Accounting Today - December 13 2010

Value is in the eye of the beholder
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BY Deena Katz

The day the auction opened, my husband Harold called to tell me he had bid on some of the items. He grew up in the 1950s, when Roy, Dale and Trigger were so popular. “Roy was my favorite,” Harold said enthusiastically. “I once got to pet Trigger when he and Roy visited New Orleans. It was the thrill of my life.” I was certain that Harold had just bid $150,000 — Christies’ estimated price for Trigger. My first thought was, where the heck do you put a big stuffed horse, standing on its haunches? I guess I blurted out that thought, because Harold immediately assured me that he had only bid on the lunch bucket and some belts.

Turns out, he didn’t win the bucket or anything else. Nearly all the items sold for way more than Christie’s had estimated, including Trigger, whose final price was more than $266,000. But this auction got me thinking about what people value, and what they are willing to pay for it.

In July, Christie’s auction house in new York auctioned off the
collection from the Roy Rogers and Dale evans Museum, which
closed in 2009. everything was sold: Roy’s first guitar, his sun-
glasses, and his sterling silver money clip and belt buckle were
put up for sale to the public. the highlight of the catalog was
Roy’s horse, trigger, who had been stuffed in his classic rearing
position.
Clients will judge you by their values, not yours

open communication — whatever you feel is necessary for this engagement to be a success in your eyes. When both you and your client feel that your relationship is win- win, you can accomplish more.

What’s more, since service is personal, a
failure to meet expectations becomes per-
sonal as well. If you’re unhappy with your
new toaster, you might return it — but you
don’t call Black & Decker to ask them why
they disappointed you. Yet if your client is
unhappy with your financial advice, perfor-
mance or service, you’re likely to get a call
that is very personal: “Deena, how could you
let me down like this?”
You might assume that the more specific
and detailed you are about your advice and
services, the less likely it would be for the cli-
ent to wind up with unmet expectations. Yes
and no: While it is likely that there may be less
confusion if you specifically list what you will
and will not do, you still have a big exposure
to unexpressed expectations. Let’s look at this
a bit closer.

WHAT YOU ARE WORTH

Think about your services.

First of all, they are services (not goods), so people have a hard time determining their value. If you were selling toasters, it would be pretty easy for clients to pick one up, look it over and get a sense of how that item would look in their home. But no matter how specific we are about what we can and will do for our financial planning clients, it’s not easy for them to visualize the impact or outcome.

Deena Katz, CFP, is an associate professor in the Personal Financial Planning Division at Texas Tech University, and chair of Even-sky & Katz in Coral Gables, Fla. This article originally appeared in Financial Planning magazine.

WHAT CLIENTS DON’T KNOW

If you have ever worked with clients, you know that they are not always clear about their goals and objectives when they walk in your door. Many times they have not formulated any future plans well enough for us to determine quantifiable and measurable goals. This is where the discovery session becomes important. Through artful questioning, clients begin to visualize their own future and make some decisions about what they would like that to look like.

We negotiate what clients can and cannot afford to do and together we come up with an action plan. Ideally, through these sessions, we have learned something about client expectations. But if we don’t ask directly, we might just be assuming that they have expressed all the goals they had in mind.

Then it’s your turn. Tell your new clients what you expect from them. Honesty, trust,

INVISIBLE AID

Perhaps our biggest hurdle as advisors is that clients don’t often see our value until years after they begin working with us, when they begin to experience their success. I’ll give you an example. A few years ago I had a young couple come to me for planning. As we began our dialogue, I asked what future plans they had for their family. They wanted to buy a new house in five years. They wanted to save so they could retire on a lake nearby.

This couple won’t see their goal fully accomplished until they put the down payment on the new house, five years from when we started planning. It’s my job to ensure that this goal is on their minds and demonstrate our progress toward the goal each year. Our periodic conversations are centered around where the clients are in the process.

As we had our quarterly reviews, the focus was not on investment returns but on the couple’s progress toward buying that house. At our firm, money dedicated to any goal that is less than five years out is not placed in equities — so we review how much has been saved and how much has been earned in fixed-income accounts. Then we determine whether we need to adjust our activities based on the current economic climate.

As the real estate market has fallen, for example, we created scenarios with lower-than-expected revenue from the sale of the couple’s current home and adjusted the savings rate accordingly. We talked about the homes they grew up in and how important their childhood experiences were. These adjustments were more palatable because they focused on the new home, not on the discipline of saving.

Through this dialogue, my clients began to understand that the value of our relationship was in the prospect of being able to own their new home, not in short-term investment returns. But the proof won’t come until they’re holding that set of keys.

See VALUE on 20
EDWARD JONES TOPS IN
BROKER SATISFACTION

Edward Jones topped J.D. Power & Associates ranking of employee advisor firms, scoring 876 out of a possible 900, closely followed by Raymond James with 857 points. There is a fairly sharp drop off after that, but Merrill Lynch came in third with 710 points, followed by UBS (689 points) Wells Fargo (665 points) and Morgan Stanley Smith Barney (626 points). The industry average is 683 points.

Commonwealth Financial Network took top honors on the independent side, with 898 out of 900 points, followed by Cambridge Investment Research advisors (848 points), Raymond James (845), LPL (817), Waddell & Reed (765), Wells Fargo (763), Northwestern Mutual (747), Ameriprise (735), Advisor Group (718), Cetera (717), Securities America (709) and Metlife’s broker-dealer group (648). The average for independent firms is 765.

David Lo, director of the investment
services practice at J.D. Power, comment-
ed that while independent firms scored
higher than employee firms on average,
many factors go into advisors’ ranking of
their firms, not least public perception.
“There are challenges still on the wire-
house side with media coverage creat-
ing a negative halo, which carries over,”
he said. “Customer perception of these
firms is a lot lower after 2007, and it’s not
because service has changed much.”
Generally, though, brand image is on
the mend, and that’s helping stabilize
advisors’ satisfaction levels.

Other factors influence which firms make advisors really happy, though, and compensation isn’t the main one. “ Compensation is always a piece of it, but once you’ve decided to do the job, your surroundings and support determine how happy you are,” Lo said.

Indeed, firms that make advisors’ lives easiest top the rankings. “To the degree to which a firm maximizes time its advisors spend with clients by minimizing administrative tasks, it will be successful,” Lo said. “Technology, compliance and administrative support are all really important,” and that’s true whichever channel an advisor works in.