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Communication Essentials for Financial Planners

Strategies and Techniques


JOHN E. GRABLE
JOSEPH W. GOETZ


















Wiley Logo















Edited by
Charles R. Chaffin, EdD

Preface

For financial planners . . . communication . . . is the single most powerful antecedent to trust and commitment . . .

—Dr. Dave Yeske1

The purpose of this book is to provide financial planners with insights on how they can improve their communication and counseling skills. The approach presented in this book is based on helping financial planners develop, practice, and use skills associated with the formal and informal sharing of information between a client and the financial planning professional in an empathic manner that enhances the client–financial planner relationship.2

This book serves as a valuable resource for students and professionals alike. The ineffable importance of consistent and effective communication with clients is widely acknowledged by experienced financial planners. At the same time, few planners have implemented systems within their firms (or personal professional development plans) to increase knowledge and hone skills associated with client communication! This book provides professional financial planners, as well as the leadership within financial planning firms, with a blueprint for taking their client communication to the next level. Inarguably, increased sophistication in client communication translates to higher client retention and a more effective financial planning process. Thus, the ROI on time allocated to toward communication skill development is quite high.

Those who conduct research on financial counseling and planning also know that communication skills are the foundation to building a successful financial planning practice. Some researchers have even contended that, “effective communication is vital to successful financial planning.”3 Certified Financial Planner Board of Standards Inc. (CFP Board)—the primary academic standards setting and enforcement board for college and university programs4—supports this notion, as it has identified communication and counseling skills as an essential element of financial planning competency.

WHY THIS BOOK

Over the past two decades, myriad financial planning practitioners have emphasized the importance of client communication to business success and client satisfaction.5 In fact, the authors, who regularly hear practitioners speak about their professional roles when invited by their university’s student financial planning organization, have noticed a consistent emphasis on client communication and relationship building as the foundation of each presenter’s success. Many of these practitioners believe strongly that their method of client communication is effective, and undoubtedly it is at some level, but what they may fail to consider is whether another communication strategy or skillset could work even better. As will be highlighted throughout this book, the study of communication and counseling skills can assist even those financial planners who are already quite proficient communicators to become even more effective in their work with clients.

Current financial planning practice standards mandate that anyone hoping to become a Certified Financial Planner (CFP®) professional must obtain proficiency in the following interpersonal communication domains:

The CFP Board’s requirement goes beyond a theoretical understanding to requiring proficiency. The role of communicating effectively with prospective and current clients permeates the financial planning process. Consider the CFP Board’s standards related to professional conduct and fiduciary responsibility, disciplinary rules and procedures, and practice standards. According to the CFP Board, practice standards are intended to:

  1. Assure that the practice of financial planning by CFP® professionals is based on established norms of practice
  2. Advance professionalism in financial planning
  3. Enhance the value of the financial planning process

Practice standards apply to all CFP® professionals and those studying financial planning in a CFP Board Registered Program. The standards, however, also serve as a foundation for professionalism within the broader financial services profession. Practice standards were first developed in 1987, updated in 1994 by CTB/McGraw-Hill, an independent consulting firm, and again in 1999 by the Chauncey Group. These standards, tied directly to steps in the financial planning process, are shown in Table P.1.

TABLE P.1 The Financial Planning Process and Related Practice Standards

Financial Planning Process Related Practice Standard
1. Establishing and defining the relationship with a client 100-1 Defining the Scope of the Engagement
2. Gathering client data 200-1 Determining a Client’s Personal and Financial Goals, Needs, and Priorities
200-2 Obtaining Quantitative Information and Documents
3. Analyzing and evaluating the client’s financial status 300-1 Analyzing and Evaluating the Client’s Information
4. Developing and presenting financial planning recommendations 400-1 Identifying and Evaluating Financial Planning Alternative(s)
400-2 Developing the Financial Planning Recommendation(s)
400-3 Presenting the Financial Planning Recommendation(s)
5. Implementing the financial planning recommendations 500-1 Agreeing on Implementation Responsibilities
500-2 Selecting Products and Services for Implementation
6. Monitoring 600-1 Defining Monitoring Responsibilities

Source: CFP Board, 2016: www.cfp.net/for-cfp-professionals/professional-standards-enforcement/standards-of-professional-conduct.

What is important to remember, from the perspective of this book, is the role communication and counseling skills play at each step in the financial planning process. Imagine how challenging it might be for some financial planners if they needed to meet a prospective client who is unsure of his or her need for financial planning because of cultural or ethnic barriers. Without a systematic approach that can be used to build rapport through questions, feedback, and encouragement, this meeting could end up being a lost opportunity for both the client and the financial planner. Not only could the financial planner lose a potential client, the prospective client may shy away from needed behavioral change. The importance of applying appropriate communication and counseling techniques at each step of the financial planning process is just as important. As it turns out, not only are communication and counseling skills important attributes of professionalism, these skills often determine who has the greatest likelihood of becoming a client’s most trusted adviser.

Five communication tasks—or functions every financial planner needs to perform—have been linked in the academic literature directly with the CFP Board’s practice standards6:

  1. Mutually defining the scope of an engagement before providing financial planning advice
  2. Helping clients identify meaningful personal and financial goals
  3. Applying a systematic communication and counseling process that helps clients clarify their financial and life goals
  4. Taking time to explore and learn about each client’s cultural background, personality, attitudes, beliefs, and family history and values
  5. Explaining how financial advice aligns with each client’s unique values, goals, and needs

Financial planners who embrace these five communication tasks with each client report greater client retention, higher client satisfaction, greater client cooperation, more openness in discussions, greater client disclosure, and more referrals.

While it is true that the CFP board requires all financial planning professionals who hold the CFP® marks, as well as those studying for CFP® certification, to exhibit communication and counseling proficiency, the purpose of studying communication and counseling is much more profound. Essentially, the manner in which a financial planner reaches out to others determines, to a large extent, that professional’s effectiveness in helping clients make life-changing decisions. We are not talking about helping salespeople sell one additional product or service as the end result, but rather, facilitating the growing professionalism of financial planning in the marketplace. Just as attorneys, accountants, and physicians must employ communication and counseling skills on a daily basis, the same is true for professional financial planners. An important outcome associated with reading this book, watching the accompanying videos, and practicing each chapter’s techniques should be a greater appreciation on the fundamental skill sets needed to be a competent financial planner in the twenty-first century.

COMMUNICATION: WHAT IS IT?

Before moving forward, it is worth pausing and clarifying exactly what this book is all about. The word communication is very broad and used in multiple ways in the financial planning profession. Communication can be broken down into four domains:

Much of the financial planning literature relative to communication really focuses on methods of communication, such as using a phone, email, blogs, face-to-face meetings, newsletters, mailers, social media, and group functions. All of those elements are important to client engagement, but there is much more to becoming a truly proficient communicator. Communication tasks encompass a variety of procedures and practice standards (for example, explaining how advice matches a client’s goals and objectives). It is important to note that communication topics can vary from client to client, including conversations about a client’s values, for example, to discussions regarding specific products and procedures. While these three elements of communication are very important, this book is focused more intently on the purpose of communication and communication and counseling skills (e.g., verbal, nonverbal, and spatial skills). Table P.2 illustrates the difference between communication tasks and communication and counseling skills. As noted earlier, the focus of this book is squarely on the skills needed to be an effective financial planner.

TABLE P.2 Communication Tasks and Skills Compared

Tasks Skills
Defining the scope of the relationship Asking thoughtful questions
Communicating planners’ attributes Observing client body language
Gathering demographic client data Practicing listening skills
Gathering financial client data Using strategic questions
Helping client identify meaningful goals Arranging office to reduce client stress
Explaining planning recommendations Maintaining eye contact with client

Source: Adapted from Sharpe et al. (2007).

Even though this book only tangentially touches on methods, tasks, and topics of communication, the research surrounding the usefulness of these communication elements is astounding and worth reviewing. When asked, nearly 50 percent of practicing financial planners have historically indicated that they spend between 9 and 14 hours per week communicating with clients.7 Financial planners who claim the greatest success in growing their practice, however, report communicating directly with clients at least 30 to 34 hours per week. The most popular (not necessarily the best) methods of communication include the telephone, email, face-to-face meetings, and newsletters. The reasons for communicating are diverse, including reviewing a client’s goals, evaluating portfolio performance, providing advice, discussing life events, staying in touch, providing market commentary, and educating clients. Some financial planners also use methods of communication to ask for referrals.

The number of hours successful financial planners spend communicating with clients sometimes surprises aspiring financial planners. It is a common belief that financial planners spend the majority of their time devoted to evaluating quantitative data. While this may be true for some financial planners—particularly those who work in larger firms where task specialties are the norm—the most successful financial planners tend to devote less than 50 percent of their working day to quantitative issues. More time is spent on coaching and counseling activities.8 As an example, the following communication tasks and topics are frequently reported as being important when building long-lasting and committed client–financial planner relationships9:

It should be obvious that communication skills are at the root of all impactful financial planning services. Based on the existing literature, it is hardly a stretch to conclude that communication and counseling skills are among the most important characteristics separating successful financial planners from others.

BUILDING CLIENT TRUST AND COMMITMENT

Appropriate use of communication methods can also go a long way to building client trust and commitment.10 Although there are many factors that help cement a client–financial planner relationship, five stand out as being very important:

  1. Taking time to understand a client’s needs and concerns
  2. Fully understanding a client’s goals
  3. Providing each client with peace of mind
  4. Clearly explaining difficult concepts
  5. Placing the client’s needs above all else when making recommendations11

In regard to methods of communication, being predictable is of critical importance.12

A financial planner must be able to communicate effectively to bring these five factors together. For those financial planners who want to build client trust and commitment, developing and practicing outstanding client communication and counseling skills is the most effective path to this outcome.13

MODELS OF COMMUNICATION

Researchers working over the past half century have built numerous models that help explain the process of communication. Almost every model extends the basic rhetorical framework originally proposed by Aristotle, as shown in Figure P.1.

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FIGURE P.1 Aristotle’s Original Communication Model

The components of the model are self-explanatory. The sender is the person who originates the interchange. The message consists of the content being delivered. The receiver is the person to whom the message is sent.

It should be clear that several important features are missing from Figure P.1. Of particular importance is the channel of exchange. In Aristotle’s time, the channel or medium of exchange tended to be either oral or written. Today, of course, there are many different channels through which two or more people can communicate. It is helpful to think of a channel matching up to one of the five senses: hearing, seeing, feeling, tasting, or smelling. Taken more broadly, the channel of communication provides a mechanism to deliver a message.

Messages are composed of information, elements (that is, words, sounds, gestures, images, and so forth); structures (that is, the composition of different elements); and codes (that is, the “language” of delivery words, tones, smells, music, and so forth).

Essentially, a sender encodes his or her message, chooses a channel to transmit the message, and sends the message. The receiver decodes the message. The decoding process will always be influenced by the receiver’s fluency in the language used by the sender and the receiver’s attitude when the message is received. Embedded in the encoding and decoding process are issues related to shared values, beliefs, language, culture, cognitive ability, experience, and knowledge. Berlo14 incorporated the concepts of sender, receiver, message, channel, encoding, and decoding to propose what he termed the SMCR communication model, which is shown in Figure P.2.

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FIGURE P.2 Berlo’s SMCR Communication Model

Many adaptations to the SMCR framework have been proposed over the years. Advances include the inclusion of feedback loops from the receiver to the sender and more nuanced descriptions of encoding and decoding. This book adds to this discussion by proposing a financial planning communication and counseling skills framework. The framework was built using many of the concepts found in the SMCR model. The framework is described in more detail next.

FINANCIAL PLANNING COMMUNICATION AND COUNSELING SKILLS FRAMEWORK

The purpose of presenting a communication and counseling skills framework is to provide readers with a tool to help conceptualize the way in which a financial planner interacts with prospective and current clients. This book is primarily focused on helping financial planners encode, send, receive, and decode messages. While some attention is given to the channel of communication, the real emphasis of the book is devoted to exploring the inner workings of the framework shown in Figure P.3.

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FIGURE P.3 Financial Planning Communication and Counseling Framework

The following example provides a step-by-step review of the financial planning communication and counseling process.

Step 1

At Step 1, a financial planner formulates an idea to communicate with or to a client. For illustrative purposes, assume a financial planner intends to assess a client’s risk tolerance. Issues related to explaining what risk tolerance means, the reason for the assessment, and the best technique to evaluate the client’s risk tolerance need to be addressed. It is possible that some of this work will have been completed before the point of initial client communication.

Step 2

At Step 2, the financial planner needs to choose a channel for delivering her message about risk tolerance to the client. Assuming the client and financial planner are meeting together, the delivery channel may be a combination of verbal—using a question—and tactile—having the client complete a brief questionnaire. It is important to note that this step in the process differs from other communication models. Typically, message development is the second step in the communication process. In practice, Steps 2 and 3 (channel and message) are somewhat fluid. Consider a situation in which a financial planner wants to provide an immediate market update to her clients. Choosing the channel first is appropriate as a way to edit the content of the message. For example, using a group email will require different message content than a decision to call each client separately. There is flexibility built into the framework, however, for situations that require content to precede channel selection.

Step 3

At Step 3, the financial planner then needs to formalize the content and context of the message. Using the risk tolerance example, the content will include information about risk tolerance and the need to accurately assess the client’s risk attitude in the context of the financial planning engagement. Issues related to language, cultural sensitivity, and client skills also need to be incorporated into the message. Given the choice of channel, appropriate context needs to be considered. Consider how the word risk can be interpreted differently by people based on their values, preferences, beliefs, and cultural background. For some, risk can be perceived as an opportunity. For others, risk is considered to be just a softer word to describe a loss. The financial planner may decide to ask the following question: “Tell me, how would your best friend describe you as a risk taker?” After the client responds, the financial planner could then present the risk questionnaire.

Step 4

Sending the message—Step 4—is of particular importance. The financial planner needs to mix the elements of delivery to most effectively communicate what is being asked and needed. Elements include words, tones, gestures, expressions, images, and body language. In this example, the financial planner may simply use her voice and encouraging facial expressions to reassure the client when answering a question. This can be followed by physically handing the risk questionnaire to the client and then leaning away from the client to provide space for a response.

Steps 5 and 6

Once the message has been sent, it is up to the client to receive and decode the message—Steps 5 and 6. These steps in the process happen quickly and are usually based on the type of question asked and the client’s personal beliefs, values, cultural background, preferences, and expectations, in addition to other factors. While it is easy to think about these steps theoretically, it is important to remain grounded in practice. Everyone uses eye contact, body position, and other forms of nonverbal communication during a conversation. Being able to identify and use these forms of communication is an essential element in the process of building client trust and commitment.

While the client is receiving and decoding the message, there will be opportunities for the planner to observe nonverbal cues. These are essentially unspoken signals sent back to the financial planner. It is important to note that very rarely are the cues purposeful or intentional. These cues, however, can serve as important clues about the message’s success or failure. Consider, for example, sending an email to a client. If a client responds immediately, this might indicate that the client is interested in the message. It might, on the other hand, simply mean that the client was online when the message was delivered. A delayed response could indicate a lukewarm interest in the message. It could also indicate that the client does not read his or her email often, and as such, a different channel of delivery is needed. Identifying and interpreting these nonverbal cues is an important financial planning communication skill.

In addition to nonverbal cues, financial planners need to be aware of a phenomenon called transference. Sometimes a client’s attitude, mood, fear, or other emotional disposition is communicated nonverbally back to the financial planner during the client’s decoding process. If unaddressed, the client’s disposition can be absorbed or taken on by the financial planner. It is important for financial planners to understand when this occurs and how to handle this possibility. The arrow running from nonverbal cue evaluation and transference to the box called “decode response” represents the ongoing continuous feedback dynamic that is active in nearly every client–financial planner communication and counseling situation.

Steps 7 and 8

Whenever dialog occurs, the client (or receiver of a message) automatically engages in an assessment and evaluation of the message. As shown in Figure 3, at Step 7 the client formulates his or her own idea in response to the message. Within a financial planning engagement, this step in the process will hopefully be engaging and productive. There may be times, however, when no response is given. The client then moves to Step 8. This involves selecting a channel for response. The client then sends his or her response message back to the financial planner at Step 9.

Step 9

Although Step 9 represents the last stage in the process, the actual communication and counseling framework is continuous, as shown with the arrow from Step 9 back to the financial planner decode response box. Stated another way, the framework is built on multiple levels of feedback. This is illustrated with the arrow coming from the financial planner’s decode response box back to the client at Step 6. This represents the client’s own interpretation and evaluation of nonverbal cues being sent by the financial planner. For example, imagine what the client would think if, during the evaluation of risk tolerance discussion, the financial planner started talking to someone else on her cell phone? It is likely that the client’s trust and commitment would be harmed.

SUMMARY

As illustrated in Figure P.3, the financial planning communication and counseling process is potentially endless. Of course, there may be times when a particular communication has a demonstrated beginning and ending point. Asking a client, for example, if he or she would like some coffee or tea, may not lead to an ongoing discussion with feedback experiences. The fact that the question was asked and answered, however, adds to the ongoing client–financial planner engagement.

The remainder of this book reviews some of the most important communication and counseling skills that researchers and successful financial planners have identified as being essential to becoming an effective and successful financial planner in the twenty-first century. Throughout the book, we provide examples of important techniques as well as contexts in which some of these actions transpire in practice. In many situations, video examples of what to do and what to avoid are also provided. It is through a combination of reading, watching, and practicing that a financial planner can improve his or her skillset. Whether in your final day of your thirtieth year in financial planning or your first day in your first year of enrollment in a CFP Board Registered Program, we strongly believe this book will facilitate useful reflection regarding best avenues for engaging clients or for you beginners, allow you to build an important skillset that is the keystone element of serving our clients.

NOTES

Acknowledgments

A book like this does not go from conceptualization to publication without the help of many dedicated people. We would like to thank a number of individuals who helped bring this book project to fruition. To begin with, we are very appreciative for the work and words of Dr. Tom Warschauer, professor emeritus at San Diego State University. It was his question about how a finance faculty member could incorporate communication and counseling skills into a program of study that prompted our first thoughts about writing this book. We are also grateful for those who have helped pave the way for the inclusion of communication topics to be a focus of study in CFP registered programs. A list of everyone who has made an argument for focusing on communication and counseling skills would be too long for this brief dedication, but there are a few who stand out, including: Kristy Archuleta, Elissa Buie, Carol Anderson, Charles Chaffin, Dottie Durband, Bill Gustafson, Sherman Hanna, Rick Kahler, Kevin Keller, Megan Ford, Deana Sharpe, Dave Yeske, and our colleagues at the University of Georgia: Swarn Chatterjee, Jerry Gale, Lance Palmer, Kenneth White, Duncan Williams, Ann Woodyard, and Sheri Worthy. We are also grateful to the leaders at the CFP Board who took a chance in creating the Center for Financial Planning, which provides a forum for works like this that might otherwise never be published.

In the end, this book is dedicated to our financial planning colleagues who are building financial planning into a profession on a daily basis. We know that you are often working alone—sometimes in a firm, a large academic department, or in a small certificate program. It is our hope that this book will be a resource to help you grow your practice or program. If you are an instructor, we hope that the techniques and tools presented in this book help you teach communication and counseling skills more effectively. If you are a student, we hope that you gain practical skills to help you in your career. If you are already a financial planner, our hope is that this small book will help you become even more successful.

On a personal note, we would like to thank our spouses for their unwavering support during the writing process. To Emily, thank you for helping me stay focused on the bigger picture. To Lindsay, I cannot thank you enough for your overall support, and particularly, for taking care of so many important tasks as I dedicated time to this book.

John Grable, PhD, CFP®

and

Joseph Goetz, PhD

Athens, Georgia

How to Use This Book

This book was written with two goals in mind. The first was to help aspiring financial planners develop core competencies related to interpersonal communication techniques. The second was to provide tools and techniques to those already working in the profession to gain mastery of the interpersonal communication process. A key element of the book involves not only reading about “how to communicate,” but also watching examples of what to do and what not to do.

Throughout the book you will see text boxes that look like this:

Whenever you see a text box, you should recognize that an accompanying video showing an example of the topic is available online. The text box will provide a code, such as 4A, that will help you find the appropriate video clip. In this example, the number 4 represents the chapter, while the letter A represents the first video in Chapter 4.

While you do not need to watch the videos to gain an understanding, or even a mastery, of the tools and techniques provided in the book, we have found that sometimes watching others do something can be quite informative. We certainly hope that regardless of whether you watch some, all, or none of the videos, you will nonetheless practice what is presented. Mastery comes only with repeated practice.

You can find each of the videos from the book at: and enter the password: grable234.

Introduction

The CFP Board Center for Financial Planning is pleased to begin the first in a series of books intended to expand the body of knowledge for financial planning. We envision this series as a platform for discussion for the entire profession, including practitioners, faculty, students, and researchers. We are excited about the opportunity to exchange ideas, validate and challenge assumptions, and help theory inform practice and conversely, practice to inform theory. This series will embody the characteristics of a practitioner-based profession, in which researchers learn from practitioners; practitioners learn from researchers; and ultimately, the profession is even better prepared to help all Americans achieve their financial potential through competent and ethical financial planning.

Although this series is a large step forward, it is not CFP Board’s first effort working within the financial planning body of knowledge. For decades, CFP Board has conducted the Job Task Analysis, the largest quantitative study of financial planning practice, to develop a framework for many of the requirements for CFP® certification. CFP Board has also collaborated with hundreds of colleges and universities that house CFP Board Registered Programs, working together to not only meet rigorous curricular standards, but also to enhance student achievement and program sustainability in a variety of institutions, program types, and instructional delivery methods. We also worked together to develop two editions of the Financial Planning Competency Handbook, a seminal work that outlines both the breadth of the body of knowledge of financial planning, as well as the interdisciplinary nature of this profession. All of this work, a decades long collaboration and strengthening, is vital to the profession and we look forward to continuing it in the years to come.

We begin the series with Communication Essentials for Financial Planners: Strategies and Techniques. We were purposeful in starting with communication, given the importance of client engagement, and all of the actions associated with it, to financial planning practice. Dr. John Grable, CFP® and Dr. Joe Goetz are ideal for this first publication. They both are the embodiment of leaders of a practitioner-based profession: strong researchers who have added relevant theory to the body of knowledge; master educators who have prepared hundreds of current practitioners; and scholars whose work brings tangible impact to financial planning practice. They are respected colleagues and good friends that I have had the pleasure of collaborating with on this important work. I believe this book fills a needed void in the library of financial planning, as it is intended for both future financial planners as well as experienced CFP® professionals both in better engaging the most important element of the financial planning process: the client.

I hope that practitioners who read this book will reflect upon their own client communication and maybe discover ways to perhaps challenge and refine past approaches. Practitioners in a supervisory role may find this book as an effective induction instrument for new hires in their practice. And last, but not least, I hope that students will not only learn some important communication techniques in serving future clients, but also be further motivated to begin a life’s work that can be so impactful on the lives of many.

So let us begin our journey together. The intent is not for the reader to passively accept the ideas and theories in this book series. Rather, I hope these books—refined discoveries from the past and incubators for ideas for the future—help practitioners, researchers, educators, and students do their work in making this maturing and evolving profession even better.

Charles R. Chaffin, EdD

Editor