Lessons from other industries

Going back to my days in college, I can recall a number of the key marketing principles that were ground into me; the importance of research and knowing your customer, understanding buyer behaviour and the role of the four P’s (product, price, place and promotion) among others.

However in my day-to-day work with financial brokers today, the principles that I find myself returning to more and more to address your challenges are Segmentation, Targeting & Positioning (STP). Many advisers today recognise the importance of these strategies as they attempt to make best use of their limited marketing resources, be they time or money or both.

There are also valuable lessons to be learned from how these principles are applied in other industries… but more about that in a minute.

 

Some definitions

So to start this 60-second marketing lesson, here is a definition of each, as set out by Philip Kotler, the grandfather of marketing education.

  • Market Segmentation: Dividing a market into distinct groups of buyers with different needs, characteristics or behaviour, who might require separate products or marketing mixes.
  • Market Targeting: The process of evaluating each market segment’s attractiveness and selecting one or more segments to enter.
  • Market Positioning: Arranging for a product (or service) to occupy a clear, distinctive and desirable place relative to competing products (or services) in the minds of target consumers.

 

What’s happening in the financial broker market in Ireland?

Many financial brokers realise that a “one size fits all” proposition just doesn’t cut it any more. Either for the client who is looking for more than a generic service, or for the adviser who cannot profitably or successfully deliver the same service to all clients irrespective of their value, characteristics, needs etc.

As a result, many advisers are undertaking segmentation exercises, analysing their client bases and potential markets, most often by value. Others are also segmenting but by different dimensions – some are focusing on SME’s, others on specific professional groups.

A smaller number are then going on to specifically target sub-sections of their client bases and target markets with specific propositions, while offering a different proposition to other groups of clients. Some are even offloading their lower value clients to only target their desired groups. Others are identifying specific occupations that they will target and also those that they won’t. And then sticking to this!

Finally, savvy advisers are taking that final step of actually positioning their business and their communications to appeal directly to their target markets, even at the risk of alienating other potential customers.

 

What can financial brokers learn from other industries? 

The best examples come from the airline industry. They make it very obvious that high value passengers get a superior service, they certainly don’t apologise for it! Apart from very noticeably “turning left” on entering the plane, we see 1st & business class passengers enjoying benefits such as;

  • A pick up service to bring them to the airport
  • A fast track route through the airport
  • Waiting in a private lounge
  • An airline official at their beck and call to manage any issues that might arise
  • A shuttle service directly to the plane so that they don’t have to wait at all
  • Planes are sometimes even delayed to wait for a late 1st class passenger!
  • And then you’ve all the on-board perks!

Now who wouldn’t start to feel a little special?

There are similar stories of exceptional services offered to loyal users of some of the world’s leading hotel chains – room upgrades, limousine services, free laundry, sourcing tickets for high demand events as well as in-room food and drink services. All to make you feel that bit special.

So what can a financial broker take from this?

 

Develop your service packages

Develop service packages for your business that reward clients depending on their value to your business. Make your high value clients feel really special, reward them for trusting you with their money by giving them a truly rewarding client experience. Build a moat around them and pull up the drawbridge from your competitors by providing a second to none service.

Let your mid-tier clients feel valued by your business, while at the same time making them aware that there is lots more you can do for them (if they are willing to pay for it).

And of course your no/low value clients will begin to realise that it’s a business you are running and that they don’t have 24/7 access to you. If they want access to superior service (ongoing advice from you), they pay. The same as when they book a flight or a hotel room.

 

Do you know which of your clients should turn left and which ones should turn right?

Help your clients retire well

One of the primary reasons why clients reach out to financial planners is to plan for financial security in retirement. Of course, financial planners today deliver far more than helping clients to simply save money for the future. You help clients to visualise what their retirement will look like, you put a cost on this life and then develop a plan to help your clients to achieve the life that they want.

This is very valuable, but clients need more help than this.

Retirement has a huge impact on clients, who overnight go from being very busy people to well, maybe not having a lot to do… Not working any more creates a huge void in their life. Of course for some, this is a very welcome space, for others it brings a range of issues with it. When they’ve hung up their boots, it is often only then that people recognise how important their colleagues were as part of their social fabric. When this daily interaction is no longer there, loneliness can ensue. Of course on top of this is the loss of a sense of purpose every day. Before retirement, your client got out of bed every morning to go to work, to earn money and to achieve their work objectives. Now these are no longer there, what drives them every day?

As their financial planner, you can help your client prepare fully for retirement by expanding your conversations far beyond the financial aspects of their later lives. Here are some areas that you might help them consider,

 

Being with their partner every day

This is not a punishment! But it will definitely take adjustment for both your client and their partner. Routines will now change for each. Your client needs to develop a new routine and the immediate thought might be to hang out with their spouse every day. However their spouse may be happy with their own existing routine (that doesn’t include your client) and might not want to change it.

Of course the answer is in finding a balanced approach. It is about awareness of each other’s space, routines and hopes for the future together. The key to this is talking about it and working through it together. As their financial planner, you can gently guide this conversation.

 

There is time to fill

The thinking around this needs to begin long before retirement. The working day, including commuting time often punched in 11 or 12 hours every day. That’s a lot of time to fill now, so how is your client going to do it? Are they going to play lots of golf and even then, what will do with the rest of their day? Are they going to study or do voluntary work? Are they going to travel to all those places they had long promised themselves to see?

Your clients need an activity plan, as well as a financial plan. You have worked with many clients as they transition into retirement. Tell the stories of these other clients, how they transitioned, the activities they carried out, how they made retirement work for them. Hearing other people’s experiences is always a useful guide.

 

Encourage clients to mind their health

You have seen the cost of clients getting ill. Bring good health practices into both your client’s financial plan for retirement and also their activity plan. Will they join a golf club or a leisure club with a pool and gym? Will they go for a walk every day?

Also encourage your clients to stay sharp mentally too. Their plan should include cashflow for meeting friends, getting out and about and maybe even going back to college to study. All of these will help your clients stay fit and strong.

 

Remind your clients of their value

Your client has so much to offer in terms of experience, expertise and time. Some people can retire with an ensuing perceived loss of value. Previously a company and colleagues relied upon them, and now that is gone. All that actually needs to change here though is that while previously your client was paid for their time and expertise, they can still use their skills, but maybe without payment or for lower payment. Your client can now work on their own terms – maybe for someone / a charity that they want to work for, at times that suit them and in ways that make them feel good about themselves. Your client will add enormous value, whether that’s to a voluntary organisation, coaching a sports team or mentoring less experienced business owners. Many retired people build up nice little income streams for themselves in retirement, by putting their skills and expertise to work, all on their own terms.

 

Helping your clients to get their finances in order is very important for them to enjoy a happy and satisfying retirement. But it’s the other factors that will make them feel good about themselves and will help them to live their life to the full for many years to come. As their financial planner, you can guide your clients to think about these areas and help them achieve a full life after retirement.

Succession planning in a family advice business

While there has been a very welcome influx of young, qualified individuals into the financial advice profession in recent years, a significant proportion of successful advice businesses continue to be led by older, experienced advisers who built up these businesses from scratch. A high number of these businesses have seen children of the owner join the business, build up their experience, gain relevant and valuable qualifications and help bring the business to a higher level. This is a follow-on piece to last month’s article about structures in family advice businesses.

And the time then comes when the business owner wants to step back, take life a bit easier and start enjoying the fruits of their many years of toil. They also want to pass the business to their children as seamlessly as possible, a situation that we have seen played out many times in Ireland. With a consistent stream of advice businesses undertaking a succession process, there are a number of lessons that can be learned from previous successions that delivered on all of the intentions, and from those that didn’t.

 

Planning needs to start many years in advance

Succession planning is definitely a carefully planned process as opposed to a transaction event. The most successful successions are those that are planned from many years out – there are a lot of elements to get right! Careful thought needs to be given to the timing of the succession, the terms and basis of the transaction, the tax opportunities that can be leveraged, how the transaction will be funded, the ongoing role (if any) of the parent who established the business, the future direction of the business and the roles of the various children who will be taking the business forward.

This all takes well-executed planning. A poorly planned succession process will be quite unsettling and will likely introduce tension and sometimes fractured relationships among the family members.

 

Be open and inclusive in the planning

While the business owner often started and built the business pretty much on their own, succession planning is not something to be carried out unilaterally.  A seamless transition and the future prospects of the business will be enhanced by involving the family from the get-go. If the children (future owners) of the business are involved in the planning, they will be more engaged and committed to the process.

 

Don’t paint yourself into corners

Another advantage of the business owner not planning the succession alone, is that they can avoid making decisions that ultimately don’t fit with the ambitions of the children and that become difficult to row back from. Involving the children in the planning may uncover some unexpected surprises – maybe the expected future leader of the business doesn’t want that role at all, instead they want to have a strategic voice but not be the leader of the business.

The children as a group may have a different future vision to the current owner – their parent. Maybe the new owners see a future as a specialist financial planning business as opposed to a more transactional business. While the latter may have been the preference and right course for the business today, the new owners may see a different future.

 

Get external help

Surprisingly often the downfall of a succession plan is the family believing that they know what they want and can sort it all out themselves. This may very well be the case, but it can fall down in two areas.

First of all, external oversight brings a new dimension and often identifies additional opportunities and sometimes issues with the chosen plan. Family members can become so immersed in the whole process that they end up not seeing the wood for the trees. External people bring additional rigour and valuable challenging of the plan, which otherwise may be missing. This can happen quite easily in a family scenario where everyone is on their best behaviour, treading cautiously around the whole succession and not wanting to cause offence. The second area where external oversight can help is in drawing out the thoughts, goals and contributions of the quieter or more reserved members of the family. An external can make sure that every voice is heard in the process.

 

Don’t forget about non-family staff

Don’t forget about non-family members of staff throughout the process. They can feel very side-lined if the whole focus of the business is on the succession process. It is really important to keep them informed and motivated throughout the process, as their contribution and commitment to the business is needed before, during and after the succession happens.

 

An effective succession within a family business is a momentous milestone in a family’s life. Give yourself every chance of this happening smoothly.

 

 

Can men multitask?

Did that get your attention? Not being a member of the fairer sex, I’m sometimes accused at home of taking too long to get things done or only doing one thing at a time. However this piece is definitely not a man v woman piece, instead I hope it reminds you of the ability and incredible value of financial planners who simultaneously carry out a wide variety of roles.

I know from conversations that you don’t miss those days of spending most of your time only thinking about product choices and charging structures. You’re also happy to no longer spend your time worrying if another broker or direct salesman is going to undercut you. You don’t miss living or dying by the vagaries of the stock market – if the fund you suggested went well, you were a hero! When it didn’t, it was always your fault….

As 2023 draws near, the role of the financial adviser has changed enormously over the last decade or so. Helping clients select products is only one small part of what you do. It’s worth remembering all of the areas in which you add value to your clients.

 

Dream Coach

Financial planners today don’t start new client relationships with conversations about money. Instead you spend very valuable time, really getting to know clients. In fact you go much deeper than this, you actually help your clients to get to know themselves better than they did before.

Good financial plans are based on the goals, aspirations and ambitions of the client. However, very often the client has never properly thought about these! So the first role of the financial planner today is to help clients actually identify their goals and dreams for the future and to build a crystal clear picture of them. Now they have a real destination to aim for.

 

Lifestyle Enabler

It’s all well and good having lofty dreams and ambitions, an equally important question is how achievable they are, and what price needs to be paid to attain them. This is critical work carried out by excellent financial planners today. Using future cashflow software, you are grounding client dreams in the reality of life and helping your clients to live their life on their terms. You’re helping clients make important choices between living life only in the moment today, or choosing their lifestyle for all of their life based on their financial wherewithal.

 

Behaviour Coach

And then you stop clients blowing up their plans! You are the voice of reason, the calming influence in volatile times, the expert guide keeping a long-term perspective. We all read professional articles every day of how poor decision making by clients does far more damage to financial plans than the performance of financial assets.

Humans have a nasty habit of doing the wrong thing at the wrong time. In your world, this translates to them selling assets when they are cheap and buying them when they are expensive. In general, people get their market timing all wrong. We hear it all the time – the key is time in the market, not market timing. You are the voice of reason, gently but firmly ensuring your clients stay invested.

 

Family Finance Guide

This in itself includes many roles. Good financial planners make an enormous difference to families managing their day-to-day finances. Good advice around family budgeting can yield enormous results over the long-term as clients actively manage their expenses and stop wasting money. You also play a marriage counselor role – helping to get couples on the same page about their finances through providing clarity of their financial situation and helping them make the right decisions together. When left to their own devices, money can be a constant cause of strain and arguments in a marriage… The advice that you give to clients about best banking and credit practices is invaluable too.

 

Financial planner

However the real value that you add is that you lead from the front. You’re the hub around which the client’s financial life revolves. You’re the person who pulls all the strands together. Clients hugely value having an expert in their corner who will guide them in a very complex area of their lives – helping them manage all of their financial challenges and also pointing them to other professionals (solicitors, tax consultants, accountants) when needed.  Never under-estimate how important it is for clients to feel that someone has their back, or even that they have an expert to go to for an insightful second opinion.

 

Oh and yes, you guide your clients to find the very best financial products to help them achieve all of their goals and dreams in life. This is very important too, but unlike the days of old, this is only one small element of the enormous value you bring in transforming the lives of clients today.

What questions are you most often asked?

Financial planning is a fairly simple concept. There, I’ve said it! It is at least in the eyes of clients, who consider it broadly as sorting out their money stuff. Of course, effective financial planning is anything but simple. It takes a lot of expertise, talent and a really good process to transform the financial lives of your clients.

I came across a report in FT Money who carried out a piece of research among 300 UK clients of financial advisers, with the aim of uncovering their most common questions and the solutions that advisers are offering. It is important to point out that this research was carried out before the current inflationary cycle and all of the turmoil in Westminster! The survey results were quite insightful though, and would likely be relatively similar if carried out in Ireland.

For a start, the top 10 issues that clients want to discuss with their advisers are in the following areas,

  • Retirement/pension planning
  • Tax planning
  • Brexit/political uncertainty
  • Inheritance tax
  • Future financial planning
  • Investment returns/dividends
  • Portfolio review/diversification
  • Global politics/likelihood of market crash
  • Pension drawdown
  • Pension transfer

Maybe no great surprises in the above? It is interesting though that there is nothing directly relating to protection of wealth in there – does financial security fade into the background during times of economic growth? Maybe this would feature more if the research were carried out today…

However, there were four questions that featured frequently in the concerns of clients – do they reflect the conversations that you are having with your clients?

 

Can I afford to retire?

This was the number one question that FT readers wanted to discuss with an adviser, with more than 20 per cent of respondents naming retirement and pension planning as their top concern. With state pensions providing only basic subsistence support to people, clients are rightly focused on how they will live when their income earning days are behind them. Retirement planning is a critical element of financial planning today through both the accumulation and decumulation phases of life. No surprises here!

 

How can I pay less tax?

Tax planning was cited by over 17 per cent of readers as a topic they wanted to discuss with a financial adviser. Many financial planners today are expert in tax matters and indeed many of you have additional taxation specific qualifications. This all makes a huge amount of sense as tax is a significant drag on wealth accumulation and good tax advice has a huge impact. Being a personal tax expert is a necessary requirement for advisers today.

This is an area of potential improvement for some advisers. Do you shy away from giving tax advice and guide your clients towards an accountant or tax adviser? Is this always the right approach? Can you really give expert financial planning advice without being a personal tax expert? I’m not so sure…

 

How can I reduce the impact of inheritance tax?

In addition to general concerns about tax, inheritance tax (IHT) was also a key, specific concern for readers. Although only 5 per cent of estates nationally (in UK) pay the tax, many readers nevertheless fear the impact of IHT — and need an adviser’s help to understand the system.

Of course you are all aware of how penal the Irish IHT system is, with thresholds slashed since the economic crash and IHT rates increased. When you layer increased wealth over the last decade and the recovery of property values, IHT can take a big chunk out of estates. There are ways of reducing these tax bills – you play a really valuable role in helping your clients to take advantage of them.

 

How will Brexit impact my finances?

Obviously this topic is not going to be of such concern to Irish clients. What it does demonstrate though is that clients rightly worry about significant external events beyond their control. One of the most important roles for you as a financial planner is to reassure clients and to keep them focused on the plan. You are all aware that irrational behaviour by investors is often the single biggest drag on growing wealth. You are the voice of reason, helping clients to keep a long-term perspective.

 

While these may be the most common questions that clients ask, one important point comes to the surface. The questions that clients have are about themselves and their money, not about the products that they hold. This further confirms the value that you add is as an expert financial guide… and not as someone who chooses the best products and times the markets.

Are you ready to answer the big questions of your clients?

How’s that winning team of yours?

So here we are again at this stage in the market cycle… Even though the economic picture is somewhat cloudy, activity remains high in most advice firms, income is holding up and one of the biggest challenges for many firms is beefing up their advice teams. Those who are recruiting are looking to pick up experienced advisers from other firms, which in turn is creating a retention challenge in these other firms.

So what can (and are) advice firms do today to keep their best people?

 

Recognise your best people

Might seem a bit obvious, but some business owners are afraid that they’ll rock the boat if they recognise their best people. So they say nothing and hope the winners won’t leave, which unfortunately they are likely to do if they don’t feel valued.

Yes you might have to back up this recognition with tangible benefits, but at least this is keeping you in control of keeping your best people. It also sends a clear message out to the weaker members of your team of your expectations and that you are monitoring their performance. This may make them uncomfortable and indeed these weaker team members could possible leave. This might not be what you’re looking for, but it’s a lot better than losing your best people.

 

Support your best people

The temptation of business owners and sales managers is to spend a disproportionate amount of time with their weaker team members; coaching them, monitoring them and trying to lift their performance. While at the same time assuming their best people are “grand” and will just continue to get on with doing a great job. A dangerous assumption.

Spend time with your best people too. While you may not be able to improve their performance by the same amount as you can for the weaker members of your team, they will appreciate all of your efforts to help them grow, even by small amounts.  And small improvements by successful people will make a big difference to your revenue numbers.

 

Challenge your best people

Again many managers will look for ways to challenge their weaker team members, driving them to better performance by “turning the screw”, doggedly seeking higher levels of performance from them. The level that you do this depends on the individual’s personality and the level of under-performance.

However also look for ways to challenge your best people. This should be done in a very positive way, finding ways to enthuse them, to drive them on. You might ask them to manage some difficult clients, open up new lines of business or new target markets or to take on some projects in addition to their normal responsibilities, all the while recognising these additional efforts in a fair and equitable way.

 

Improve your best people

Yes, you have to be prepared to pay your best people more. But money alone is not the answer. As someone else can always offer your star performers more money. So look for ways to improve them and to help them in their careers. Maybe you could look to pay for them to do more study and to help then in terms of the time required to study to become a CFP? Or if they are not interested in doing more study, maybe they would benefit from and really value time with an external mentor, funded by you? Maybe you can give them greater levels of flexibility in where and how they work? Your best people will recognise your efforts to improve them as people, and at the same time hopefully you will gain from even better performance from them.

 

Provide a clear career path for your best people

At the end of the day this is the most important factor in trying to keep your best people. It is also the hardest for business owners to deliver as there may be a really significant price to be paid. Your best people will inevitably want to enjoy a greater share of the rewards of the business. And this means ownership of the business, either yours or their own. So if you want to hang on to your best people who may be delivering a significant share of the profits of your business, you need to ask yourself if you are willing to take them as a partner in your business? Because this may be required to keep them into the future. Let them go and watch your firm suffer, or give them some share in the business and grow it together – the choice is yours.