Client Engagement Assignment

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University of New South Wales

FINS5510 Personal Financial Planning 21T1

Client Engagement Assignment

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Question 2 816

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Question 1

Financial advisors play one of the most important roles of helping individuals manage their finances. According to Cruciani (2017), a financial advisor is charged with the responsibility of providing guidance and advice to clients for compensation. Basically, a financial advisor is an expert who provides advice and consultation to individuals concerning their entity or individual finances. In addition, they also provide a variety of other services ranging from tax planning, investment management and estate planning. Among many clients and business organizations, financial advisors are considered important advisors who assist clients achieve their financial goals by providing them with ways and strategies to eliminate debts, create more wealth, and reduce costs. Furthermore, they also provide savings, insurance, budget, and tax assistance strategies to clients who come to them for advice. While providing financial advice to their clients, it imperative for financial advisors to develop a good understanding of the client’s situations, objectives, needs, financial literacy and risk tolerance for them to be able to provide the best advice to their customers.

Cruciani (2017) indicates that developing a good understanding of the client’s situations, objectives, needs, financial literacy, and risk tolerance is one of the basic standard requirements in the investments industry which ensures that both investment and financial advisors know and understand detailed information concerning their clients. In addition, this basic standard is also considered an ethical requirement for those operating in the security industry such as financial advisors when dealing with customers. The basic knowledge of the client’s information is of vital importance to a financial advisor as it protects both the investment advisors and the clients. By developing a good understanding of the clients, financial advisors are able to protect their client’s financials by engaging in financial opportunities that best suit their personal and confidential situations. In addition, a proper and detailed knowledge of the clients also protects the financial advisor on what to include and not include in their customer’s portfolios.

In order to provide for a financial adviser to provide financial advice that is of the best interest to the customer, it is important for them to develop a better understanding of the customer’s situation. This involves developing a clear knowledge about the client’s annual income and the net worth (Collins, 2012). By providing their annual income information to their financial advisor, clients are able to assist their advisor understand their savings, cash flows, and debt capabilities enabling the financial advisor to determine the client’s income needs and appropriate risks. In addition, by understanding the net worth situation of their clients, financial advisors are able to better understand the ability of their clients to take different types of risks and identify the suitable opportunities for them to invest and make more finance or save more cash on current investment expenses. Therefore, the clear understanding of the customer’s current situation assists the financial advisor to develop some of the best investment opportunities and strategies for their clients to continue earning more money and better saving approaches.

Apart from understanding their client’s situation, it is also important for financial advisor to develop knowledge on the objective or goals of their clients (Wood, 2012). In many cases, this can be achieved by developing a clear relationship that is based on mutual trust. By understanding the goals and objectives of their clients, financial advisors are in a position to provide the most appropriate advice on the type of investment selection that the client should adopt. In so doing, financial advisors are able to provide their clients with the best advice while protecting their client’s financials by engaging in financial opportunities that best suit their personal situations. For instance, the case of a couple buying a home is one of the many examples in which Tristan, a financial advisor attempted to build this deep understanding of the client while providing advice that was in the client’s best interest. Based on this case, after buying their house, this couple was faced by drastically changing budget causing a lot of financial issues due to the fact that they were depending on their paycheck for the day to day living. By listening and developing an understanding of couple’s current situation, Tristan begins by providing clarity and financial advice on the budget situation of the couples (Good Tristan, 6:22). Despite building a deep understanding of the client situation, there cases where Tristan failed to do so. For instance, in a case where Tristan shows lack of seriousness due to distractions while attending to clients is a good indicator of some of the factors that results to a lack of deep understanding of the clients, needs, goals and situations (Bad Tristan 4:18). The results of this include poor financial advice, lack of trust, and detailed information from the client.

Wood (2012) asserts that financial advisors also have the responsibility of developing a deep understanding of their client’s tolerance for risk. As is common knowledge, investment is usually a difficult risk that many individuals opt not to take due to the unguaranteed nature of return. With this in mind, it is therefore important for financial advisors to understand their customer’s tolerance for risks. In so doing, they are able to understand how much change or fluctuations their clients are able and willing to manage in their portfolio and hence ensuring that they feel secure and safe when investing in business opportunities that involve risks. In many cases, a vast majority of people lack financial literacy on the various basics of their finances. As a financial advisor, it is imperative to understand your client’s financial literacy which is critical in the effective management of finances. This helps the investor understand how complex or simple their client’s investment portfolio are.

The case of a client considering retirement is another example of how Jeremy, a financial advisor attempted to build a deep understanding of the client while providing advice that was in the client’s best interest. A client considers retirement but she has concerns such as how she will get funds throughout the retirement. In addition, she has needs and objectives during her retirement which she must satisfy such as traveling and spending more time with family. After developing an understanding of the client’s situation, goal of retirement and the need to be financially comfortable, Jeremy provides advices to the client indicating that it is very important for her consider financial services and privacy policy guide that provides more information on financial services (Good Jeremy, 6: 38). Despite building a deep understanding of the client situation, there cases where Jeremy failed to do so. For instance, in a case where a client follows up on the issue they are trying to solve, Jeremy displays the element of uncertainty where he is not sure about the issue the client is taking about. In this case, this shows that Jeremy does not have a deep understanding and knowledge of the issue which in many cases result to poor financial advice (Bad Jeremy, 4:40).

Question 2

Trust is one of the very most important elements in any relationship. According to Burke and Hung (2021), trust involves a firm belief in the ability or reliability of someone to do something. In many occasion, the availability of trust cements relationships bringing people to work and live together with a feeling of safety and belonging. Within many organizational structures, trust in a leader allows communities and organizations to flourish, while its absence causes fragmentation and individualism. Over the past decades, financial planning environment has been experiencing significant development and change with the global financial crisis being blamed for the public’s trust loss in the financial service world. With this, customers trust in various financial service industries has deteriorated over the years. Bearing this in mind, it is clear that client trust in one of the major important element of the financial planning process. It is therefore the responsibility of financial advisors to develop trust with various clients in order to ensure the establishment of a successful advisor-client working relationship (Cull, 2015).

Building the client’s trust is considered the most important part for a financial advisor during the financial planning process. For clients to be able to engage and totally commit in financial planning process, they must first be able to develop a trustful relationship with their financial advisors. With this in mind, it is therefore the responsibility of the financial advisor to adopt various ways and strategies that ensure the development of a successful advisor-client working relationship. According to Cull (2015), building trust with clients during the financial planning process is important as enables the clients to share all their goals with their financial advisors. With this, financial advisors are able to provide the most appropriate advice on the type of investment selection that the client should adopt. In so doing, financial advisors are able to provide their clients with the best advice while providing protection to their client’s financials by engaging in financial opportunities that best suit their personal situations.

Building trust with the clients is an important part of the financial planning process as it encourages openness from the client’s side (Cull, 2015). By being open, clients are able to provide more information on their needs, objectives (goals), financial literacy, current situation, and their tolerance to risk. In so doing, clients are able to provide accurate and more information to their financial advisors who are able to provide financial advice that is in the best interest of the customer. In addition, the access to accurate and more information concerning the client also protects the financial advisor on what to include and not include in their customer’s portfolios. Cull and Sloan (2016) also indicate that, the establishment of trust between clients and financial advisor during the financial planning process is of great significance as it results into the development of a successful based client-advisor working relation. It is only through this working relation that clients are able to relay their information to their financial advisors. In regard to the financial planning process, building trust in clients is important as it result to an increase in the number of clients either through referrals or retaining of clients.

While developing trust which is the key in the financial process, it is imperative that financial advisors adopt various steps towards the attainment of customer’s trust. For instance, in the case of Tristan, a financial advisor, the steps to building an effective trust with his clients began with getting to know them and deeply having an understanding of their situations. After words, Tristan proceeds by providing financial advice on the matter at hand as seen in the case of the couple who bought a home and have been facing financial situations. In so doing, Tristan is able to develop a trust between him and his clients (Good Tristan, 6:22). However, there are also ways in which financial advisors erode the trust of clients. For instance, in the case of Tristan, displaying distraction when attending to clients is a factor that erodes clients trust as it does not involve listening and understanding of clients needs, situations, and goals to provide the best suitable financial advice (Bad Tristan, 4:18). In the case of Jeremy, the steps to building an effective trust with his clients also began with understanding the client’s situation, her need, and objectives during retirement. He provided the client with good advice of adopting financial service to help her during her retirement. It is such clarity and advice that builds trust between financial advisors such as Jeremy and their clients (Good Jeremy, 6: 38). However, despite this there are also ways in which financial advisors such as Jeremy erode the trust of clients. For instance, in the case of Jeremy not paying attention to client’s information to an extent of them reminding him indicate poor or lack understanding of the customer’s situation, needs, and objectives (Bad Jeremy, 4:40).

References

Bad Jeremy (4:40)

Bad Tristan (4:18)

Good Jeremy (6: 38)

Good Tristan (6:22)

Burke, J., & Hung, A. A. (2021). Trust and financial advice. Journal of Pension Economics &

Finance, 20(1), 9-26.

Collins, J. M. (2012). Financial advice: A substitute for financial literacy?. Financial Services

Review, 21(4), 307.

Cruciani, C. (2017). Investor decision-making and the role of the financial advisor: A behavioural

finance approach. Springer.

Cull, M. (2015). The role of trust in personal financial planning.

Cull, M., & Sloan, T. R. (2016). Characteristics of trust in personal financial planning. Financial

Planning Research Journal, 12-35.

Wood, W. H. (2012). Role of the Financial Advisor. The Handbook of Municipal Bonds, 43-50.