StepChange is just coming up to its 6th birthday. It’s a business that was born in the teeth of the recession, but we’ve also seen the great growth years of recent times too. We’ve been really fortunate to spend this time almost exclusively among financial advisers and other players in the life, pensions and investment community. So what’s changed in the last six years?
The market is really evolving now
Six years ago, the term financial planner didn’t exist. Then it became a fashionable title for people to use. But today it perfectly describes what so many within the advice community do every day. So many firms have actively shifted their business model from one centred on product sales, to one where the financial plan developed by the planner sits at the core of the client proposition. And this has resulted in a whole new breed of advisers; those who are adding significant value to their clients and are now confidently in control of their business, not dependant on product sales and not exposed to the whims of the market and the changes in product strategies by providers.
Other advisers are still operating in a more traditional way, their business model based upon selling products. I worry that they face a difficult future with legislation and regulations making their lives more difficult and commission levels under pressure. They also face the emergence of low cost robo-advisers squeezing their margins, and it becoming ever more difficult to demonstrate real value to clients and to justify their income.
Technology is playing a key role
A lot of the potential threats for advisers lie in technology… but so do the opportunities. Robo-advisers pose a real threat in the next few years, offering advice solutions and low cost funds to consumers. Just see what Vanguard are doing in other markets – offering rock bottom fund fees, admin fees of 0.15% and CFP level financial advice for 0.30%. How can the traditional adviser compete with that?
But the opportunity also lies in technology. I was chatting to a financial planner recently about his client proposition and he said to me, “You can chop off my arm but don’t take Voyant away!” Now I’m not sure how important his arm is in the equation, but his message was clear. Future cashflow planning has been the key to helping him deliver a valued lifetime planning service to his clients and helps him build engaged relationships with clients that centre around the advice given, and not the products sold.
Many struggle to communicate the value added
You know somewhere in the back of your mind the value of what you do and know that you are delivering value to your clients. The problem for many of you is that your clients are just not seeing it. This often stems from not having the time to actually articulate what you do and the value that that you add, and as a result not actually documenting your proposition. As a result, there are lots of “chats” happening with prospective clients, instead of structured conversations with relevant marketing supports that set out your proposition in a compelling and engaging way.
Having a clear target market makes your life so easy
If you can easily identify and reach your target market, you can then focus your client value proposition, your sales activities, your marketing messages and indeed your whole support infrastructure around meeting the needs of these specific groups. Some only see the risks involved in this – narrow groups of people to target, missing broader opportunities etc. As a result, many advisers continue to try to appeal to everyone. And as a result, they don’t really connect with anyone. Yes, your target market must be big enough to sustain you. But if you then focus your efforts on them, you gain the opportunity of creating a real standout positioning for yourself.
Pricing is an ongoing challenge
The most common questions I’m asked are about charging; the calculation basis used by other advisers, how much they charge and how they actually get paid. As more and more financial advisers move from transaction based pricing to advice based pricing models, the big question that you are confronted with is how much to charge. This first of all comes back to your actual proposition, then how good you are at actually communicating it to your clients.
Even then, there is a certain amount of trial and error. Certainly I know from working with many advisers in this area (and from my own work), you need to initially work out sensible pricing levels and then keep them under review going forwards. For those advisers with well thought out propositions, experience suggests that they tend to initially set their pricing levels too low and end up reviewing them upwards as they gain more confidence in their pricing. And yes, in many or most cases, the fees are ultimately collected through the commission system.
So in summary, what’s my view six years later? For advisers who haven’t changed as the market evolves, I see a rocky road ahead. But for financial planners who are using technology, putting the time or getting the help (there’s a hint if ever you got one!) to developing a clear proposition for an identifiable market and communicating it effectively, their future is so much brighter than ever before.