Please, remind me why I’m paying you?

As confidence in our economic recovery improves, confidence in our financial planning industry seems to be getting worse.

As events unfolded last year, clients generally remained loyal to their planners, recognising that most of the greedy, reckless antics causing the global collapse of financial confidence weren’t due to their own planners. Several Australian firms no longer with us may of course be exceptions, but these have been the minority.

As the dust settles from the large collapses, and economic conditions appear to be returning to something a little more recognisable, the devastated advisory landscape is littered with naked financial planners.  It isn’t pretty.

A naked planner is a planner without a proposition.

Recipe for exposure

  • Our clients have lost money. They didn’t like it.
  • The financial planning industry said that the losses were beyond our control.
  • They understood that.
  • But they’re also starting to realise something else. All the gains they enjoyed in the years leading up to this crisis were probably also beyond their planner’s control.

If investing clients aren’t realising all this quick enough, don’t worry.  The industry funds and every new advice initiative brought to the market will remind consumers that they were being duped if their planner was promising something they couldn’t deliver.

Planners across the country are being exposed; they are being outed.

Clients want to know …

More than ever, clients are asking their planners a very simple question: What exactly am I paying you for?

Unfortunately, far too many planners can’t properly answer.

I’ve heard many responses, including:

“Our clients didn’t lose as much money as most”.

This is the “lifeboat” excuse.  The financial lives of your clients didn’t go down with the shipwreck, but if you think they’ll calmly get back on your proposition again, you might be in for a shock. If this is your response, it’s got a fast-approaching use-by date. It’s also clear you aren’t building an advice firm, but a loss minimisation firm.

“Our fees are commensurate with our client’s long-term investment gains”.

This is the long-term excuse with a short-term future.  The cause of our clients’ uncertainty at the moment is short-term. Trying to win their confidence in the short-term by relying upon a long term investment return, is like trying to convince a girl to marry you when she can’t get over the fact that you’re just not turning up.

Hope is not a strategy to build a strong business upon.

This sort of excuse is a primary cause of planner nakedness. Most planners’ contributions to the long term investment gains for the majority of clients is similar to Australia’s contribution to the world economy – i.e. around 5%.

Lazy planning practices have for too long used long term investment gains as the foundations of their value propositions. Long term investment gains are perennial, but the financial fears on the short-term roller coaster are very real. As one of my clients told me recently, there’s a lot more financial bed-wetting going on than people realise.

What is the proposition to underpin a successful advice firm?

The fundamental starting point before deciding upon the proposition is focusing on the most fertile spots to grow your advice efforts, i.e. identify clients who are seeking advice versus those who are seeking products. Don’t test your new advice proposition on those clients who don’t want it. That’s as effective as taking a golf stick onto a tennis court.

Your proposition:

  1. You aren’t trying to sell anyone anything, but trying to determine whether your firm is the best firm to assist your targeted clients to make the smartest decisions regarding their money.
  2. You add value by maximising the probability of your clients achieving their financial goals.

How do you respond to most basic question of what are you being paid for?

  1. The trust needed for advice is earned face-to-face, not by slick marketing, stringent compliance, or cute web pages. I don’t believe there is going to be a single ‘man on the moon’ moment that reinflates trust in our planning industry. It has to be earned client by client, firm by firm.
  2. Be prepared to spend extraordinary effort re-educating those clients seeking an advice relationship on your role as an adviser, not a product salesperson.
  3. Build skills as client managers, project managers, and strategic managers. We’ve focused too narrowly on product compliance and procedures, building a generation of advisers competent in back-office SOA development yet unskilled in these three core front-office engagement skills which allow you to deliver upon the crucial client-centred (second) part of your proposition.  These skills should never be delegated outside your advice firm.

If the proposition isn’t put in terms of the benefits for our clients, it isn’t a proposition.

Why aren’t we doing it?

New business prospects for financial planning firms have never been tougher.

Clients are holding off making investment decisions. Times are tough, but why, as an industry, aren’t we leveraging off the financial uncertainty from which our clients are suffering?  Aren’t these times, when financial uncertainty is at near-peak levels, in fact the best of times for great advice?

Maybe we are too distracted by what Treasury secretary Ken Henry might or might not do to taxation on retirement incomes or negative gearing or many other tax aspects of our advice. Best to put this aside, along with the potential implications of FPA and IFSA’s commission-less future, or the out-workings from deputy chair of ASIC Jeremy Cooper’s superannuation review.

Maybe we’re looking to institutional alliances for direction. Institutions have seen how vulnerable their distribution channels are, and are trying to get leading planners down a very predictable line – change your product proposition, sell insurance or some other product until investment markets get back to normal again. This is to be expected, because most financial institutions don’t see themselves making money if advisers separate advice from product.

Our clients are well aware that the events of late last year were beyond the control of their planners. But now they want answers to very simple questions.

It’s understandable that clients are asking for proof, or simply a clear understanding, of what exactly they’re paying their planners for.

Too many planners are searching the financial horizon for signs leading back to prosperous days of investment returns. July’s 7.3% gain in our share market gives them false hope that they can get back to what they used to do – make money riding uncontrollable investment gains.

These are the best of times to be helping our clients make the smartest financial decisions in order to maximise the probability of them achieving the financial goals important to them. Let’s go and do it client by client, while we still have the chance.

Image: Giovanni Sades /

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