may be a liability on you.
The clients should be educated and made aware about the benefits what he is getting of Financial planning and leave him/her to take their own decision on weather to subscribe your services or not.
The major problem about asking fees is in Attitude. we fear of losing the business if we ask fee, this is becoz of the simple reason that we are Agents prior to CFP.
But now you are not an agent but a Consultant & no any consultant gives you advice without paying him a fee then why you should ?
If you really want to set up your fee based financial planning practice PREPARE YOUR SELF TO LOOSE THE CLIENTS BECOZ EVERYBODY CAN’T BE YOUR CLIENT.
@ Ashish…I do agree with you… its just that the market is still not matured and we do not have clients queing up outside our offices to make financial plans. We still need to survive and grow in this phase.
This is the initial phase we and have to do our bit to go ahead and show / convince prospective clients of our services. I think once you establish say with 100-150 clients… you can have the luxury to say “NO”. Till then little bit of ‘concept sales’ approach is a must for lay the foundations for success.
Hello,
The first meeting with the client when we explain to him the concept of goal based financial planning is crucial. The concepts of debt, equity, SIP, long term investment, term insurance need to be explained to him in a simple manner. Last but not the least, the message that, in this dynamic field of personal finance it is in the interest of the client to take advise from professionals like us, has to come across in a confident and sincere manner.
Many a times if you get clients through a word of mouth publicity, the job becomes easier.
Thanks for starting a very good thread of thought process.
brilliant article sir…very simple but important areas have been highlighted..
Thank you Anurag. Hope you will use it to get clients for FP services
Thanks Mr. Sadique for posting such a simple yet thought provoking article. I am sure I will pick up some points from this and use them while interaction with clients and helping them understand the value behind charging a fee. I recently registered myself with networkFP and found this initiative from you simply remarkable and praiseworthy. All the best… and keep going.
Thank you Amrinder for the kind words. Have you started charging fees?
Really a great article. Evrything covered.
One thing I would like to share is there is need for promotion, i.e., creating more awareness in people’s mind. As they can be easily directed by advisors in choosing expensive and not so needed financial instruments because advisors focus on their commission and here is the deadlock.
So solution for this could be to carry out more workshops in colleges / institutes for students who are about to graduate and start their working career.. there are events in B schools on finance. We could form a group of FPs n go there have a small presentation / conduct a workshop, take survey from students / people attending the finance event.. This way atleast the next generation will be on right track to look after their finances..
Also FPSB could try to get financial planning stuff into graduation / management curriculum so that students have basic idea what to look for and from where…