Top 5 questions advisors should be asking every client

by Tim Halverson, Russell Investments

One of my favorite quotes is from Gary Keller: “The quality of any answer is directly determined by the quality of the question.” One of the biggest issues I see advisors having is in the quality of the questions they are asking their clients. One good question can change the relationship the advisor has with a client and one bad question could potentially end that relationship.

My wife would say I ask a lot of questions. But I am not sure she would say they are great questions. Why? Because if listened better, then the question I would ask her might be better. As I have said in earlier blogs, we at Russell Investments try to help advisors build better practices, so I have compiled five key questions I think would really benefit an advisor’s practice. I am going to run through them and add some personal insight. These questions have been compiled from coaches such as Carl Richards and other great thinkers in our business. By the way, these are great questions to ask yourself as well. You might not like the answers, but you may learn a lot. Here we go.

1. What does money mean to you?

This is one of my favorite questions of all time and the reason it is number one on the list. First, it is open-ended. Open-ended questions are always great because they allow the responder to go in any direction they want. The reason I like this question so much is because the answers to those six words can tell you many things you need to know about your client. If you think money means the same thing to everyone, think again. According to Webster's dictionary, the meaning of money is something generally accepted as a medium of exchange, a measure of value, or a means of payment. To me, it means flexibility and freedom. To others, it might mean prestige and power. How can you develop a plan for a client if you don’t know what kind of emotions they have about money?

2. What is your first memory of money?

Another open-ended question that can spark a variety of answers. According to a Cambridge University study by David Whitebread and Sue Bingham, a lot of our beliefs about and understanding of money are set by age seven. Age seven. Everyone has heard of the book by Robert Fulghum: All I really need to know I learned in Kindergarten. I don’t think Robert was that far off. Unfortunately for me, my first memory of money was of our family not having enough. So, throughout my life I have always tried to find ways to make money. From caddying to working as a demo tech to helping advisors help their clients find financial security. Other people might have good early memories of money, such as receiving money for a birthday or a special occasion. Again, the responses to this question can vary by individual.

3. What was your parents’ relationship with money and how does that shape your relationship with money?

Let’s all be honest, everyone ends up with baggage from their parents, good or bad. The way your parents view money may have a big influence on a lot of decisions you make in life. My parents always saw money as a source of pain or anxiety. So early in my career and life I had that same anxiety. I never thought about the usefulness of money, because I never had any extra.

Where did my parents learn about money? From their parents. My grandparents lived through the Great Depression so you can be sure they had that same anxiety about money. I only learned about the stock market because when I caddied, a lot of the people I caddied for invested in the stock market. If I had not met some of those people early in life, I don’t think I would be in this profession and have what I have today. I know a lot of people who have never invested in the market and will not because their parents did not. In our latest Economic and Market Review, we showed the benefit of investing through dollar cost averaging compared to staying in cash. Unfortunately for those clients sitting in cash, they could end up not having as much money for retirement. That may be a direct result of the money lessons they learned from their parents.

4. What are you scared of when it comes to money?

People have real anxiety when it comes to money. It is not so much the actual physical bill that causes the anxiety, it is about what happens when things go wrong. What happens if the market goes down? What happens if I lose my job? What happens if I don’t save enough? These are questions a lot of people think about a lot of the time and the answers may scare them. Sometimes that anxiety causes people either to make a bad decision or no decision at all. As we all know the biggest detriment to an investment’s return is not the actual investment, it is the investor’s behavior, especially when volatile markets make them anxious. If you can flush out that anxiety from a client, it can make a huge difference.

5. How much do you consider taxes when it comes to your investments?

I think the question I get the most from my advisors is: what is going to happen with taxes? Are taxes going up at the federal level? What about in Illinois? This is something we at Russell Investments think about every day. As we all know, the federal government is spending a lot of money right now and many people are wondering how we as a country are going to pay it all back. The answer may include higher taxes. It doesn’t matter what side of the aisle clients are on, they understand this.

We also know client expectations for future returns is pretty high. The problem with those expectations is the S&P 500 Index has been trading at all-time highs and bond yields at all-time lows, so getting 6%-7% in a balanced portfolio is going to be really hard going forward. You throw taxes on top of that and returns may be low for a while. According to our research, most active funds lose about 1% a year to taxes. If you can help mitigate that as an advisor by talking about tax location strategies or tax-managed products, that could make a big difference to clients. Most people have certain investment beliefs, like prioritizing socially conscious investments or only investing in U.S. names. How many people actually have a philosophy around taxes? And yet, having one could boost returns.

The bottom line

I am sure there are a lot of other great questions that advisors can use to glean information from clients, but I thought these five were the best. Remember, coming up with great questions is not a skill you are born with, it is a skill you can learn. Read books from Carl Richards or Dan Solin or you can just Google “great questions” and see what comes up. As I have said before, advisors do not need more products, just better partners. We at Russell Investments are always trying to be those better partners.

 

 

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