From Data to Dialogues: Using Financial Scorecards for Empowering Conversations

According to a recent Michael Kitces article, most advisors do not have problems with churn or service models; their clients simply want to feel nurtured and valued. An advisor’s biggest problem is growth. How can technology bridge this gap? 

One solution to this challenge is the use of streamlined financial scorecards. By providing clients with a clear, concise summary of their financial situation, advisors can quickly identify areas for improvements and opportunities for growth. They also have the chance to showcase their expertise and highlight the value they provide.

Providing Peace of Mind

One benefit of a financial scorecard is that it can help clients stay on track toward their financial goals. By regularly tracking their progress, clients can see how well they are doing and adjust their strategies accordingly. This can be particularly helpful during times of economic uncertainty when clients may feel anxious about their financial futures. 

One such example springs to mind. I had a friend reach out and say: “Reese, with everything happening right now, I’m just not sure if I’m going to be okay.” The market was down, and he was understandably concerned. Would he be forced to go back to work? Sell his vacation home? Should he invest in a new startup he was contemplating? 

I was able to quickly pull up his Elements scorecard and view his Total Term score, comprising total net worth divided by current annual spending. The resulting number estimates how many years one can support their current lifestyle if their assets ceased to continue growing. 

Now that he had this visual representation in hand, I asked my friend what he thought about the Total Term number. He looked a bit surprised and said, “Hmm… it looks pretty good. Do you think I’m going to be okay?” I asked what he thought and how that number made him feel.

His reply was, “Honestly, Reese, if I think about it, that seems like quite a bit. I’m not sure I’ll be able to spend all of that in my lifetime. I mean, I guess things could go super bad, but it seems like enough. But I don’t know, I’m just feeling a little uneasy right now. Like, I’m not sure why I’m worried...but I just don’t feel like I can spend quite as comfortably as I would like.” 

Streamlining Communications

I quickly realized that my friend felt unnecessarily constrained and unable to live his life. So, I redirected his attention back to his scorecard. This time, I asked him to look at the balance of his assets. His Total Term score contained four subcategories: liquidity/after-tax (Liquid Term), qualified accounts (Qualified Term), real estate (Real Estate Term), and business equity (Business Term).

During our discussion, we delved further into his liquidity score, and we were able to pinpoint the underlying issue— he didn't feel financially liquid enough. Sometimes, in our pursuit of wealth maximization, we tend to overlook the importance of emotional wellbeing. However, it is crucial to take both factors into consideration. To better understand his situation, I asked my friend how it would feel to have more liquidity. This question sparked a meaningful conversation, and we discovered that he was being overly austere in his personal spending and allocating his liquidity to higher growth assets. While this approach might align with some people's values, it didn't align with his goals. Therefore, I helped him give himself permission to start enjoying life a little more by freeing up some liquidity.

I loved how our conversation was lightweight, not overly precise, and that it allowed us to make some creative observations together.

More to the point, we were able to avoid a lot of rabbit holes (like how the economy would impact investment returns going forward). The majority of our meeting was focused on me listening to him, asking questions, and really unpacking his values and financial purpose. 

Keeping Score 

Financial advisors may struggle to keep track of all the different data points and metrics that are relevant to their clients' financial well-being. It can be difficult to provide truly personalized advice without a comprehensive overview of their finances. This is where a streamlined financial scorecard comes in. These digital tools make it easier for advisors to identify areas of strength and weakness, and to develop customized strategies that meet their clients' unique needs. 

By using a streamlined financial scorecard, advisors can quickly and easily identify areas where their clients need additional guidance or support, allowing them to provide more personalized and targeted advice. Additionally, financial scorecards can help advisors reduce the cost of important conversations by streamlining the data collection and analysis process, allowing them to spend more time focusing on their clients' needs and less time on administrative tasks. Ultimately, the use of financial scorecards can help advisors improve their client relationships and drive growth for their businesses. 

Many of us became financial advisors because we wanted to help people live healthier and more satisfying financial lives.  Scorecards can be an effective tool for helping clients become more in tune with their finances and gain clarity on their financial well-being.