Our clients want greater financial certainty

Financial advice is only required when people lack financial certainty.

Considering the heap of uncertainty in the financial world at present, I wonder why the advice revenues of financial advisory firms aren’t increasing at a pace like that of revenues generated from Apple’s new iPad.

Thanks to volatility caused by the global financial crisis, sovereign financial crisis, and rising interest rates, I believe there is a significant demand for financial advice at the moment. Why isn’t there a corresponding flow of new revenue to most of today’s advisory firms?

It’s because our industry behaves not as advisers, but as product or transaction-related specialists.

When most people have concerns about their financial uncertainty, unless there is a specific event or transaction about to occur in their financial lives (e.g. get their tax return done, insure their car, buy a home, or retire) they don’t consider approaching today’s self-proclaimed financial advisers for advice.

To use a medical analogy, people don’t go to a drug representative when they need medical advice. They go to a medical practitioner for advice as to whether they need drugs, or a specialist opinion, or – medically – nothing other than a good rest.

The financial advice industry isn’t doing enough to get its head around this concept that advice is only required when people lack financial certainty. Therefore when 2nd July 2012 comes along, and clients (new or existing) can opt-in/opt-out year by year, they won’t continually pay your advice fees unless you continue to add value by reducing and/or managing their ongoing financial uncertainty.

How to earn ongoing advice revenue

The first thing you need to do, if you believe your firm needs to sharpen its ability to add value to its clients every year and thus earn its ongoing advice revenue, is identify those clients who actually take advice.

Many may need ongoing advice.  Fewer will take it.

There are many clues to identify which clients will take your advice.  Generally, they’re the ones who:

  • your firm enjoys working with
  • respect your appointment times and come as prepared as they can
  • respect the whole firm, not just the front-end advisers
  • share the financial complexities that exist in their lives

Financial complexities are the gaps they can’t bridge themselves, separating their current financial circumstances from their desired financial circumstances.  Whilst very few people can chart these gaps, they can articulate the feelings of financial uncertainty they cause, similar to a patient who can relate their chronic back pain but frustratingly can’t locate a remedy.

Understanding a client’s complexities necessitates an ongoing conversation regarding their longer term financial objectives, not just their short-term transactional needs. Clients who are willing to take advice are equally willing to discuss their long-term goals and sought experiences.

Having identified these clients who will take short and longer term advice, advice firms need to engage them – both initially and ongoing – with a proposition that aims to reduce the uncertainties they face in their quest to achieve their long-term financial destiny.

The business aim of an advisory firm should be to build a business that day in day out aims to provide a ‘no surprises’ proposition for its advice clients. The ‘no surprises’ offer relates to the client, meaning that as long as the client continues to pay ongoing advice fees, the firm will continually consider ever-changing product developments, marketplace developments, legislative developments, and developments in the client’s financial life, to ensure they are heading in the best possible financial direction to achieve the objectives important to them.

As an aside, the other day I met with a business development manager of a stock-broking group.

She said that her brokers weren’t “… into the long term goals conversations with their clients, preferring to help them make the best short-term stock-picking and timing decisions”.

I challenged her, suggesting that as her brokers weren’t aware of their client’s long-term goals, they would only ever be able to add value with the short-term transactional issues and will find it too difficult to charge for ongoing advice fees. She confidently shrugged it off, saying her team are specialists in the market, who are clear on the role they undertake with their clients, and provided they add value in their specialty, they will continue to win new clients and achieve their revenue targets.

She’s right of course. But she and her brokers are not, in my opinion, in the business of providing ongoing advice. They are in the business of providing transactional brokering advice, and their revenues will be driven by the number of transactions they can attract, rather than the ongoing financial certainty they deliver.

I predict that the retail advice business of the future, with highest predictable and repeatable ongoing profitability, will belong to firms with propositions which aren’t linked to numbers of financial transactions, performance of individual products, or the amount of hours sold, but rather, to the satisfaction of advice-paying clients who are better achieving their long-term financial objectives whilst better managing the financial complexities peculiar to them.

Advice firms need to deliberately strategise whether they’ll be in the market for transactional advice (i.e. like the brokering firm above) and/or the ongoing advice market. Which of the two is your firm aiming to prosper in?

In the past, it was easier for self-proclaimed advice firms to masquerade as ongoing advice providers and receive ongoing advice fees, while essentially being a transactional financial product firm charging way too much ongoing for doing way too little.

In fact, our industry has lost the art of engaging with clients’ long-term financial objectives because it has made too much money from conducting short-term transactions.

This has to stop if we ever want to be regarded as a financial profession. If your firm wants to maximise its chances of becoming a successful advice firm, it has to industrialise the delivery of financial certainty for its advice clients.

Great advisers amongst us didn’t need the Bowen Review, or Jeremy Cooper’s review into superannuation, or Ripoll’s Inquiry final report to build their great relationship-based advice firms.

They’ve long known that their advice clients seek nothing else other than ‘peace of mind’ and greater certainty to achieve well-understood and respected objectives.

Just as iPads are currently selling like the proverbial hot-cakes, so too now should great financial advice from great financial advisers.

These are the best of times to be building great advice firms.

Image: Suat Eman / FreeDigitalPhotos.net

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