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Why Advisors Should Offer Financial Plans

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Why Advisors Should Offer Financial Plans

Written by: Catherine McBreen | Spectrem Group

Creating a financial plan is the wise and mature way to address the financial concerns of an individual or family.

A financial plan creates a decisive pattern for an investor’s investable assets. It organizes and prioritizes investments, and addresses all of an investor’s financial concerns and needs, both present and future. It is, analogically speaking, similar to planning a road trip.

Having a financial plan decides loyalty with an advisor

Many investors consider creating a financial plan to be a predominant service provided by financial advisors. Some investors pay a separate fee while others receive the financial plan as part of their standard advisor services, most investors who have a financial plan appreciate the effort and the advisor who helped create and design the plan.

But, does creating a financial plan prove beneficial for the advisor who creates it? Is there a concrete, bottom-line benefit that comes from creating a financial plan?

Spectrem’s new study, Defining Financial Planning, is a sort of sister study to its previous report Defining Wealth Management. Both studies delve into the components expected and actually received by clients when they develop a financial plan.

But the new study goes one step deeper, determining just how advisors and providers benefit monetarily from providing a financial plan for customers.

The single most important factor to a successful financial advisory company is maintaining relationships. Being able to serve a client well enough that the client maintains his or her relationship with the advisor provides a stable base upon which a firm can build by attracting new clients, often by pointing to the long-term success enjoyed by its current clients.

According to Defining Financial Planning, 68 percent of all investors who have a financial plan are more loyal to the firm that created their financial plan. Forty percent claim to be “somewhat’’ more loyal, while 28 percent claim to be “much more” loyal to that advisor or firm.

That’s immediate loyalty created out of one advisor function. Admittedly, it can take many hours to create a working and responsive financial plan, but the hours translate into a more meaningful and extensive relationship with a client.

There does not appear to be a downside, other than the amount of work that goes into creating an appropriate plan.

And how do clients express their loyalty? The easiest way for a client to indicate appreciation for the performance of an advisor is to give them more business. For many clients, that means moving assets to the appreciated advisor, those assets either being ones clients were previously self-managing or assets previously managed by another financial advisor.

Among investors who have a financial plan, 34 percent claim they have moved most or all of their investable assets to the firm that helped create their plan. That’s one-third of clients with financial plans who have responded to the plan by making the advisor who created their plan their primary advisor.

And there’s more: 27 percent have moved some of their assets to that advisor. Add those two groups and you have more than half of investors with a financial plan rewarding the firm which created the plan by turning over more assets to their management services.

That’s the definition of quid pro quo.

Related: Affluent Investors Lean Toward Cash, Away From Stocks

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