December 2007

Client reviews: Enhancing your

business

Overview
Client reviews matter to the long-term relationship you have with your clients and your licensee.
Although not specifically legislated nor an expressed statement of duty in common law, providing
ongoing reviews is part of the industry standard and all relevant industry associations’ steps for
financial planning. It would also seem to be implied that once you have provided advice, which has
subsequently been implemented, you need to continue to monitor and review that advice. This
would appear more correct if you accept ongoing trailing commissions or charge ongoing fees for
service based on funds under administration.
Providing annual reviews must also be an implied part of your relationship with your licensee as
annual reviews reduce the business risks the licensee faces and allow for cross selling and gaining
qualified referrals. It is a fact that products are only profitable if they remain in force for a number of
years.
The purpose of this Ontrack training is to focus on developing your ongoing relationship with your
clients through the use of reviews. The training will examine when, why and how to provide a
review service for your client.

Learning objectives
After reading this article you should be able to:
> Integrate annual review and client service standards
> Explain how annual reviews assist to retain clients
> Develop additional fact finding to deepen your knowledge of the client
> Make adjustments to your advice to take in significant changes in the client’s circumstances
> Describe how the annual review process can be utilised to identify additional products and
services to offer to your clients.
To give advice on the product(s) referred to in this article you must be licensed or accredited by
your licensee and operating in accordance with the terms of your/their licence.

Knowledge areas
This article is relevant to the following knowledge areas:
> Skills (30 minutes)
 Skills

Practical considerations
It would be easy if the financial planning process ended once the client accepted and implemented
all strategic and product recommendations. The investments would perform according to plan,
nothing would change in the client’s personal or financial circumstances and long-term goals would
therefore be met. Clearly, that’s not realistic, and not what financial planning is about.
Good financial planning starts as soon as a client begins earning an income and continues until
long after they retire. If you put your clients into a set and forget position, they will believe that you
have forgotten them and seek out someone else to give them advice. It is often said that ‘clients do
not abandon financial advisers; financial advisers abandon their clients’.
Knowing this, and therefore anticipating and providing for changes in circumstances within
recommendations in addition to understanding the importance of reoccurring revenue, then it
would seem only good business sense to schedule formal annual reviews. This ensures that
personal or financial changes do not undermine your good advice and demonstrates to the client
that you are interested in their ongoing wellbeing.

How frequently should reviews be conducted?

Some advisers link the frequency of reviews to the value of the investment portfolio. While this is
an understandable method, a large portfolio within a retirement income stream may not need to be
reviewed on a face-to-face basis every year. A client who is gearing for the first time and is fully
invested in shares may need a lot more hand-holding and quality time.
A service standard for review services which is common is one where retainers are charged by
financial advisers to provide annual or quarterly meetings. Where there are a number of services,
including taxation advice and self managed superannuation fund (SMSF) administration, more
frequent meetings are usually necessary.
Other advisers may prefer to set up more frequent meetings in the beginning of a relationship.
Some advisers will conduct the first review after say, six weeks of the plan implementation to
ensure that all steps have been taken. They may then schedule another short meeting in another
six months to check on such things as automatic savings plans, budgets, receipt of dividends and
distributions or affordability of salary sacrifice levels. After this review, assuming everything is
proceeding well, the client can then go onto an annual review schedule.
Where clients sign service agreements, it may be left up to the client to determine how frequently
they want to meet with their advisers. A common factor in this decision is the cost and the level of
service they wish to pay for.
Meetings with accountants and tax advisers may be necessary where a client has complex trust or
business structures. Financial advisers should factor in these meetings when considering service
level agreements and costing for retainers or funds under management fees.
While it might seem that these meetings are part of the service, between preparation, the actual
meeting and any work that comes out of the meeting, the financial adviser may be allocating more
time to the client then they are being remunerated for, and this is not an effective way to run a
business.
The frequency of client meetings must be provided for in the fee structure of the adviser, and
include preparation time, meeting time and change implementation time. Your time is valuable and
your clients will not think more of you if you give it away free, but neither do they want to see
unexpected time charges. By having a service agreement, your clients will know what to expect
and you will be able to charge for the full value of your time and expertise.

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 Skills

The reason for the meeting

The frequency of meetings and the length of the meeting will be governed by a number of factors.
Where investment advice is at the core of the specific financial plan, and there have not been any
significant changes in the client’s circumstances, a portfolio review that benchmarks the actual
performance of the portfolio against expected returns may be sufficient. This is particularly true
where there are no, or only minor, adjustments required to be made.
Reviews of insurance plans can be more time consuming as the re-examination of risks and
calculation of cover levels can be quite detailed.
Tip: It might be appropriate to design a pre-meeting questionnaire that the client completes and
returns prior to the meeting so that the adviser can prepare new quotes if necessary.
Where the client’s plan is more complex, where personal and/or financial changes have occurred,
or where changes in the industry may require substantial change to the client’s strategy, the
client’s entire financial plan may need to be reviewed.

Case study: A non-working partner returns to work

Consider the situation of a couple where one partner was previously not working. The couple’s
finances may have been tight and the working partner may not have been able to afford to make
additional retirement savings over and above the superannuation guarantee. However, should the
non-working partner return to work, the couple would benefit from reviewing every aspect of their
financial plan. The additional income would result in changes to income and expenditure, savings
and retirement goals, insurance requirements and perhaps even attitude to risk.

In some instances a review meeting may be conducted on an ad-hoc request by the client. Where
a client has been made redundant, received a windfall or has had an illness or accident or death in
the family, they may need immediate assistance. It is important that clients feel they can get this
assistance and understand that it is part of the financial planning process. It is also important that
the adviser’s fee structure can accommodate such meetings.

When the news isn’t good

Many advisers will be nervous about providing annual reviews when markets have been unstable,
insurance premiums have increased and/or legislative changes mean that structures of financial
plans may not now be as attractive.
However, unstable markets and other unfortunate bumps can provide a real opportunity to cement
the client relationship. Such meetings allow the financial adviser to re-connect the client to the
fundamentals of investing, insurance, inflation and other theoretical information and relate this to
the client’s experience. The adviser would have warned clients in their initial advice that these
types of events may occur.

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 Skills

Example: An increase in insurance premiums

Consider a client who, having just turned 46, is concerned and upset, as their insurance
premiums have now increased considerably. This is an opportunity to review the client’s
insurance risks and requirements. It may be the case that their financial assets have grown and
subsequently the sum assured needed for insurance cover may have decreased. A re-
evaluation of risk might result in a reduced sum assured which may also result in reduced
premiums.

Example: Underperforming investments

On the investment side, if the adviser is using a trend line to show the required performance of a
portfolio, plotting a period of under-performance against that performance trend-line may show
the client that they are still on track or only slightly below the required performance. The results
may show that only a low level of adjustment is required. The under-performance may also have
arisen because the client has been receiving and spending distribution income rather than
reinvesting their investment earnings. This is a perfect opportunity to reinforce the discipline
required to achieve their savings and investment goals.

What happens in a review?

The standard components of an annual review include; revisiting income and expenditure, assets
and liabilities, personal circumstances, goals and attitude to risk. It is important to re-test risk
tolerance. As clients become more confident with their financial arrangements their tolerance to
risk might increase. On the other hand, external events (such as terrorist attacks, natural disasters,
domestic economic uncertainty) and internal events (new child, divorce, death in the family) can
cause a client to become less risk tolerant. These changes in risk tolerance need to be
accommodated for in the ongoing financial plan.
Recommendations need to be reviewed to ensure that things are going according to plan. Risk
management needs have to be reviewed in order to keep insurance cover appropriate, in line with
needs and to remain affordable for the client. Clients must be provided with an opportunity to
discuss how things have changed.

Example: Revising risk management

A client may have initially indicated that they felt their job was very secure, however at the review
meeting they indicate they are now concerned about rumours regarding redundancy at their
workplace. This is an opportunity to consider the client’s ongoing needs such as income
protection, or the flexibility built into savings plans. It is also an ideal opportunity to provide the
client with assurance that should any changes occur, you will be there to assist them while they
work through their financial needs.
In the initial financial plan there may have been strategies or options that the clients wanted to
defer. These areas need to be revisited. It may now be an appropriate time to implement them.

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 Skills

Case study: Implementing strategies

A client may be unhappy about a strategy that is currently in place. Attention to this issue can
mean a simple change at the time of the review, thereby potentially avoiding a future formal
complaint. An example might be a couple where one of the partners was not as comfortable with
borrowing to invest as the other partner. After being in a gearing program that steadily increased
the level of borrowing, the second partner has become concerned and this is causing friction
between the two partners. By stopping the increase in debt levels (and even repaying some of the
debt), the second partner may feel more comfortable.
This is also the time when new services, products, fee structures or service level can be
introduced.

When changes arise from a review

Where changes are required, a new advice document needs to be prepared (this is most likely to
be statement of additional advice (SOAA) or a record of advice (ROA), dependant on the type and
number of changes being made).) . A new implementation schedule and the ‘authority to proceed’
will also need to be provided. Fees and charges will need to be disclosed.
The review meeting provides the adviser with the opportunity to know more about the client. The
client will also be reassured that the adviser understands them and their needs. They will realise
that their adviser is concerned for their financial welfare, is interested in them achieving their goals
and has the competency to assist them in doing so.

The formal or informal approach?

Some financial advisers like to take a formal approach to the client review process, often involving
the completion of a new client questionnaire.
Other advisers take a more casual, open approach, simply asking the client what has been
happening with them over the period of time since the last meeting. A benefit of this approach is
that any pent-up emotions come out and the adviser (assuming they are comfortable with this
approach) can often gain a better insight into the client’s attitudes toward their ongoing financial
plan. This process can also be effective in building a trust relationship.
While it is very possible to get side-tracked in discussing current issues, the financial review must
still be completed.
Tip: Many advisers use the client’s cash flow created from the previous meeting as a starting point.
> Is the client able to comfortably meet their current income needs?
> Are they comfortable with their level of savings deposited for emergencies?
> Do they feel that they could save more or do they feel that they need more disposable
income?
> Are they satisfied that their savings are in line with the planned level?
> Might they consider working longer?
> Are they concerned about their level of debt?
Whether a formal or an informal approach is taken, the annual review should reinforce the
commitments made at the initial meeting. The client must reaffirm the responsibility they are taking
for the decisions they have made regarding insurance cover, investment levels, risk and asset
allocation and associated estate planning decisions.

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 Skills

Communicating the ongoing review process

How do you get clients to understand the importance of ongoing reviews? Ongoing reviews are
positioned in the very first meeting with clients and are introduced during the presentation of the
financial services guide (FSG). You may wish to include information on ongoing reviews in any
welcoming or pre-meeting material.
Discussions at the initial meeting should include the assumption that an ongoing relationship is
being formed, and that ongoing reviews will be needed so that the client’s actions are aligned to
their ongoing needs and objectives.
The covering letter of the statement of advice (SOA) could indicate the need for ongoing reviews
and a discussion of how, and when, these will occur. Any client agreements or service standards
documents should be based on the assumptions that ongoing reviews will be conducted.
Where fees for service are charged, clients should be made aware that they are already paying for
these reviews, and you may wish to schedule the follow up review in the initial implementation
plan. Where there are additional options for the client’s consideration, or there are expected
changes to the client’s situations, these should be documented for discussion at the next annual
review.
Clients may hesitate to attend annual/ongoing reviews in instances where the client has not met
their commitments. Part of this reluctance may be a concern that the financial adviser will be
judgemental. It is important for advisers to prepare their recommendations in the concept of choice.
Clients have choices they can make, they can spend or save. However, advisers and clients need
to monitor the impact of the client choices.
One adviser uses the term ‘spending plans’, rather than ‘expected cash flows budgets’. This aligns
with the client’s choice to spend or save.
Another aspect is helping your client feel comfortable with contacting you before they make a
decision that has financial ramifications. They need to be assured that you will not be judgemental,
that you will have valuable insight and that you will be able to offer them alternatives or
suggestions on how to make that decision.
It is all a matter of trust and value. The client needs to be assured that their relationship with you is
of value to them, and is valued by you.

Acknowledgement & thanks

We thank the following people for their contribution to this article:
> We thank Nancy Kazdan, director of the Kazdan Corporation, for this training material

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This document was prepared by and for Kaplan Education Pty Limited ABN 54 089 002 371. It contains information of a general nature
only and is not intended to be used as advice on specific issues. Opinions expressed are subject to change. The information contained
in this document is gathered from sources deemed reliable, and we have taken every care in preparing the document. We do not
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