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Here’s how advisors can deliver massive value using “buckets” and “guardrails” to empower clients to act during times of economic turmoil.
With the markets down, are your clients playing chicken with their retirement accounts?
They feel the effects of the economic situation coming for their savings. They may hear you telling them to hold steady.
But the probabilities of success are not convincing.
While you’re trying to get clients to hold the course, how many are ready to bail because they don’t understand your plan enough to trust their life savings will last during these turbulent times?
Your clients don’t care much about the percentages listed in portfolio reviews; they want to know if they will lose the savings they depend on. You can provide a steady hand and avoid a collision with buckets or guardrails.
What are buckets/guardrails?
Buckets or guardrails take the game of chicken off the table by allowing your clients to visualize their cash flow and how it impacts their bottom line. These single-page diagrams of their financial situation show the client’s distributions and assets in actual dollar amounts – not just percentages. No matter which version you use (I’ll be completely biased: buckets are better), your clients will be able to see two critical factors:
1. The document shows your clients how much they can safely take out of their investments for the rest of their lives and never outlive their money.
For example, your buckets can show 5% a year of your client’s dynamic distribution.
2. This deceivingly simple report shows your clients where their money comes from.
Great news, Mr. and Mrs. Client! You get $5,000 a month, and here’s how…
Too often, retirees get killed in down markets because they sell too quickly when the market drops and lose massive amounts of their portfolio. If their cash flow starts to dip toward the bottom benchmark of the bucket or guardrail, you adjust to keep your client’s cash flow within the limits of your report. This can be a lifeline during down markets like the one we’ve seen lately.
Instead of being reactionary, buckets or guardrails allow your clients to understand and control their cash flow to adjust their income limits. Your clients are either within the set boundaries of their buckets or aren’t. If you’re within the parameters, you’re good – no reason to make any changes. If your client falls outside the benchmarks, a change needs to be made, and you can present a contingency plan.
Why use buckets/guardrails?
Buckets have replaced the old portfolio statement or performance reviews in my practice. I discovered that those reviews answered the wrong questions for my clients and were detrimental.
During down markets, the portfolio statements only showed my clients that they were down 20% to 30%, which induced panic. Even worse, there was no action for my clients to take; they needed more confidence to stay in the market a little longer or to stay convicted to the financial plan.
During periods of high inflation and down markets, clients who don’t understand their cash flow will have more challenges, as cash flow is the heartbeat of retirement.
Those old portfolio statements provided zero value to my clients.
I wanted my clients to focus on what they could control and the actions they could take. I created the buckets system.
During times of high inflation, like now, clients want to know what their cash flow will be every month and have a general idea of where their money is coming from and going. Buckets and guardrails do just that using a simple, one-page report. These seemingly simple documents have empowered clients to take control and have been a total game changer in delivering massive value.
Instead of spending my meetings talking about performance and accounts, I empower my clients to act with their financial plans using my buckets report.
I’ve found a direct negative correlation between the amount of time I spend talking about markets and performance and the value I provide. If your default is to talk about the market or the economy, you’re not delivering any value, my friend.
To test me on this, create a bucket or guardrail document for a few of your clients. During the client meeting, present your Monte Carlos analysis and follow up with the buckets report. Watch to see which documents your clients take home.
From my experience, they’ll take the buckets every time, and the market analysis ends up in the bin.
Action Items
Are you excited about your client meetings, or are you dreading them? Feeling dread is a tell-tale symptom of not delivering value to your clients; you spend too much time talking about the markets and economy and not enough sharing actionable advice.
Step up your game with value-adds for your next surge cycle. If you’re not using guardrails or buckets, here’s what you need to do:
1. Pick a system – my utterly biased opinion is that buckets are better.
2. Find a system to generate these reports automatically; you don’t want to create custom reports for each client – that’s playing office.
3. Reach out to other rockstar advisors and learn how they implement these value-adds in their practice.
If you’re not convinced that these value-adds are worth your time and energy to create, make some for a few clients. Present what you usually do, follow up with your guardrails/buckets and see which your clients take home. That’s the winner.
Keep your eyes peeled for our toolkit release. Our unique toolkit will take the frustration out of your document and report creation and save your team a lot of headaches and hassle.
Micah Shilanski, CFP®, is a financial planner who achieves the impossible. Micah is recognized as a leader in the concept of lifestyle design for financial planners and has spoken at conferences across the country. Micah is an advisor with Shilanski and Associates, a founder of Plan Your Federal Retirement, and a co-founder of The Perfect RIA.