I recently had a conversation with a neuro ICU nurse about her day to day work and how she helped patients. I gave her a hypothetical situation in which I was having intense, recurring headaches for a month or more, and asked what her process would be to figure out what’s wrong with me.
She started with a couple basic questions like where I lived and what year it was. Then she would check my balance and reaction. She would then check my vitals to see if anything stood out. She then would continue to run more and more tests and eventually run a brain scan to help diagnose the issue.
I asked her why she doesn't just assume the worst and run a brain scan for every patient.
Her response?
"Why would I run a brain scan and waste all that time if the patient was just dehydrated?"
Many advisors approach data gathering like a medical professional assuming everyone has a brain tumor. Let’s talk about how advisors can approach the data gathering process more effectively
A More Organic Data Gathering Process
Most planning engagements live and die with data gathering. Which makes sense, without the right information it’s near impossible to prepare an effective plan. However, the process of data gathering has been very binary in the past. This means the firm will provide a client with an intake survey or list of things they need, and only after all those item are received the financial advisor will move forward in the planning process.
It’s an “if… Then…” process:
“If you get me all the information I need, then we will meet and discuss your financial plan.”
There are clear benefits to this traditional approach:
You get everything up front
You’re not left guessing about certain areas of the plan
You can approach the client with confidence
But there are also clear downsides to this traditional approach:
The responsibility is on the client to get you all the data you need - and we all know how that can go
The client may drag their feet and draw out the data gathering process
The volume of information needed can be overwhelming for clients
It can be hard for the client to feel thoroughly diagnosed
It’s time consuming
Deploying a more organic data gathering process can allow advisors to get all the information they need without overwhelming the client and extending the process unnecessarily. But in order for this process to work, and advisor must approach the process with an “organic” mindset.
Let’s look to the diagram below as a guide:
Instead of getting all the information all at once, start with some basic information you know may not be perfectly accurate. Then have a conversation with your client, clarify, get context, and request a little more data. As you can see above, you can still get to the same point as you would with a more tradition, binary process; the only difference is you get there one step at a time.
What does this look like in practice?
Let me walk you through what I’ve seen the most effective advisors do with this process when they get a new client that wants to move forward with onboarding. After each of these phases try to have a conversation with the client about the data they’ve provided
Phase 1: Fine
Start with a balance sheet and that’s it. Don’t worry about account linking and other methods that may frustrate the client. This is an exercise where we can get a lot of context from clients. Go line by line asking for context and clarity behind each item. I can promise you’ll learn more from this exercise than almost any other piece of information.
Phase 2: Good
Get an annual income and annual spending value. I know this is controversial, but my favorite method to obtain these is to just ask for them - I understand most clients don’t actually know these numbers, but the answers can tell us a lot. These two numbers alone, with the assistance of a complete balance sheet can provide a lot of information through some simple ratios (see the Elements Monitoring System).
Phase 3: Better
Get savings contributions and debt payments. Your objective here is to get a complete view of the clients broad cash flow (how much of their total income is being spent, being saved, or being used to pay down debt). Again, I just ask for this - no statements needed at this point.
Phase 4: Best
NOW request documents. I often frame this to the client as an opportunity to back up the information they’ve already given me and fill in the gaps with other information that’s needed. This is when we would request promissory notes, tax returns, investment statements, insurance policy docs, etc.
This whole process can be extended to multiple meetings, or you can lump it all under a single conversation. I’ve found the phases to be a great forcing mechanism for me to actually talk to my client about the information they’ve provided me. As a result I feel more prepared progressing through the remaining phases of the data gathering process, and my clients can actually receive value from data gathering rather than it being a nuisance.
Great insights in this article! This approach would definitely work better for me when working with a financial advisor.