There are an ever-increasing number of ways paraplanners can develop their skills to add more and more value to the financial planning process and ultimately help clients to achieve their objectives.
One tangible way is to think through and run different scenarios for clients after the initial discovery meeting, but perhaps before the main discussion meeting.
But what to run? How to approach it? Could you run the same scenarios for every client with a few tweaks? How does a client’s attitude to risk or capacity for loss come into play if you run these scenarios? Will you just end up with a dozen scenarios that the financial planner will never show the client and all your hard work be wasted?
There are some easy answers here and some not so easy. Invariably, once you have enough information to start running basic cashflow scenarios, the world is your oyster. To add value in your role as a paraplanner I would always look to answer these few questions.
If a client cannot meet all their objectives (as is quite normal) then find out:
- How many additional years the client would have to work to achieve their objectives as desired.
- How much they would need to cut their annual expenditure by to achieve all their objectives as desired.
Answering just those two questions can open up a conversation with clients for the financial planners you work with. I would recommend sitting down together and discussing the outcomes prior to the second client meeting where these scenarios will be talked about.
I believe these two scenarios are extremely powerful in giving clients a reality check and helping them clearly see the size of their problems. The reality might just be that they are close to meeting their objectives and can make a well-informed judgement call now to meet those objectives without undue stress.
Note that I have omitted the third traditional scenario: that of taking more risk. This is because I assume that your clients will have completed a risk profiling questionnaire and I would not want to take more risk than those initial results indicated. Yes, there will be a further discussion to be had with the clients about that questionnaire, but we are still in the early days of the client understanding how powerful financial planning can be, so let’s not bamboozle them.
Once you have enough information to start running basic cashflow scenarios, the world is your oyster
However, and here’s the more complicated bit, you could ensure that the financial planner ask the client: "If your portfolio were to fall today by a percentage, and never recover from that large drop (noting that normal market conditions will continue afterwards), what percentage fall would you be comfortable with?" The most common answers seem to range between 10–30%. You can then factor that one-time significant fall into your scenarios 1 and 2 above.
So, then you have four scenarios. Now, at this point you can go on creating more and more. Perhaps, particularly pertinent for business owners who have or who are looking to sell their businesses, you might want to know:
- If no income is received in the earn-out period, what difference would that make?
- If no capital payments are received during that same period, again, what difference would that make?
You can run these lump sum scenarios easily in other situations, such as receiving lump sum inheritances or gifting.
Perhaps it is worth having a chat with the financial planners that you work alongside and discussing how you can really shine in your support for them and the clients – opening up a whole new world of discussion and decision-making.
This article was originally published in Professional Paraplanner. Republished with permission.