The discovery process, or the act of interviewing prospects and clients to assess their goals, concerns, fears and assets, is a challenging, yet crucial component of the financial planning process.
Clearly, a thorough discovery process can help advisors ensure that they are aware of all of their clients’ assets, which is important when forging financial plans. The awareness can also allow advisors to pursue management of clients’ total assets, rather than just a portion of assets that individuals may initially disclose.
A well conducted discovery process also illustrates that advisors are willing to spend time with individuals to fully understand clients’ goals. The process is often important for helping clients understand their goals. Indeed, experienced financial planners often observe that prospects initially identify certain goals but as the discovery process continues, they realize that they have priorities that are different from what they have previously stated.
From a longer-term perspective, fully understanding clients’ needs and risk tolerance levels is crucial for ensuring that portfolios have appropriate asset allocations. From a compliance perspective, registered reps need to conduct discovery so that they can recommend suitable investments while registered investment advisors need to ensure that they understand clients’ needs sufficiently to comply with fiduciary standards.
Yet, the discovery process is tricky and is laced with opportunities for making clients feel uneasy. For example, advisors need to be thorough and ask probing questions to gather necessary information in order to serve clients properly. But, if they ask inappropriate questions or frame questions inappropriately, clients may feel that their advisors are being overly intrusive or even judgmental.
Many advisors also want to promote their expertise when meeting with clients. Without curtailing such desires, advisors may dominate conversations with self-promotional comments and not allow their clients sufficient time to discuss their goals, financial circumstances, risk tolerance levels, and other important factors.
The good news is that training advisors on discovery techniques appears to reap benefits. A study titled “Evaluating Client Discovery Interviews at a Financial Advisory Firm” in the Summer 2015 issue of the Journal of Wealth Management concludes that training financial planners on a technique derived from the medical industry resulted in advisors and clients reporting a 20% increase in mean satisfaction with discovery.
It involved observing the outcomes of the discovery process before and after training advisors on fact-finding at a financial firm that didn’t have a consistent, firm-wide process in place. The research follows a long list of studies that have previously been done on discovery and it provide fresh perspective on the matter.
Jeff Belkora, who is an associate professor of surgery and health policy at the University of California in San Francisco, conducted the research. Among other findings, the study determined that training advisors resulted in client airtime expanding from 57% of the discovery process to 68%, which implies that clients may have increased their disclosures of their financial circumstances. Advisors were also found to have done a more thorough job of documenting conversations during discovery discussions.
The study also sheds light on ways to improve the discovery. For the study, advisors were trained on using the SLCT approach, which is an acronym for Scribing, Laddering, Checking and Triaging. Scribing means recording issues that are on the top of clients’ minds.
Laddering involves having clients elaborate on those matters and checking entails using a form to encourage clients to disclose additional details about their finances. Triaging is the process of producing a document that summarizes client needs. Advisors have numerous avenues for improving their discovery processes.
For example, a handful of coaching firms such as ClientWise and FinancialDNA, provide training on conducting discovery.