One of the most common descriptions of advisors is that we are problem solvers. And certainly we need to be able to solve problems for clients; that’s an assumed part of the job description. But is it the primary role? Is problem solving at the core of an advisor’s value proposition?
In his book, To Sell is Human, Daniel Pink notes that, in the past, the sales culture had consisted of “information asymmetry.” His point is that the seller has historically had more information than the buyer. Decades ago, advisors had access to information on investments and trading systems not available to clients. As a result, they were primarily product-focused and transactional.
To use Pink’s terminology, we have moved from “information asymmetry” to “information parity.” Now that information is ubiquitous, the value of problem solving is not what it used to be. As opposed to the world of insurance, trusts, and investments being viewed as something of a black box, prospective clients are showing up at initial meetings reasonably well-informed. Think of the sales process in the form of a timeline from 0 to 100. Prospects are coming in at a 50 or 60 rather than a 5 or 10.
Now, if a client knows they have a problem, they can find answers. For instance, if I think I need more life insurance coverage, I can pretty easily search for information about how much insurance I should own based on the specifics of my situation. The same is true for someone who knows they have a problem in their savings for retirement. They can go online to find a calculator as well as recommendations about ways to allocate their investments between diffferent asset classes.
As a result, the value an advisor can provide in these situations is being squeezed. Not coincidentally, we constantly see articles about fee compression and the need to compete with robo-advisors. Much of the traditional role of problem solver that advisors have played is being commoditized.
But there’s an even bigger issue with problem solving. By definition, it’s essentially reactive.
If your car's motor locks up and there is smoke billowing out from under the hood, changing the oil is a good idea. However, it would have been a lot better to change it before your car started to break down. Likewise, the best advice is that which addresses a potential issue before it becomes a problem. There is substantially more value in identifying problems clients don’t realize they have as opposed to solving existing problems.
For complex client situations, the goal should be to “stress test” their plan to look for factors that could cause major problems. To do that thoroughly, subject matter experts (such as estate attorneys, business advisors, and CPAs) are needed to review the details of all aspects of their financial situation to identify various risks which are not obvious.
Look at a clients’ estate documents and do a fire drill. Ask them questions all pertaining to negative contingencies. What happens if _____? Is your brother-in-law really willing and capable to serve as trustee? Does your sister even know you have named her as guardian? And, if so, does she know how to handle your OCD child’s special bed-time routine? More often than not, clients do not fully understand the implications involved in appointing friends and family members to serve in these roles.
There are all sorts of ways in which clients are simply unaware of the consequences of their current situation. The unique value advisors can provide is largely dictated by the extent to which we uncover these potential pitfalls which can jeopardize their goals.
For a business owner client with multiple children, it is important to talk about future plans to pass on wealth. For example: Is it a priority for you to equalize the amount of assets that you pass on to your children? If it is, what planning have you done to make that happen? Because the default plan – assuming at least one child is in the business and another child is not – is an unequal distribution of assets.
People don’t know what they don’t know. This same concept is universally true in different aspects of life. I am thankful for a 50-point car inspection because I don’t know the first thing about how a carburetor works or how to spot a problem with it if there is one.
The goal is to insulate clients against problems no one else is thinking about and they don’t even know they have. The main reason people lie awake at night worrying about stuff is fear of the unknown. To the extent that an advisor surfaces the unknowns ahead of time and considers the implications of all the various components of clients’ plans, (s)he is providing peace of mind.
Consider the health care industry… If the goal is not just to treat sick people but to avoid sickness as much as possible - in other words, to be healthy - then it’s increasingly about prevention.
Likewise, if we’re concerned not primarily with treating financial sickness, but more about ensuring our clients’ financial health, then it’s preventative. Being preventative means we’re anticipating bad things that could happen by considering all the different ‘what-if’ scenarios and guarding against those.
All that to say, the core value proposition of advisors should consist of problem finding rather than problem solving. Fee compression is not a concern for those advisors who routinely leverage the appropriate team of specialists to spot problems and uncover opportunities that are not even on clients’ radar.