The financial advisory landscape is undergoing a significant transformation. With the rise of robo-advisors, increasing regulatory scrutiny, and shifting client expectations, traditional approaches to financial advice are no longer sufficient. Clients now demand more transparency, personalised services, and a clear understanding of the value they receive.
In this evolving environment, the need for clear, comprehensive client agreements has become critical. A well-crafted Terms of Engagement (ToE) not only sets the foundation for a strong advisor-client relationship but also serves as a powerful tool for differentiation in a competitive market.
Note: Before we dive into the details of this game-changing tool, it should be noted that in the AU version of Lumiant, it is called Terms of Engagement. If you are on the US version of Lumiant, it is called Client Proposal. Each version has inputs and outputs that align with the respective country's requirements and regulations. In this article, we'll be referring to the tool as the ToE or Terms of Engagement for brevity, but each reference applies to the Client Proposal tool as well unless otherwise noted.
The Challenge of Modern Financial Advising
Financial advisors face increasing pressure to:
Quickly deliver comprehensive proposals
Clearly articulate their value beyond investment management
Justify fee structures, especially minimum fees
Lumiant's innovative Terms of Engagement tool was designed to address these challenges head-on.
Cutting Down Time to Proposal
The Lumiant ToE tool streamlines the proposal process:
Customisable templates allow for quick, professional proposal generation
Integration with existing Lumiant modules pulls in relevant client data automatically
An executable document that can be sent for signature immediately
By reducing the time from initial client meetings to proposal delivery, advisors can capitalise on prospect interest and improve the time from prospect to client.
Demonstrating Value Beyond Investments
More and more, clients are seeking holistic financial guidance. The ToE tool helps advisors showcase their comprehensive service offering:
Clearly outlines all services provided, driven from the client’s Key Advice Areas
Highlights unique value propositions and specialised expertise
Provides a visual breakdown of how advisor time and resources are allocated across various services
As Michael Kitces aptly notes, "In some cases, the value of financial planning is in the eye of the beholder - based on how the client values their own time relative to paying for their advisor." The ToE tool helps advisors clearly articulate this value proposition.
Justifying and Converting Fee Minimums
For many advisors, fee minimums are essential to maintain profitability. The ToE tool aids in justifying and converting these minimums:
Clearly articulates the level of service and attention clients receive
Demonstrates the cost-effectiveness of the advisor's services compared to à la carte financial solutions
Provide transparency in fee structures, building trust with prospects
Kitces further emphasises the unique value advisors provide: "In a world where ultimately, most financial planning strategies could be implemented by a consumer themselves - given sufficient education, time, and the inclination to get it done - arguably, the greatest value a financial planner provides is the behavioral coaching and support to ensure the recommendations are actually implemented."
By presenting a clear, value-focused proposal that highlights this crucial aspect of advisory services, advisors can more easily convert prospects who might initially balk at fee minimums.
Understanding Terms of Engagement
The benefits of a ToE are clear, but let’s dig in a bit further to understand what it is and how it works within Lumiant. A ToE is more than just a formal contract; it's a roadmap for the advisor-client relationship. At its core, a ToE/Client Proposal defines the scope of services, outlines mutual responsibilities, and sets clear expectations for both parties.
Key components of an effective ToE include:
1. Scope of services: Detailing the specific financial planning, investment management, and advisory services to be provided.
2. Fee structure: Clearly outlining how and what the client will be charged for services.
3. Communication expectations: Establishing expectations for the frequency and method of client-advisor interactions.
4. Confidentiality agreements: Ensuring the protection of sensitive client information.
5. Dispute resolution information: Outlining the process for addressing any disagreements that may arise.
6. Performance expectations: Setting realistic goals and benchmarks for measuring success.
7. Termination clauses: Clearly stating the conditions under which either party can end the engagement.
The Lumiant ToE Tool: A Game-Changer for Advisors
Lumiant's new Terms of Engagement/Client Proposal tool represents a significant leap forward in how advisors create and manage client agreements. This innovative feature is designed to streamline the process of crafting comprehensive, personalised ToEs while ensuring compliance with industry regulations.
Key features of the Lumiant ToE tool include:
1. Integration with existing Lumiant modules: Seamlessly pull client data and service selections from other parts of the Lumiant ecosystem.
2. Customization capabilities: Tailor the ToE template to reflect your firm's unique service offerings and value proposition.
3. Practice level controls: Ensure consistency across your practice.
4. Version control: Track changes and updates to ToEs over time and immediately upload to your client’s vault.
Benefits for Advisors
Implementing a comprehensive ToE using Lumiant's tool offers numerous advantages for advisors. Some of these benefits include:
1. Streamlined workflow and efficiency: Automate the creation of ToEs, saving time and reducing errors.
2. Enhanced compliance and risk management: Ensure all necessary disclosures and agreements are included, mitigating legal and regulatory risks. Adhering to regulatory requirements, such as those outlined by the Financial Adviser Standards and Ethics Authority (FASEA), is important for all advisory firms, and our ToE documents ensure that planners comply with these standards.
3. Improved client communication and transparency: Use the ToE to articulate your value proposition and service offerings.
4. Facilitates the onboarding process: Immediate output and clear language speed up client agreement and onboarding.
5. Demonstrates value on holistic services: Highlight the full range of your expertise beyond just investment planning.
6. Reduces time to proposal and improves prospect-to-client conversion: Quickly generate professional, comprehensive proposals that showcase your value. Use this as a takeaway from your initial client meeting. It takes an average of 30–35 days to onboard a client. Using proposals as a pre-commitment strategy can ensure the prospect is ready to start, keeping the onboarding process short.
7. Differentiate your practice: Stand out from competitors with a clear, client-focused approach to engagements.
Benefits for Clients
A well-crafted ToE/Client Proposal isn't just good for advisors; it also provides significant benefits to clients. Those benefits include:
1. Clarity and understanding of services: Clients gain a clear picture of what they can expect from the advice relationship.
2. Alignment of goals and expectations: The ToE serves as a tool to ensure the advisor and client are on the same page regarding financial objectives.
3. Confidence in advisor expertise and commitment: A comprehensive ToE demonstrates professionalism and attention to detail.
4. Transparency in fees and value: Clients understand exactly what they're paying for and the value they receive by aligning their financial goals to their values and well being.
5. Enhanced trust: Clear communication from the outset builds a foundation of trust in the advisor-client relationship.
Best Practices for Implementing ToE in Your Practice
To maximise the impact of your Terms of Engagement, you should implement best practices for your firm to ensure that you are using the ToE tool to its fullest.
Some best practices we recommend:
1. Customize the ToE to your firm's needs: Use Lumiant's tool to create a template that reflects your unique service model and client base in the practice settings.
2. Use ToE as a conversation starter: Walk through the ToE with clients, using it as an opportunity to discuss their needs, concerns, and expectations. Give it to them as an immediate takeaway from a discovery meeting, thus closing the gap from prospect to client.
3. Train your team: Ensure all staff members understand the importance of the ToE and can explain its contents to clients.
4. Demonstrate the tangible and intangible: Set your key advice areas to demonstrate all the services for your advice practice so a client can see which ones they're getting for their fee and, equally, which ones they're not receiving currently but could in the future.
The Future of Client Engagements
As the financial advisory industry continues to evolve, Terms of Engagement will play an increasingly vital role in shaping the client experience. A few trends we see catching on:
1. ToE as part of a holistic client experience: Expect to see ToEs integrated more deeply with other aspects of client management and financial planning tools.
2. Leveraging technology to enhance client relationships: AI and machine learning may be employed to create even more personalised and dynamic ToEs.
3. Increased regulatory focus: As regulators continue to emphasise transparency and clients’ best interests, robust ToEs will become even more critical.
4. Shift towards ongoing engagement: ToEs may evolve to support more flexible, subscription-based advisory models.
A comprehensive Terms of Engagement is no longer just a nice-to-have – it's a critical component of successful client relationships in the modern financial advisory landscape. By clearly defining the scope of services, setting expectations, and demonstrating value, a well-crafted ToE sets the stage for long-lasting, mutually beneficial advisor-client relationships.
Lumiant's new ToE tool offers advisors a powerful solution to streamline their processes, enhance compliance, and deliver exceptional value to clients. By leveraging this innovative technology, advisors can position themselves at the forefront of the industry, ready to meet the evolving needs of clients in an increasingly complex financial world.
Ready to revolutionise your client proposals and take your practice to the next level? Explore Lumiant's new ToE tool or schedule a meeting with our team to learn more about how this game-changing feature can transform your practice and elevate your client relationships.
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