Building out a client strategy by working backwards

Paul Giordano

In Secrets of the Money Masters, Vogue Financial managing director Paul Giordano met Australian Paralympian Madison de Rozario and designed a financial plan that would help her achieve her goals. In this chat, we talk to him about the advice needs of younger working generations and his specific approach to building a wealth creation strategy.

Do the advice needs of younger generations differ from, say, retiree clients?

I would say that Gen X and Millennials are seeking advice which is different to the advice your middle-aged and pre-retiree clients seek. They often have a number of life events that have been the catalyst for seeking advice, and for those in that age bracket from 25-35, these include getting married, considering having children, wanting to buy a house, thinking about investing and obviously considering what their position is going to look like when they get to that middle-aged to pre-retiree age.

What’s their typical situation when you first speak to them?

For these types of clients, the advice often begins at the stage of money planning, or “financial planning 101” – your budgeting and cashflow advice. At the end of the day, every individual is their own most valuable asset because of their income-earning ability.

That income earning ability is the most valuable asset anyone has, so what we need to do is look at what income they’re earning, look at what they’re spending and see how they can more appropriately allocate that income to work towards building regular money-saving habits and go towards the goals they set out for themselves.

And how do you do that?

How I provide advice is I take the starting point and make that the end, and look back from there. You have to understand what it is you’d like to do. What are the lifestyle objectives you want to achieve? In some instances, they come in with those objectives straight away, and in others they go through a round of questions to figure them out.

By working backwards, we look at how long we have to achieve that goal and what needs to be done. In some cases, you can’t achieve that in the timeframe you want, so you either extend the timeframe or spend less during it.

Is that often what happens?

Well, inevitably, most people don’t have unlimited money. There are compromises at play, so you have to ask yourself what the most important things in your lifestyle will be. Then I help them understand the timeframe of retirement, ask them what kind of life they’d like to have at that point, and apply some form of monetary lens to understand what that means in today’s dollars. After that, we put a plan in place to achieve all those things.

How do clients typically handle that process?

Going through that budgeting can be simple or complex. I prefer simple – I don’t go into the depths of analysing every dollar they spend, like how much they’re spending on UberEats. What I do is keep it simple, because it makes it easier for clients to follow the plan than if we build out some extremely time-consuming spreadsheet of their expenses, something they’ll probably stick to for a month.

We do the hard work up front, and if clients are unsure what they spend, we ask them to go into their bank statements and figure it out. Once we understand what they spend and what they earn. If their spending is out of line with their demographic and if they continue to spend that way, they won’t be able to achieve their goals, so we work out a zero base budget. That’s where you look at something you want to achieve, and here are the things we suggest you put into play to protect your position should things go off-plan.

How do you prepare for things going “off-plan”?

One thing is an emergency fund. I can’t remember the exact statistic, but the majority of the population doesn’t have more than one paycheck in savings to help them for a rainy day.

Most people couldn’t afford that emergency expense, so they need to turn to a credit card or a family member. Based on their lifestyle, we work out a reasonable amount of money to have in an emergency account. In Madison’s case, it was very specific because she earns money by winning in events. If she’s not winning, she doesn’t earn money, and if she doesn’t earn money, she can’t pay her rent.

Her biggest stress is that every time she trains, all she’s thinking about is how she needs to win this to pay her rent, when she’d rather be thinking about wanting to win because she’s passionate about it. The emergency bucket was all about filling a bucket of money that would pay her rent for a period of time if she wasn’t able to win. But in other circumstances, we would say if you’re renting, you may have a young child, and you may be paying off the mortgage, so the emergency fund would be having a small bucket of money so to find unexpected expenses.

And this working backwards approach – does it apply to longer-term goals as well?

Absolutely – it’s the same process with longer timeframes, and we go through the same questions about income, expenses and what you need to prioritise.

Thanks very much for your time, Paul.

For further insights into how Paul advised Madison de Rozario, you can view our full CPD course on the topic here


The opinions expressed in this content are those of the author shown, and do not necessarily represent those of No More Practice Education Pty Ltd or its related entities. All content is intended for a professional financial adviser audience only and does not constitute financial advice. To view our full terms and conditions, click here.

 

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