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- Author
- Cannon Financial Institute
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- Published
- November 19, 2018
Articles
Hobson's Choice or Their Choice: Aligning Your Services With Every Individual Family Member
You may have heard the phrase “Hobson’s choice.” Whence comes this expression? Thomas Hobson owned a stable of horses which he rented to people in Cambridge, England in the 1600s. When you needed a horse, you walked over to his stable and paid the man. He then brought out the horse he had chosen for you. What if you didn’t want that horse? Too bad. Take it or leave it. He wouldn’t get another one. This became known as Hobson’s choice. [1]
Many of us in the financial industry have practiced a version of this since we have built our practices by offering one product set: asset management for a fee or some variation. No matter what the client needed, we offered the same thing: take it or leave it. Often, they did just that, left. Does this annoy people? Seems it does since Hobson lived four hundred years ago (1545–1631), and we still use the phrase.[2]
If you have only one product set for clients no matter what the circumstances, then the only choice you are offering your clients is Hobson’s choice. By doing this, you don’t get the opportunity to meet the other family stakeholders. Hence, you never get the chance to form relationships with them, understand their needs and offer them the product set which matches their needs.
When you pivot and endeavor to reframe your approach to “the client is family,” you are able to work with the primary account holder(s) and uncover the goals the mother and father have for their children and grandchildren. Meeting these other stakeholders also allows you to uncover goals they may have for themselves which could be substantially different from what their parents or grandparents might have for them.
Say the seventeen-year-old grandson of one of your wealth holders tells his grandparents he is interested in being in the circus, and before he can explain further, they hit the roof. This isn’t their plan for him. Join the circus? Are you nuts? Here is where you play a key role. As the Financial Advisor to the family, you are a neutral party. You meet with the grandson, and because of your listening skills, you elicit from him that what he wants to do is learn skills he would need to be in a circus. To do this, he needs $3,000 to fund a two-week overnight camp sponsored by the Circus Smirkus school for youngsters. [3] That is much different.
What services will he need? First, he needs his grandparents to okay spending the $3,000. Then, he will certainly need a debit card, an account with a ride-sharing service, and perhaps some gymnastics tutoring before he goes the circus camp. Since he will be eighteen at the end of that summer and has been accepted to the University of Pleasantville, you, as the Financial Advisor, will need to have discussions with his parents and grandparents about funding his tuition and other college expenses.
You will need to meet with the grandson to discuss a realistic allowance, how to prepare a budget, and how to stay out of debt. He probably will need a new top-of-the-line computer, so you need to cost that out. Further, because his computer literacy is so high, you need to introduce him to the tools available to him on your firm’s eMoney Advisor platform. You explain to him that he can track his entire financial life with these tools, model different types of asset allocations, and review the consumer education modules.
Of course, this will take time on your part, so it would be reasonable to start charging $700 per year for your advice. If the primary account holders have seven grandchildren who are between fourteen and eighteen, each one of them will need a separate account with an appropriate product set. That’s an additional $4,900 from this one account.
Let’s look at a few more examples. An aunt of the seventeen-year-old circus performer to be is divorced, and her last child is out of the house and in college. She wants to make a mid-life career change and is accepted into a two-year graduate program in social media metrics at the London School of Economics.[4] What sort of product set would she need? Living in London is expensive. If she has money in different buckets, which bucket of money does she use for her education expense? What are the tax issues? She could easily need a line of credit, a credit card with a higher spending limit, and a change in her asset allocation. You will be giving her great advice and can charge her $1,000 a year.
Before she goes off to London, however, her oldest daughter is having a baby. Since you have met all the family stakeholders you know this, and you also know that the daughter and her husband want to buy a home. They need a mortgage. A college savings plan for the baby. Probably HSAs for both of them. For all this advice, of course, you charge an annual fee.
The financial needs of the stakeholders of a large and wealthy family are almost uncounted. Yet you have the ability to offer a product and service set tailor-made for each member of the family. So, the family needs to be your client since they have so many different financial needs and you need a fee structure which will support all your services.
To learn more about this topic, register for our Certified Wealth Strategist® (CWS®) Designation Program.
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Contributing Writer: Subject Matter Expert Charles McCain
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