The 3 Stages That EVERY Fee Based Financial Planning Practice MUST Pass Through in Order to Create Tremendous VALUE for Their Clients and Serious WEALTH for Themselves (Part 3) | FEE041 – Transcript
Okay here we are on the home stretch of the series. Now before I dive into the final phase of your business building venture. I want to do a bit of a recap on things. Now let me start by reminding you of how important it is not to work through these phases or not to work through really everything we’ve talked about here out of sequence.
Go back two shows, I think it was Episode 39. That’s really where you need start. If you haven’t done everything in Episode 39 don’t go on to Episode 40 and if you haven’t done everything in Episode 40 don’t go on and start implementing the things that we’ve got in here because they have to be built on one another. Just make sure you keep that in your mind. Phase one, just as a refresher was what I call the, ‘Building a Foundation Stage.’ It’s all about the embryonic stage of your business. It’s all about your baby. This is where you get to design things so that they happen your way, on your terms and this is really where it all starts because most people when they want to get into business for themselves because they just have their own way of wanting to do things.
They don’t want to actually do it everybody else’s way. They’re in essence what I call not very good employees. This is where it starts. The goal at this stage is very simple. When you are in the Building a Foundation Stage, the goal-, you have one simple goal and that goal is to get out of the stage as quickly as possible. For those of you listening who have kids, this stage is a lot like when you had your first child. It’s a wonderful time of life. It’s-, you did what you needed to, you were always starved for time, your sole focus was really your newborn. Your life kind of revolved around the baby. You were in many cases, sleep deprived. Your routines were totally different. Working out-, when was that going to happen anymore. Seeing friends, yeah maybe. See your spouse, yeah kind of tag team parenting where you sort of walk by each other and hi five when it’s your turn to take over. I mean it was a busy time.
Looking back you’d probably have-, I don’t know if you would-, I don’t know would you have given the stage up for anything? Probably not and the other thing is, you’re probably glad it’s over. Don’t get me wrong, I never minded the baby stage. When we had kids it was a wonderful stage. I had such fond memories looking back and especially because my wife was so into taking pictures and still is into taking pictures. We have a lot of that recorded in photographs, in video and what not and so we’ve gone back through them every so often. It’s-, it tugs on my heartstrings. It was such a wonderful time but I mean you got to go back to that time and think about it. I mean did you really mind changing your children’s diapers? Did you-, did it really bother you? No it wasn’t. I mean it was gross for sure but I don’t know for whatever reason it wasn’t anything that was a problem. It’s always-, it was pretty much an always inconvenient time. It was-, but your baby was your baby. You’d do anything for. Now that you’re through this stage and enjoying all that the next stages have to offer, you really never want to go back to the beginning. I mean if you do maybe it’s because you don’t want to have more children and what not but it’s nothing you don’t really long-, I don’t really long for changing diapers. I don’t long for staying up all night or midnight feedings or whatever it happens to be. I don’t long for that. I just long for-, those memories are really fond memories for me. This is exactly the way it is with your business.
The Building a Foundation stage is a great stage that you really only want to go through only once, maybe twice. Remember, the goal in this stage is to get through as quickly as possible. The nice thing is that the time it takes to get through this stage is totally up to you. With the information from the series, the Fee Based Financial Planning Mastery website and the Fee Based Financial Planning Mastery Academy, you should be able to get through the stage very, very quickly. If you haven’t listened to Episode 39, stop this episode and go right back to that episode first. That’s what I would really recommend you do. Don’t really spend the time going through this one yet because some of the stuff may not make sense until you’ve gone back and listened to the Building a Foundation one. Go ahead and do that if you haven’t. It will just simply help you focus on the single most important thing at that stage which is your value equation and the whole Fee 39 show is all about creating your value equation. If you don’t have this in place, nothing else matters. Get this in place and you will truly have a foundation to build upon, which then is kind of Phase Two.
What I call the ‘Securing the Future Stage.’ Okay so you at this point know how you do what you do and who you do it for. That’s what this Securing the Future Stage is all about. Now in this stage you’re focusing on building-, which some of you may have heard the term, ‘A self managing and self sustaining business.’ I know right Dan Sullivan’s talking a lot about self managing companies and what not, but really this is what the stage is all about. It’s nothing new. It’s nothing that anybody is-, it’s nothing revolutionary but it is an important part of the stage when building your business. This is where-, what I say; this is where the fun truly begins. This is where you get to build your lifestyle business. When you’re building-, when you are in the Building the Foundation Stage, lifestyle is the furthest thing from your mind. I mean it’s really-, as they say it’s survival stage at that point. It’s just doing whatever it takes to get beyond, to get past the stage. Now you have no lifestyle in the Building the Foundation Stage like I said but once you climb out of that stage you can begin to make lifestyle decisions around the future of your business. During the Securing the Future Stage, you are making better decisions about how your business evolves. You’re training your clients, you’re training your staff, you’re building systems, you’re monitoring everything and it’s all based on what you want to create and how you want to create it. The problem at this point is that you are still sitting with your finger in every pot which is great but time consuming and you’re beginning to realise that the reason why the business isn’t growing past a certain point i.e. you’ve hit that-, what’s known as the invisible ceiling or that ceiling of complexity, whatever you want to call it, that’s kind of holding you back. It’s that you’re overwhelmed and you need help.
Well, now once you’ve hit that point where you sort of have everything going but you’re now feeling just completely overwhelmed, now you are at the beginning of phase three. This is called the, ‘Scalability Stage.’ I love this stage. I mean it’s a very powerful stage, however it is something that does require more-, a little more effort but this is where the true wealth is created in this business. Okay, so let’s dive now into phase three, the scalability stage. Let’s dive right into this and I am going to go through as much detail as I can so that you can really garner as much from this as possible.
The first step in this stage is to take some time away from your business so you can focus on one thing. That one thing is putting your business onto one sheet of paper. That’s right; one sheet. Your entire business needs to be put on one sheet of paper. Now keep in mind that I never said it had to be an eight and a half by 11 sheet of paper. I just said it has to be one document. The tools that I use-, my favourite tool for this to use a Mind Mapping Program or a Diagram Tool and we’ve talked about them in the past but for Mind Mapping or for the best Mind Mapping Program that I’ve come across-, you can just-, in the show notes, click on the link to setting up a free account with MindMeister and that’s my favourite Cloud Based Mind Mapping tool. That’s what I use every single day for gosh, for everything. I seem to use it-, I mean I don’t know I just seem to be using it more and more and more. I have a great-, doing more presentations with it. I did a presentation in one of the advocates groups invited me to present and I did a full presentation just by using a Mind Map.
It wasn’t very polished in the sense that it had graphics and all. It was just a Mind Map but I tell you everybody loved the whole-, the way it flowed and sort of-, a when people see it, it’s amazing. I’ve talked about it in previous episodes. If you haven’t used My Mapping go checkout the link to MindMeister in the show notes or in the res-tools or resources or tool box section of the website. You’ll love it. You’ll absolutely love it. Clicking on that link that sets up a free account, the link let’s you do three or four Mind Maps that you can create and then for I think I’m paying something like $10. Is it $10 a month? No maybe it’s $10 a year. I don’t know. It’s really not a lot of money for setting it up and I just have hundreds and hundreds of Mind Maps that I use. My staff uses them. We share them with each other. We-, anyways it’s a great tool. We also for this purpose, you can actually-, if you are more visual in the sense that you want to see a little more diagram type things, you can use Diagram Program. I use one of two programs. We-, I’ve used both Gliffy G-L-I-F-F-Y and Lucid Chart L-U-C-I-D C-H-A-R-T. You just Google those terms or in the show notes again, you’ll see a link to those two programs; either one will allow you to map out your business process from beginning to end and that’s what this whole process is about. That’s what by taking time away from your business and mapping out your business, that’s what you’re going to accomplish. Now this becomes more of a visual thing but see if you can follow along with the way I’m outlining it in this audio, in the podcast because-, anyway so I’m going to be talking about it but then you’re going to have to put it on your own tool because you do want to be able to see it visually in order to just be able to see how everything fits together.
Why am I saying to do this? Why are you doing this? Well the reason is, so that you can identify very simply, everything that needs to get done in your business; so you can either hire other people to do these tasks and do those tasks the way you would do them. I mean that’s what-, what’s important about this is that you not only want to say people, “Okay I need you to do this,” but you also need to be able to tell them what the end result looks like. What the finished product looks like because you want to be able to get some consistency in how you’re putting all of this together.
Remember in a previous episode when I mentioned the best definition I’ve ever come across of an entrepreneur, okay that was Mike Michalowicz in his book, ‘The Pumpkin Plan.’ If you haven’t listened to that book, go get the book. It’s a fantastic read. Anyway he says in that book, ‘Entrepreneurs identify the problems discover the opportunities and then build processes to allow other people and other things to do the work.’
The scalability stage in essence is the stage where you allow other people, and other things to do the work for you so this is the first step. Then in identifying what work needs to be done, you’ve got to be able to sort of map it in and that’s why you say put it under one sheet of paper, because that first step is what is going to allow you to get there. Now this is how you would kind of map out your scalability stage mind map. You’re going to break it into a variety of different stages. I’ve broken down my business and really I think the financial planning business, I think I’ve broken it down into a variety of core components. Those components are-, and I don’t know you can just determine how you want to do it if you want to turn this each component into-, a sort of a main central topic and then have everything branch off of it. If you want to have like a conveyer belt, sort of a funnel approach or whatever, but basically it’s starts off with marketing then sales, then fulfillment, then maintenance and then profit, so that’s really the four or five components of your business that you need to nail down, from beginning to end for each of these components in order to put this whole document together. By doing so you’re going to be able to see such clarity in how your business runs; so let’s start off with marketing.
In this case picture either a funnel or conveyer belts or some other visual that allows you to see kind of the visual flow of things, in my practice I have a saying, ‘the content is the campaign;’ what this means is that when we identify a piece of content that we want to market the content becomes the marketing campaign. Then we identify the different distribution channels that we will use to offer the content through. For example-, and again all of these comes back to the way I do our promotion and marketing which is through education based direct response, advertising and marketing and whatnot.
We create contents so a piece of content that we have is called the six mistakes retirees make with their finances and how to avoid them. Okay so we’ve put together reports and videos and sort of thing that goes along that, so we now say okay well if that’s one of our pieces one of our content and this is in the marketing section. Then I would-, if it was in a mind map I would say okay the next node or the child node-, and in mind maps those little circles are called nodes. Is going to be the content; so the content is ‘The Campaign: Six Mistakes Retirees Make.’
Now the channels to which I offer the content through would be through seminars. We have a seminar a whole seminar program that goes through all the six mistakes and we promote that program, through flyers and Facebook and newspaper ads and that sort of thing. We also offer the online videos through Facebook ads, well sometimes we just send flyers out just to get people to get traffic to the website for that. All of these channels would then be-, we’d use what’s called spilt testing, and we constantly speed testing and running them to always be enhancing the results of each promotional channel. For example if its Facebook ad well I’m going to run two Facebook ads, and at the same time both promoting the same content. I’m going to change one thing in the ad and that’s simply allows us to track which one is doing better so we can shut down the one that’s not doing very well and focus more of our energies on the one that-,ones that are doing very well. Then we always bring another split test in to say okay how can we change one other thing, maybe it’s the color of the headline, maybe it’s the word in the headline or something and see if that got us more results. We are always testing against one another.
This is where is starts for us it starts with the content so I have my marketing I’ve got my first piece of content which is the six mistakes content. Then I say okay how I’m going to get that out there, so I do it through out the different channels.
Now your marketing stages have goals. Stage one is to identify people who are interested in your content, so really it’s your niche market. Then you go to stage two which is to capture that information so you can begin a nurturing relationship with each person. Then onto stage three where you automate the whole nurturing program, always focus on filling the marketing funnel with as many qualified leads as you can. This entire process should be systemized and automated as much as possible, because this is-, it becomes a big thing. If you haven’t sort of got it set up for automation and have it so that it happens automatically you’re going to-, it’s going to-, you’re simply not going to do it. Every piece of-, a piece of content you create and you-, that you offer you-, it should be spilt tested and there should be some split test running on it always try and beat your better results. Every landing pledge that you use to capture those leads should have a split test, so you’re the message when it comes to split testing you need to a lot of it. At the end of the day you should be able to track the following core metrics for all of your marketing.
The first thing is you want to be able to say okay will my total numbers of-, total distributed? If I had flyers how many flyers did I send out? Then how many new leads did I get as a result of sending out those flyers? What was my ROI? My total revenue to the total cost that I paid. If I just paid a $1000 to mail out 5000 flyers okay what was my ROI on that? You need to be able to track that. Now remember that the time it takes to get a new a client from point of getting a new lead and nurturing that lead, could take some time. You better have good systems in place in order to track that over a longer period of time, because you may have a great marketing campaign that takes six months, eight months, 10 months before a new lead or new clients start appearing. If you stopped and didn’t track that you might go back and say okay well over last year, what were all the campaigns that I ran? Which ones were the most profitable? If you don’t have an easy way of getting that you could miss some huge value there.
Then there are some micro metrics that you also want to be tracking so things like total views or how many eyeballs to the total reach. This allows you determine if your ad is working, okay so in Facebook for example if you have a-, if you put an ad together and your reach is maybe 10,000 people or 1,000 people or whatever it happens to be. Then the question is well how many people viewed that ad and you want to see that metrics is. You also want to see well how many total leads compared to the total views? So if you had 100 views well how many leads did you get from those 100 views? This allows you to determine if your landing page is working. Total new clients to total new leads so it’s basically if I got five new clients and it took me a 1000 leads to do that, okay well then this helps you determine what your lead conversion ratio is. Total new clients to total new appointments so this allows you to determine if your sales process is working. That’s important I mean when we get into the-, following sections here, tracking all of these numbers is vitally important to be able to determine what you need to do next? What do you need to tweak? Otherwise you’re just kind of shooting in the dark.
Once you’ve mapped out this process, this is the process of how you market you content to develop leads to nurture to garner new prospects and those new prospects are hopefully garner new appointments. This is what your marketing is there to accomplish and because of how I recommend setting things up you can systematize the entire process. It takes a little bit of heavy lifting up front but once you got it set up it just kind of runs itself. Then at the end of this process you can build a report that you can monitor, so you can-, or that you can basically use to monitor and manage the whole department, because at the end of the day you don’t want to be doing this but you also want to be able to monitor is that department being successful? If you haven’t got sort of a report that you can monitor very simply or push button, one page report that says okay for last month these are the number of campaigns that we ran. This is how much we spent. These are the number of new leads. This is the number of new appointments. This is the number of new clients. If you don’t have a report that can get that, that’s what you need to get to, and that’s hopefully what you’re garnering from this section on marketing is the fact that you’ve got to get to that point.
That’s kind of the marketing side so you then want to take a look at what are all the campaigns and you may find that by doing this you’ll get to a point where you look to see okay well how many campaigns have I got? You say okay well I got one campaign, okay well you know what one campaign is not enough you need to have multiple campaigns running all the time. I’ve seen some studies that show you need anywhere from six to eight campaigns running constantly. Now getting to that point you just don’t want to do six to eight because you can blow your brains out. You want to sort of manage that process, but you do need to start ramping things up to get to that point, so as go to campaign then starting to garner some good leads and what not then you can say okay there’s that one process. There’s that one campaign now that I can turn that one onto autopilot and then let’s move on to another one let’s create a new piece of content and really just keep that process going. It does take some time but man it makes huge sense as time goes on, especially as you start to see the volumes increase and the number of views start to increase.
Now let’s go into the Sales component so this is the next section. Marketing is all about getting people, getting leads-, getting people aware of your stuff. Sales is all about having those conversations with people to convert them into clients. Now the sales process starts when the marketing process stops. So as soon as you get the new appointment from your marketing, your sales process starts at that point. Now do the same thing here, map out your entire process. Your process is probably going to look something like this, so it’s kind of similar to what my process is.
Step One is where you have your appointment confirmation contact. Remember it’s all starting at the point which your contact makes an appointment with you. At that point boom you’re in sales mode so what is step one? Step one for us is an appointment confirmation contact. We do things like we send out an e-mail that confirms the appointment, it sort of sets them up on what to bring to their appointment, what not to bring to their appointment, has some credibility pieces there, some testimonial pieces, directions to our office you know all that sort of stuff.
Then we move on to Step Two which is the actual appointment. Getting ready for that appointment there’s pre-meeting procedures, during meeting procedures and post meeting procedures for that appointment number one. Appointment number one pre-meeting procedures are things like how does your new prospect get greeted when they walk in the office? As soon as they walk in that door what’s the process? What’s the orchestration that you’ve created? It’s kind of a theater type thing. How have you trained your staff to welcome somebody new into the office? What does your reception area look like? Are there credibility pieces on the wall; or are there fun company or investment company pieces on the wall that is really just promoting somebody else’s business. Does it kind of promote your image? All the pieces that you’ve got, all the look and feel of your reception area, does it help your cause so to speak? Does your staff have a procedure to follow for greeting a prospect by name, providing them guidance for the office? Well you know, “Here’s the coat room. What can I get you from a beverage stand point? Here’s a list of what we have available,” really just to set expectations.
We do things like-, we’ll record what type of beverage a person has and what they have in their beverage. Basically when they come to their second meeting we can have that already prepared for them, or my staff can then say to them, “Mr. Smith can I get you another herbal tea with lemon in it just like you had last time.” Well its amazing people will-, they respond positively to that, now they may look through it and go, “Oh you recorded that;” but you know what that’s fine. That sort of speaks to the level of detail that you’re willing to go to, to make them feel comfortable. People like positive intent so just because they recognized that maybe you’ve recorded that on them doesn’t mean that it’s a bad thing.
Then at the pre-meeting procedure so we prepare a meeting package for the planners so my staff basically takes care of all that stuff. Then during the meeting we have a meeting agenda sort of in line of what we’re going to be talking about. I’ve got a sort of an introductory script that I use and its really putting the same messaging each time and then we go through the meeting. Then after the meeting, what’s the procedure for getting the coat from the coatroom, what do we do afterwards for sending-, if meeting somebody for a second time is warranted, what do we send them afterwards? Is there a package that we give them at the meeting so that they can have a check list of information to gather together for the next meeting? Do we send them a follow up item electronically? Has the second meeting been booked? Is there an actual date or if they just said “Okay, yeah let’s get together again”. Maybe the meting is not on the calendar so that needs to get done. What are the pre-meeting, during meeting and post meeting procedures for that appointment number one?
Then we move on to appointment number two which is again pre-meeting procedures, so having the prospect file ready for the planner is with all the necessary documents in it so my staff knows that if they see a meeting two coming up then they need to go grab the-, the prospects file. There are some certain documents they want to have in the folder so to speak that I can use for executing the meeting. Then during the meeting again I’ve got sort of an agenda that I go through with the client. There’s similar phraseology and scripting that I use to explain the purpose of the meeting, and that really sets expectations, because if people are just kind of there they need to think okay what kind of pressure are they going to put on me to try and become a client?
My process-, and if you’ve listened to some previous shows I’ve kind of gone through, but my process is basically saying listen. You know at the end of this meeting we’re going to both know whether or not it makes sense to move forward. I’m going to be able to tell you yes or no and I’d expect that back from you as to whether or not you want to move forward so basically it gets rid of the maybes.
Appointment number two that during the meeting we’ve got the scripting that we go through, we presented the fee at point, we charge the fee, we go through a letter of engagement then after the meeting there’s-, fulfill what the client has asked for. There’s an initial sending of new client welcome kit and then there’s the put in the base plan information, I mean its all there.
Now if you can outline the steps required for each step here, you can put what I call a unique method or unique methods together, or you can program this into your contact management system like we’ve done. Basically what this does is it gives you reliability that the process is going to be followed every single time. If you can then hire somebody to do a lot if not all of the steps that we’ve just itemized here because it’s the same steps each time, then you can identify what aspects of the stages are important for you to monitor. Again you don’t want to be-, as a business owner you got to get it to a point where you can then leverage it off, and get other people doing it. You need to be able to monitor things and be able to oversee what’s going on. You want to ask yourself well what are the number of new clients that we’ve been getting versus-, to the number of initial meetings. We want to be able to see if you can pull that metrics from your system at least track that metric. What are the average planning fees per new client? And so you can monitor that going along, so you can-, that can help for some planning purposes as well. That’s kind of the sales process is just map at what you do and again this is important for you to map it at the way you do things, because it’s all about this business being an extension of you.
Now we move on to fulfillment and this one I tell you this one it really catches people off guard. Stage of the overall process you need to focus on your costs. Okay so I’m going to back up for a second here. What do you think is the number two reason why people don’t want to migrate over to a fee based financial planning approach like I’m proposing here? Well I say number two remember because the number one reason why people don’t want to, or are kind of afraid to migrate over to a fee based model; is they don’t know how they’re going to get paid. In other words they’re afraid of that what I call the dreaded revenue dip. The first reason why people is, “Oh no I don’t know if I could make that transition.” They’re just afraid they’re not going to be able to make ends meet, they’re afraid they’re not get paid what they need to get paid. So the dreaded revenue dip is number one, and by the way if you’ve listened to my previous shows, you’ll also know that I’ve solved the problem of the revenue dip. You can go back and listen to some of those previous shows I had to do that, because in itself that’s an entire show. What’s the number two reason is my question, why people don’t migrate to a fee based model. Now before I answer this question you need to understand the model I’m talking about, because when I say fee based model some people have their own idea of what that model is. I’m going to basically just explain to you what I’m talking about when I call-, when I’m talking about transitioning into a fee-based model.
The fee-based model to me is where you charge a fee, and I recommend that you charge it right to your client’s credit card for the development of their financial plan. Okay the plan is billed to the credit card. There’s a set fee for the financial plan, that’s number one. Then you also charge a fee and I recommend in this case it’s going to be a percentage of assets for the implementation in oversight of their investment plan and for coordinating it with their overall financial plan. Then because I live in Canada and we currently can’t really unbundle the insurance side of things, then you also receive commissions from any insurance solutions that you put in place. That’s kind of the model I’m talking about; it’s the starting out with financial planning first and charging a fee for that.
What’s the second reason why people are afraid or don’t do a good job of migrating their practices to a fee-based financial planning model? Well it’s very simple. Their cost of fulfillment, what it cost them to put all this plan together is greater than the revenue they’re receiving. That’s one of the big challenges that I’m seeing is that if people don’t realize that what they’re doing you need to be able to make sure that it’s a profitable process. This is a critical part of the process. Basically on fulfillment-, I’ve heard other financial advisors say that they don’t want to do the financial planning because it takes too long. They “Oh financial planning is-, there’s no money in that, you can’t make money in that.” Well I’d agree that the typical approach in developing and building a comprehensive financial plan, it takes ways too long. I’m saying the typical approach and I blame this on the mutual fund companies and the financial planning software companies, who have kind of nurtured this long tedious process.
When you think of financial planning tell me if this is what you think about right, tell if this kind of is in line with what you traditionally think of is steps that you’d go through on a financial plan. Step number that you try to get all the clients-, the client to provide you with all of the details required, so that you can properly add their details to your financial planning software program, so it’s data gatherings. Then step number is very challenging to get all the data you need in order to put it into software. Step number two is where you’re trying to figure out either with or without the client which financial planning scenarios to analyze. What are the different renditions that you can create, what are the different scenarios that you can put together, to help you analyze which is the best scenario to move forward with?
Step number there taking a lot of time to create the various scenarios you’ve determined with the client if they’re possible. Then putting these scenarios on the financial planning software system, so really its-, identify okay what are the different scenarios that I can do? Then you want to be able to have a conversation with a client to say okay, what are the scenarios that you think are important? You want to gather that information and that takes time.
Step Four, comparing all of the scenarios to determine which one is the best for the client to move forward with and this is really-, I think this is one of the highest, the one that takes the most time is for the planners who sit there and analyze so many different scenarios trying to find the optimal scenario where they can say to the client, listen I’ve analyzed everything and I know this is your best most efficient way of moving forward.
Then we go to Step Five, which basically is meeting with a client to then review each scenario to then have the client provide you with an adjustment that they would like to analyze. One of the problems is that you sit down and often times the planner puts together all the scenarios then we sit down to do the presentation then the client says, ”What about this?” It wasn’t part of the scenarios you put together. It either forces you to do it on the fly with the client right there which with some of these planning software programs the results you’ve got really got to analyze sometimes the results because a client may have a scenario you put into the information when you may expect a certain number to go up while in actual fact it goes down and you can’t quite figure out why that is. You don’t want to be bumbling and fumbling in front of a client so often times it requires going to a next meeting, going behind the scenes and doing all the planning work just to determine okay, have I got everything covered here?
Then Step Six is analyzing the investment portfolio that the client needs in order to move forward. What you’re doing is saying give me your information and I’m going to analyze your portfolio and see if we can’t do a better job. Of course you’re going to take the time to try and build what’s called a better portfolio again that takes time.
Step Seven, developing the proper documents to prove your portfolio is better than the one that the client brought in, in order to motivate them to move their assets over to your administration. That’s where a lot of the fund companies are really focused and they say listen, we’re going to give you software that we’re going to call financial planning software but at the end of the day it’s just going to help you analyze the existing portfolio they have and then do comparative analysis to then see if we can’t build a better portfolio build a better mouse trap so to speak. This is where you spend your time learning and figuring out and putting together all that sort of stuff.
Then Step Seven you’re going to develop the proper documents to prove that your portfolio is better than what they talked about. So this where you then say “Okay, now that I found the portfolio, how can I present that to a client in such a way that they can understand it?” You spend some time putting that type of an analysis together hopefully I mean in that case, you then turn to the fund companies and hope that they’ve got some good reporting tools and whatnot but sometimes it’s not the case.
Then you move on to Step Eight where you analyze their insurance needs to determine whether or not they are appropriately covered. Then Step Nine have a meeting with them to review their insurance needs and review the recommendations to try to motivate the client and to move forward with your recommendations. Then you move on to Step Ten to have meetings to deal with any of the follow up questions and it could keep going on and on and on, where you’re constantly going back to the drawing board and you’re tweaking the plan you’re coming back and analyzing things and that seems to be the typical approach.
Now, what do you do because that approach honestly doesn’t work? You need to change your approach. Well my approach is simply saying well first of all you need to get paid, so that’s step number one you need to get paid. This is why the process I promote has clients pay you 50% of their financial planning fee up front to compensate you for the time you’re going to put in to the financial planning side of this. Remember, as the great Joe Polish once said, when people pay, they pay attention and that’s an important point because often times planners are saying, “Well I can’t do all this financial planning work because there’s so much work involved. I’ve got to move on to what pays the bills,” and so they try to fast track the way of putting together a plan or what they try to call a plan so that they can convince the client to move forward with their recommendations.
Well I’m saying no no no, just take a step back, bill you client first. You need to actually charge them a fee for the plan writing services and so that’s why the first two meetings a set up of all this is so important. One of the reasons why we put the academy together were so that we can start coaching people on how to actually execute those initial meeting conversation so that when it does come time to getting people to move forward with your services, they are willing and wanting to pay you 50% up front to get things started. As a result of that, that simple act of paying that makes them so engaged in the whole process.
Now in order to complete your fulfillment, you need to have some sort of financial planning software to dump all the client’s data into so that you can gain some clarity on where they’re at today and to provide them with insight in to what their options are moving forward. This is where I believe most financial planning software fails because I’ve seen that it just takes forever. Most financial planning software is what I call scenario driven and this is exactly the type of software I recommend staying away from because you could analyze scenarios forever and the one thing I know for sure is that whatever scenario your client says, “Okay I want to move forward with that,” it will not happen. There are too many variables that will take place that will not allow that scenario to come to fruition. Basically all that scenario planning is gone-, is wasted and it’s a waste of your time.
Here’s the way I see it. Traditional financial planning software trying to narrow down choices to the single best solution or recommendation or whatever kind of like a funnel. It’s like you pour all the scenarios in the top of the funnel and see which one after all the testing you do comes out of the bottom. You’ve got that what you call the magic scenario, the magic final this is what you need to do. Now the problem with that is that it’s limiting and it’s time consuming. I feel that you need to put one scenario the one you know to be true into the software so which scenario do you know to be true? The only scenario you know today to be true is where they’re at today. You know that as of a certain date what their net worth is you now everything about that because that’s the information you know so you get as current as you can. The software then is not a tool that should do the financial planning for you which is what a lot of softwares been developed and try to do. It’s a tool that allows you to justify what I call your story. What is your story? Well, your story when you’re talking to a client is actually the client’s story. It’s you basically giving them clarity on everything they need to know about their situation, what they’ve done to get to the point at which they are at right then and there.
This is all that the client is interested in knowing about. I mean they just want to know about their story. The story has the following components in it. These are the four things whenever I’m talking with clients and presenting their story to them through the fulfillment side of things this is what I want to make sure we cover. We cover what their attainable income is expected to be so it’s part of the story. We also cover what their attainable retirement age is, what I like to call the financial freedom day. We also then take a look at the required rate of return this plan needs in order to be fulfilled, in order to accomplish its goals. We also want to now what’s their current net worth and so on, what their current investment needs are in order to accomplish their goals. That can go in a couple of ways, the first one is, if their goal, if their attainable income so the income that we indicate they’re on track for is lower than what their goal is, then our system comes back and says ‘Okay well you need to save this much. You’re currently saving this much but you need to save this much more in order to accomplish that goal.” That’s approach number one, but then the other thing is that they may come back and maybe they are on track for a number that is-, they’re completely fine with.
Well then what we can do is we can say ‘Okay if you’re completely fine with that number, we can really focus on what those needs are. If you’re comfortable with that then now I can go back and tell you how much of your liquid net worth today you don’t need” but and so that you can still accomplish your financial freedom day. That’s an important question like I had a client come in one time and say “Listen, I’m thinking about buying a cottage but I don’t want buying a cottage-, I don’t want that to sacrifice my ability to retire when I want.” We ran a through the analysis and said okay, you know what; you’re on track for this level of income. You’ve indicated that you don’t need that much so you’ve got a bit of what I call surplus built up in to your plan. That means we know that this much surplus in today’s dollars, so of this much of your investment account s today are really not even needed for your retirement planning. You can take those assets out and you can buy a cottage with them if you want. I tell you they were so appreciative of that approach because they were willing to come back and say “Wow! That’s amazing. I now know I can accomplish my goal of retiring when I want but now I can go and start enjoying my money today.”
That’s really what financial planning is about is it not? You’re fulfillment process needs to be what I call as long as a mini skirt okay. Your process needs to be long enough to cover the essentials but not too long so that you begin to lose interest. Map out what steps you’re currently going through on your fulfillment process. Now ask yourself, is it taking too long? If you’re top of your head ask yourself what is wrong with my fulfillment process, maybe your first comment is gosh, it takes so long to get to the end. Ask yourself, are the results that you’re coming up with is it meaningful to the client? Does the client get it? Does it motivate the client to take action? Is it logical? Is that what the client gets from that?
See, my fulfillment process looks something like this: plan presentation part one so that’s the first time we actually take a look at their draft plan. I review the base plan which really explains where the client really is today and what they’re on track for. Then we have a conversation as to whether or not what they’re on track for is what they’re hoping for. If not, then we review the variables that can affect the outcome and ask the client to tell us which variables they want to change and then we record those changes then we make those changes on the plan. It’s as if they’re saying to us listen, I want to, I’m totally willing to maybe go with a different portfolio in order to earn that rate of return or what have you. We just basically get them to engage because really they’re the ones that have to make the decisions. Then from that we know that there’s got to be some action that gets taken once we’ve done the planning sides. Then we have what’s called implementation and oversight meetings and that’s where we have a sole meeting like a meeting solely devoted-, basically solely devoted to their implementation and it’s learning about what are the implementation steps? What are the implementation recommendations? Learning about them and taking the time to go through that and then we implement their investment plan on that case.
Then we often then will go into what I call plan presentation part two and that’s where we revisit the updated plan because they may have had some changes or some little tweaks that they wanted in the plan and they may have forgotten the results. When we get together we go through the results very quickly and say okay, this is what we ended off with last time and is this still in line because you know what, from meeting one and meeting two, they’ve probably had conversations. If it’s a couple, they’ve probably been talking to one another about the results and so I just want to now if anything’s changed in that.
Then we identify for them the areas that we’re concerned about. This will be things like living benefits, life insurance, tax planning, estate planning and really just like get an understanding about their level of comfort with what we found and then if they’ve determined if they say to us okay what I really do want to spend some more time on figuring this one out okay and that’s a high priority we bring that opportunity up. Then we go through implementation meeting so the goal is, by the end of all of our meetings is to go through as a complete once over for the plan or for the client so that we can then say and we’re going to address all of these things. That might take a whole year for us to address these things because there’s a lot of moving parts and so we’ll coordinate the implementation meetings really just in order to make sure that nothing falls through the cracks. As new meetings are required we just simply add them to the whole process because at each meeting, I try to keep the topic of each meeting limited to one thing. I don’t want to deal with living benefits as well as life insurance and tax planning all in one meeting. It’s just kind of overwhelming for the client.
A process like this provides you with cash flow first of all because remember you’re getting paid 50% up front but then you’re also getting a consistency of cash because your second half of the fee in my recommendation comes in two months. It just allows you to sort of bridge that initial gap. Really therefore, it eliminates the dreaded revenue dip and if you really go through this process you’ll see that by keeping the process moving forward you actually get the plan completed much sooner which means you get to the implementation much sooner which means your revenue starts to come in sooner and that’s really the big challenge that financial planners who try to migrate over have is the revenue dip.
A process like this is profitable, it’s repeatable and it’s replenishable. You can put resources towards the process to help magnify your rate of return. Once you know you’ve got a dialed in process that works then you can very easily say listen, if I take an extra $10,000 and direct it to that business then that should translate in to more revenue at the end of the day, but you won’t know if it does if you’re not tracking. That’s why tracking is so important. Each opportunity that we identify through the financial planning process is tracked. It’s recorded; it’s dealt with in sequence so to speak, so it never gets lost. It never falls through the cracks. If you can put a system in place where you can identify the opportunities and then just kind of put them in the client’s file but have an easy place where you can refer back to them it’s great because it means that you’re touching everything , it’s very compliant . Compliance officers love this approach because you’ve documented everything and you’ve basically said listen, we’re going to cover these and maybe then when you have covered them-, I’ve got results. Okay did the client move forward with it? Did they not? What did you present to them? All that information should be attached to your opportunities?
When you’ve completed each opportunity, you’re now done with the initial financial planning for that client and now, this is where once the plan is done ,so you’ve gone through the whole planning process, you’ve identified all the opportunities, you’ve had all the conversations, you’ve implemented everything the client wants to implement now you are moving on to monitoring because now monitoring or maintenance or whatever you want to call it, this is where I think the most important part of the whole process comes in.
Maintenance is kind of your annual process for ensuring that a client’s financial plan is always on track and relevant. We promote having two meetings a year with a client and we have what we call a mid-year review meeting and a full year review meeting. Now at the mid-year review meeting, we basically review their plan; we provide them with clarity so they remember where they’re at, so just give them that peace of mind. We then added any changes any updates, maybe they have an income update or they’ve incurred debt or they’ve paid debt earlier whatever happens to be. We just stepped information in their plan. We review the performance of their investment accounts or whatever they decided to implement we want to review that performance just to see how it’s doing relative to sort of what’s happening in the economy and then relative to their overall baseline required rate of return from their financial plan. We address any new life event that may have come up or changes that happen along the way, so there’s many things that we’re doing that are there.
We’re also reviewing all opportunities so you may have identified a whole series of opportunities. Well again you don’t want to deal with them at all at once but you don’t want to lose them. By putting them on your system, you can then go back at the review meetings and identify some of those opportunities and say “Hey, I want to revisit this with you because we haven’t completed this process yet.” Then at the full year review meetings, we basically cover everything we did in the mid year review meetings but then we incorporated an year end tax strategies and what not into our planning.
Remember this, this is where the true financial planning comes in, I mean this is what financial planning is all about. This is where most firms drop the ball and never look at a client’s financial plan again because all they wanted in the first place was the management of the assets or the selling of an insurance policy. This is where you as an advisor can become a huge advisor, huge trusted advisor towards the client. It’s important because most people, the review meetings are critical to the long term success of your financial planning practice, and the reason is because these maintenance meetings which the clients are paying for don’t forget and we charge all the clients an annual renewal fee to stay on the program and to keep working with us and they gladly pay it. It’s these clients, once you become a client; they’re the glue that keeps your business growing.
These meetings as well they can be documented and then you can train the staff and so that’s where identifying things up front who you’re doing it for, what you do all that sort of stuff but then being able to say listen, you’re going to handle this part of the process, you’re going to outline if you’ve drawn it up or if you’ve or if you’ve got it on a mind map. You can actually show them where they fit in, so they can see how they fit in to the bigger picture and that’s kind of the essence along lines of team building.
What else? We’ve got meetings can be-, yeah we talked about training and the staff and whatever. These areas of your business, all these different components you do need to work them, you need to build processes around them because remember-, remember that the definition of entrepreneurship. Entrepreneurs identify, they discover problems and also they identify the problems, they discover the opportunities, and then they build the processes to allow other people and other things to do the work and that’s the key component here.
You’ve got to recognize that a lot of what you do at this stage remember, this is the third stage if you want to just stay in the second stage and just run your business and have your finger in every piece of the pie well that’s fine but you are going to get overwhelmed and you’re going to stagnate . You’re just not going to be able to grow to the serious next level. If you do want to take it to the next level, you’ve got to be able to turn your business into an automated machine that other people can come and run for you. If you don’t do that, that will run you out of business pretty quickly. You’ve got to be able to hire properly but also be able to give them the job description on how to do it and what to do.
Now we’re off to profits. I mean profits, this is the bottom line. Are you making a profit? You know what, a lot of financial planners I would venture to guess don’t know if they’re making a profit. If you don’t map out your profit ratios, you’ll never get ahead. Here’s what I mean, you need to be able to look at every component of your business: marketing, sales, fulfillment, maintenance or monitoring and be able to see if each section is profitable. Let me ask you, what are the most important things to you and this is where it comes back as important to you because it’s your comfort that you need to build here. One of the most important things to you in each section of your business? In the marketing-, I just kind of jotted down a couple of notes here so for me, the most important thing is are we generating enough quality leads? I’m not looking for the highest number of leads right? I’ve heard people talk about hits, “Oh I’ve got 10,000 hits to my website per month.”
Well you know what? I heard a great definition of the term HITS. The definition of HITS are ‘How Idiots Track Success’ because it’s not about the hits. It’s not about the huge volume of leads you get to your site. It’s about the quality of those leads. I will gladly take fewer leads if they are of much higher quality.
Then on the Sales side-, so what’s important on sales? Well, to me it’s are we converting those quality leads that are calling in for appointments; are we converting them into clients? Does that conversion happen or are we meeting a lot of people but they’re not saying yes? That’s why we dial in our process and we dial it in such a way that now I know if I meet with somebody and they qualify and they’re pretty much a candidate for our services, there is an extremely high probability they’re going to become a client. The odds of them not would be-, then on the fulfillment side, are your clients getting a quality solution from you? Are they raving about ‘Wow!’ Are you hearing comments at your meetings like this was great. This is-, I totally get where you’re coming from. This makes so much sense. I’m just so happy with this.
Then on the maintenance side, are you building your maintenance client base? For me, we track what our future 12 month renewal revenue number is. I’m just always looking forward 12 months because I know as long as clients stay clients then that gets added to this number. Then any new clients that come on once they’ve passed the 12 month mark, that number gets added to this number. As long as I see that number growing then I know that we’re doing a great job on the maintenance side.
This goes right back to making sure that each component of your business is predictable, repeatable and replenishable. By identifying the problems, discovering what your opportunities are and building processes to allow other people and other things to do the work, you can finally consider yourself an entrepreneur. It’s a big job to be-, to actually live up to what I consider being an entrepreneur. You know, a lot of people call themselves entrepreneurs, but you know what, they’re not. They just created a glorified job. A true entrepreneur is just what I’ve said here. They’ve discovered what their opportunities are; they’re building processes to allow other people and other things to do the work; that’s the power of it.
To build true wealth, you need to be able to walk away from the business for long periods of time and have it continually grow without you. You see, it’s one thing to get your business running all tickety-boo, but if you still need to be there every single day, you haven’t done-, you haven’t sort of finished that job. You need to be able to walk away for large periods of time and know that the business is going to be running around you, or you know running without you. The ratios you want to be looking for at the end of the day to ensure you’re profitable, well there’s-, we’ve talked about it in the past before-, in the past and really what those ratios are that you want to ultimately see your numbers come in at the end of the year. You can even just go back and see what your numbers were for last year and use the number 40:35:25. Those are your three ratios. The 40 stands for 40% of your revenue needs to go towards salaries, 35% of your revenue needs to go towards operations and 25% of your revenue needs to go towards profits-, owner profits. How do you manage all of what we just talked about and still run your business profitably? Well take a step back-, taking those-, that 40:35:25 if you go back and take a look at your financials for the previous year that will give you sort of an idea where you’re at.
Now you don’t want to be sort of looking-, at least I found that I never wanted to be looking at it on a day-to-day or month-to-month or whatever basis and say, “Okay. If I’ve brought in $10,000 then I’m going to move $4,000 over to this account, $3,500 over to this account. I mean I just never managed it that way. What I did do was I created the most powerful thing in the world and those things are called-, what I created was called a Dashboard. The Dashboard allows me-, because remember how I said you don’t want to be running the day-to-day? You don’t want to be sort of in the business all the time, but you do need to be in control of the business, because you’re responsible for it. How do you do that? Well you manage it through what’s called Dashboards. Being able to put your-, put on a single document everything that’s important to you and have it all updated with the push of a button is-, really it’s the ideal.
Here’s what I’ve done. I’ve created what’s called Profit Accounting, or I use what’s called a Profit Accounting spreadsheet that I update ever single month and actually it’s-, yeah I manually do it myself. It’s personally-, it’s what I do and I’m just going to explain what it is because it’s going to give you some insight as to start to go down the road of the 40:35:25 path because most of the time I bet you’re probably at an 80:20:0 ratio would be how people usually start out.
This type of accounting doesn’t replace the traditional accounting. It’s just for you the business owner so it’s the most important spreadsheet for monitoring your business, so every month you track the total revenues for that month. What’s the top line number? How much came in the door? Then subtract from that, the total revenue your profit-, that you’re allocating to your profit distribution; so what I say there is take a percentage. Start at 5% or if you want to go back and back test to a previous year, then you can see what your tolerance is, but if you don’t want to do that, then start at 5%. Your goal by the end of the year is to work that profit distribution amount which is the first number you subtract from your total revenue up to 20%. From that, so you’ve got your total revenue coming in, then you’ve got your profit distribution, then you subtract from that the owners salary or your drawer or whatever you want to call it because you got to get paid. I mean remember this-, the whole reason why you got into business was to make a profit and get paid, okay? We’re going to touch on that first, then you’re left with what’s called your Net Operating Revenue. Total revenue comes in, you take away your distribution, you take away your salary and it’s owner salary, so if it’s you and your spouse, okay it’s the combined salary for your household.
Then you take away from that your fixed costs. Hopefully at this point, you’re still positive. Then you take away from that your variable costs and hopefully at this point you still are showing a bit of a positive. What this has done is it’s kind of turned your financials on their ear, okay? The most important thing in business is to turn a profit so why don’t we do this from the get go? Instead of waiting till the end of the year to see if you made a profit, take your profit immediately, then you need to pay yourself your regular salary whatever that happens to be. Then you need to pay your fixed expenses and staff. Then you need to pay your variable expenses.
What this type of spreadsheet does for you is it allows you to know how much you can take out of your business before blacking out your business. It allows you to see where your financial challenges may be. This is one of the biggest, powerful things that I’ve found is that you’re going to be able to see very quickly if you have a loss after your fixed expenses and that you’ve seen that consistently show up. Then you’ve got a problem not in your variable expenses, you’ve got a problem in your fixed expenses. Either you’re obviously not bringing enough revenue, so you need to get your expenses down to a level where you’re profitable, so you need to just go and analyze those. What it allows you to do is it gives you insight into what part of your business you need to start analyzing.
At the end of each quarter then, remember you’ve been earmarking a certain percentage of that top line revenue that comes in to this profit distribution account. At the end of each quarter, take 50% of those three months, whatever that total equals; take 50% of it and pay it out to yourself. That’s your profit distribution. Then begin to look at your ratios. As time goes on, again you want to see 40% going towards salaries, 35% going towards operations and 25% profit. Then simply start working toward those numbers.
Also what I’ve done, I’ve created what’s called a solvency analysis and these are little Dashboard tricks that I use because I’ve identified certain things that are important to me, so that I can run my business at the push of a button. What’s a solvency analysis? Well basically, Solvency Analysis is where everybody has their own comfort level with their business. Let’s just say for argument’s sake, let’s say that maybe to run your business it costs you $20,000 per month to run your business. You know that you’ve got to cover $20,000 per month and that includes salaries and expenses and everything. It’s just sort of-, if you go back and look at your history, it kind of averages around $20,000 a month.
If I said to you, “Listen in your bank account right now-, in the cash position of your business, you have $10,000;” and I said “If you looked forward 60 days, so two months, you know that you’re going to have to cover $40,000 of expenses over the next two months.” I’m telling you today that you have $10,000 in your business. How do you feel? Well chances are you feel uncomfortable. Well now let me tell that-, let’s say you’ve got $40,000 in your business. There’s sort of a bank account or whatever it happens to be and you’ve got $40,000 in your business and you know that over the next 60 days you’re going to have to cover $40,000. Now how do you feel? Probably a little bit better, but also again maybe it doesn’t make you feel comfortable; but then if I said to you, “Well listen, you’ve got $80,000 sitting in your business and you know over the next 60 days you’re going to have to cover $40,000 worth of revenue. Okay, how do you feel now? Now you probably feel pretty good. Well there’s a point at which you change from feeling uncomfortable to comfortable. That to me is your important-, what I call your factor.
What I mean by that is, let’s say your point at which you became comfortable was when you had $80,000 in cash to cover future 60 days payables of $40,000. Then you have 80 over 40 which is 2:1. You’ve got a two factor, so that means that if you just have somebody every week run that factor analysis, and they tell you one number, you can very quickly answer the question to yourself, am I comfortable or not? If you’re comfortable, keep going. Let’s say that you-, the two was your factor, okay great. Now you know at any point in time your bookkeeper, whoever puts those numbers together, if they say “Hey by the way your factor’s two.” You’re like, “Cool, great. I know I’m in good shape” because now I know I’ve got enough cash just to cover things. I don’t have to worry about that side of things; but then, if somebody came along and said hey guess what; your factor is now five. Now you’re saying to yourself, “Oh you know what, that’s a lot of cash I’m sitting on, probably much more than I need to.”
Okay, great now you can start making some decisions. Well then what you can start to do if you’ve been tracking that, but then you go back and you’ve been tracking your ratios. You may determine, like my ratios for example last year and this is something that’s kind of interesting for me, my ratios last year were 35:26:39. That meant 35% of my revenue went to salaries, 26% of my revenue went to operations and 39% of my revenue went to profit. Okay, to me that’s a lot that goes to profit. I thought, well if I wanted to really build this business, then I need to get those ratios more in line 40:35:25. Where do I need to put the money? Well I need to put the money towards salaries and operations. I need to put a lot more money toward the operation side; so what I’m doing now is I’m actually spending a lot more on marketing and really ramping that side up because I know if I can do that all my other ratios, all my other things work. I know when I can get people in the door and they qualify and their sort of qualify or ideal or whatever, I know they’re going to become a client. I know that revenues going to build, so if I can get more of those people in the door, great. I know I’ve got the systems in place, so if I have too many people coming through that I can’t handle great and I’ve got the money to be able to hire somebody knowing that that revenue’s going to come in because they’re going to follow the same system for me. You see how it all kind of works there? It’s important to really follow those numbers and to really map that out.
Here’s the thing. Everything I’m talking about, I know it’s possible because I’ve done it. It is simple at the end of the day and this is where I often times feel I have what I call the curse of knowledge. When I talk to some people who are maybe new Academy members or new to podcasts or the LinkedIn group or whatever, and I talk to them on the phone or whatever it happens to be, I often times forget some of the challenges. To me, I just live in this world where I just have got the processes and routines. I’m just trying to make them better and better, but starting off from scratch? Oh my gosh! I mean it’s a huge undertaking so it’s not something that happens overnight. It is simple but it’s very complex at the same time. If you’re able to move through the building of foundation stage, then through the securing the future stage and then through the scalability stage, you will have built yourself a much better-, like an incredible business so get out there and do just that one step at a time. Get out there and build yourself a better business.
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