What’s driving the growth of Future Cashflow Planning?

Earlier this month I had the pleasure of working with some of the leading financial advice firms in United Arab Emirates over the course of a couple of days in Dubai (the photo is of the VERY impressive Burj Khalifa – the tallest building in the world today). My involvement came about as part of a brilliant programme developed by Zurich International Life to help advisers in UAE prepare for some major changes that will impact their market, probably in the not too distant future.

The Insurance Authority in UAE has flagged some substantial regulatory changes, of which the final details and dates are yet to be clarified. However all the consultation papers to date point to significant reductions in commission levels on products sold and restrictions on indemnity terms that can be offered, along with a number of other changes. The changes will result in better outcomes for consumers, however the changes also create enormous challenges for advisers.

So what has all this to do with Future Cashflow Planning, I hear you ask? Well advisers in UAE are looking at a possible drop of more than 50% of revenue when the regulations come in. It is a market where advisers today are largely remunerated by commission only, and the impact of the regulations mean that relying purely on product sales in the future will see advisers simply be paid less for the same amount of work. They really have two choices,

1. Write double the amount of business they’ve been doing to date or

2. Broaden their proposition beyond products, add more value to customers and charge accordingly.

The second option looks far more appealing to me.

 

What might this proposition look like?

Advisers in UAE are fortunate that they can look at other markets around the world that have transformed in recent years. If they look at USA, Australia, New Zealand, UK, Holland and of course here in Ireland, they will see a common trend. That trend is towards progressive advisers providing a lifetime financial planning service, where the client’s lifestyle aspirations for their whole life are identified, and then a financial plan is developed to enable the client to achieve that desired lifestyle.

Sitting at the heart of this is Future Cashflow Planning, giving the client a snapshot of their financial capability for every year of their life and enabling the adviser to answer those big questions for the client,

• Are we always going to be ok?

• Will we have enough money to live the life we want?

• Can I stop working today?

Offering this deeper and richer proposition to clients will potentially enable advisers in UAE to charge for their expertise along with / instead of charging for the products that they arrange. This has certainly been the trend in other markets. While of course this deeper and richer client proposition will not be appealing to every client, there is a large cohort of clients in every market to whom this service will appeal.

 

It’s not all about regulations though…

In Ireland it wasn’t regulatory change that heralded the growth of lifetime financial planning and the use of future cashflow software. Instead it was as a result of ambitious advisers watching the trends in other markets (particularly the UK) and seeing how the leading advice firms in those markets had extended their proposition into lifetime financial planning. It was clear that this deeper and richer client proposition results in a far more engaging and valuable service for clients.

Lifetime financial planning, built on the foundation of a future cashflow plan has been the single biggest shift in the advice market in Ireland (and these other markets) for quite a long number of years. It has redefined the value offered by financial advisers, and has enabled them to really establish themselves as a trusted professional in the eyes of their clients.

And in Ireland, the rewards have followed for advisers. They enjoy more valued and durable relationships with their clients, who are happy to pay for this advice year after year. Whether this is paid by fee, retainer or trail commission is not really the point – these are all simply methods of payment. The key point is that clients are willing to pay for advice year after year, irrespective of whether product transactions happen or not.

 

That has to be good news for advisers further afield, such as those advisers in UAE who are facing regulatory change. Commission reductions on products are of course a challenge. But the opportunity is there to broaden the client proposition, add enormous value to clients through the provision of lifetime financial planning and charge accordingly for this.

 

 

Image Courtesy Flickr – Tom Sespene – wajortom34

What do you have (and want)? A business or a lifestyle?

The dream of many advisers when starting out on their own is to build a successful business that they will one day pass to a successor or sell for a big sum of money to secure themselves in retirement.

For a smaller number, they simply want to operate as a lifestyle business, generating enough cash to live comfortably in the present. They don’t want to run a business; instead they are happy to stay operating as a financial advice practitioner. They are operating more like traditional insurance salesmen, living from year to year, with no great growth ambitions. There is nothing wrong with this as an approach if you have decided that this is what you want!

However there are quite a number of advisers in the market who very much want the former situation (to build a business), but in reality are very much still operating like the latter (still working as a practitioner).  So what is it that stops them from successfully transitioning into being a business?

 

No strategy or plans in place

One of the characteristics of advisers who are living from year to year with little clarity of where they are going in the future is a lack of a strategy and firm plans – ones that are written down. These advisers may be operating very successfully today, but are not really focused on the future and what they are actually trying to achieve. Good strategy and plans take reflection, challenge and commitment. Without these inputs, it’s very hard to clarify and chart your future direction.

 

Propositions tend to stay the same

It may be the consistency of your approach that your clients love in dealing with you – knowing what to expect, being happy with the service given. However times do change, markets and ways of working evolve, there are areas of improvement always available to you. First of all, you need to be able to clearly articulate your proposition. And then you need to review it on an ongoing basis, tweaking it and making improvements as opportunities emerge. If you don’t seek these out, competitors that are on a hungry growth path will develop more future proofed propositions and will inevitably overtake you.

This will leave you operating as you’ve always done, maybe generating sufficient income to meet your needs today, but remaining pretty static in terms of building a business.

 

It’s all about you!

Successful practitioners tend to be running at 100 miles an hour, usually 6 days a week! Earning a lot of money but knowing that without their input, there really is no business. This can leave them highly stressed, prevent them taking holidays and often leaves them quite dispirited. If they get sick, everything pretty much grinds to a halt…

A business on the other hand has the principal pulling the strings. Everyone else (hopefully) is very busy – seeing clients, managing the processes, dealing with client queries. The principal is still active, but it is in more of a strategic role – setting direction, finding new clients, advising high value clients only. In this scenario if the principal gets sick, it’s not game over. The business is robust enough to continue.

Another attribute that I see in businesses that have evolved from advice practices is in the quality of the people brought into the business. They tend to be of very high quality, really lifting the whole game of the business. And then there is a real commitment to invest in these people, keeping them at the frontier of best practices in the industry. Of course if you ever want to sell your business, for it to be attractive to a potential buyer, the higher the quality of the people around you the better.

 

Poor financial management

Another attribute of practices as opposed to businesses tends to be in the area of financial management. The former tend to have low / no reserves, regular cashflow challenges and poor financial management practices in place. Successful businesses on the other hand tend to excel in all of these areas. Earnings are at a level that the business can comfortably afford, there are strong reserves in place and constant visibility of all of the important financial metrics. All of these help in building a sustainable and eventually valuable business.

 

Where are you today? Are you running a lifestyle practice or a business? And more importantly, where do you want to be in the future?

Can niche strategies work for financial advisers?

This is a question that occupies a lot of thinking time of many advisers today, as they contemplate their future client acquisition strategies. While we are seeing some advisers setting minimum hurdle sizes with new clients (either in assets under management or agreed fee levels), let’s be honest, many advisers are generalists, welcoming any prospective clients into their business. So it’s a valid question – is a niche strategy a viable business model for advisers?

I believe that if carried out in a very structured way, it can be a very viable strategy.

Let’s start with a definition of niche. One I came across described it as, ‘denoting or relating to products, services, or interests that appeal to a small, specialised section of the population.’ The scary part in reading this is the piece about the “small, specialised section”, as this leads people to think that their base will be too narrow to make it sustainable.

 

Niche strategies can make life easier!

I tell this from personal experience. When I decided to strike out on my own 6 years ago, this issue was the one that gave me the most headaches. Would I concentrate my proposition and ultimately my sales & marketing efforts only on financial advisers? Or would I offer my services to any client that I could get?

I went for the niche strategy, focusing my efforts solely on financial advice firms. My target audience was immediately narrowed to only hundreds of firms, rather than tens of thousands of potential customers. That was scary.

But what was far easier was connecting with this group. Rather than trying to appeal to everyone, and probably not connecting with anyone, I could focus all of my efforts on a specific group of people. This made it easier in developing my sales propositions, writing website content, producing newsletter and blog articles. I can communicate with a clear target in mind, and my messages as a result are a little more personal to my audience. On the other hand, when you are trying not to exclude anyone from your sales and marketing efforts, it’s very difficult to connect with people.

Yes, a narrow niche strategy is hard at times, and when business goes a little quiet the temptation is always there to broaden my marketing into other markets. But doing that will dilute my presence in the narrower (financial adviser) market. And just because you target a niche only, it doesn’t stop you working in other markets. I’m currently working with a fantastic construction company, who saw what I was doing with financial advisers and asked me to bring those skills to their industry. It’s a big challenge for me working in an industry that I’m not immersed in, but that challenge is making the work very interesting and enjoyable. But staying focused on my niche in my sales and marketing efforts will generate the lion’s share of my work, and is the right strategy for me.

 

What are viable niche strategies for financial advisers?

Financial advisers who have gone down the niche route successfully have tended to do so by focusing on one (or sometimes more) of the following,

  • Demographics: Focusing on specific age categories, gender, social grades (e.g. ABC1’s)
  • Employment sectors: Focusing on the public service specifically, sectors within the private sector, specific occupations.
  • Geography: Focusing on clients within a certain geographic area only
  • Product lines: Focusing on developing expertise and leadership positions within specific product areas or dealing only with clients who require full financial planning relationships.

 

What are the main steps in building a niche strategy?

If you decide to go down the niche route, first of all you need to do some research about your target niche. You need to understand the numbers of target clients (is the niche large enough to sustain you?), think through how you will access them and consider what opportunities are available to you to market to them effectively. You need to also think deeply about the problems that you will be able to help them to overcome, and how you will communicate and demonstrate your capabilities to that segment of the population in an engaging way. Because at the end of the day, you will live or die by whether your target customers recognise that they are dealing with a specialist in the particular niche or not.

 

Niche strategies are certainly not right for every financial advice business. However for some, they just might be the best way to fully leverage a unique strength or opportunity of your business.

Are you the linchpin of your client’s financial affairs?

Business owners and wealthy individuals today utilise the services of a whole range of professional service providers. Typically they have relationships with an accountant, a solicitor, a tax adviser and a financial planner. Pulling all the pieces together into a coherent strategy is a tricky business, and I suggest that (without doubt) the person best placed to complete this work is the financial planner.

The financial planner / financial adviser is the only person who tends to have oversight of everything that is going on in a client’s financial life, both within the client’s personal life and their professional life. The other professionals tend to work with clients on a more transactional basis, while the financial adviser’s relationship is different. He / she understands the long term financial objectives of the client, completes a very detailed factfind of the current circumstances and develops a roadmap to achieve those financial objectives.

I personally see my financial adviser as the hub of my financial affairs because he provides a broader range of value to me. Yes, he has of course developed my financial plan and ensured I have the right investments, retirement planning and protections in place – I’d expect no less! But he also guides me in relation to much broader financial-related issues.

Having been the beneficiary of such value-added services, I’ve identified below a few areas in which you can add value to your clients beyond the preparation of traditional financial plans and beyond the products that you recommend to your clients. Why bother with these? To build your client’s appreciation of the value that you can bring, and to make you the first port of call when changes in their circumstances arise. All of this helps you to build deeper client relationships and to bring more long term value to your clients.

 

Budgeting

I’m starting with an easy one that is often overlooked by financial advisers as not needed by clients because “everyone does it”. I disagree! People tend to do personal budgeting in a very unstructured fashion, usually in their heads. The opportunity is here for financial advisers to bring templates to their clients and help them structure their budgeting and to examine all of their day-to-day spending.

Apart from the value that the exercise brings, for married clients it is a great way of engaging the spouse too in the overall process, as their spending is equally important in the overall picture.

 

Future Cashflow Planning

I refer to this a lot, but only because I see it as such as a valuable service offered by some financial advisers. It may not be appropriate for every client, but it is hugely valuable to those who are suitable. The reason for this is simple. Traditional financial planning focuses on the starting point (as identified within the factfind – where you stand financially today) and the end event (death, investment maturity date, retirement date).

Future cashflow planning focuses on every year between now and your death, highlighting times of particular financial challenge to you in the future. Knowing the challenges that you will face gives you an opportunity to plan to overcome them.

 

Tax Advice for Individuals

Business owners and professionals will usually have an accountant. Most PAYE workers probably don’t. That doesn’t mean that they can’t benefit from tax advice; some want help in completing their tax returns, some want general tax advice. There’s a growing trend internationally of financial advisers moving into this space, in fact some financial advice firms are now employing accountants or tax advisers to provide this service and other tax advice to clients.

Now this approach is not going to be for everyone. At a minimum though, you should have a relationship with a good tax expert that you can plug your client into. The benefit for you is that it’s another demonstration of your value, as you are the catalyst for your client receiving the broader solutions needed.

Financial advisers also play a very valuable role in helping clients prepare for later in life and indeed end of life through retirement planning and life assurance solutions. However there are a number of other ways that you can help your clients prepare for these latter years, again helping to position you as the hub of their financial affairs. Some of these areas can also potentially bring you into contact with your client’s adult children, an important target market for many advisers.

 

Advice about Bank Accounts

Neither my bank manager nor my accountant spoke to me about having multiple signatories on my bank accounts, both personal and business accounts. But my financial adviser did. This is very practical advice, ensuring that in the event of my death or loss of capacity, that my wife would be able to access my money without jumping through all types of legal hoops…

 

Enduring Power of Attorney

This is a legal document that can be set up by a person during their life when in good mental health. It allows another specially appointed person to take actions on their behalf should they become incapacitated through illness in the future. This prevents assets being frozen and going under the control of the courts and allows the person acting on your behalf to make a range of personal care decisions on your behalf.

Anyone who has been through this situation, needing to access the assets of a relative who has lost their mental capacity (e.g. to pay for their care) will know the value of having an enduring power of attorney in place. It can be incredibly frustrating being unable to carry out simple actions on the person’s behalf without it.

At the same time, many people also draw up a “Living Will” which captures their preferences in relation to areas such as end of life care, their preferences in terms of resuscitation etc. when close to death.

A financial adviser won’t set this up. However they can be the catalyst for it happening through setting out the benefits of it to their clients and guiding them to put it in place. The adviser may even be able to refer them to a solicitor who will carry out this work with the client.

 

A Will

Again this is an area where financial advisers can guide their clients to ensure that they have a will in place to ensure their assets are distributed as they intend on their death. A simple process usually carried out with a solicitor.

 

These are some areas that financial advisers can help or guide their clients through. They add real value to your relationships; way beyond the product solutions you advise clients about and put you firmly at the hub of your client’s financial affairs.

Are there any other areas beyond products in which you advise your clients?

Image courtesy of Agnes Meilhac

5 ways to increase your income in 2017

Yes we’re at that time of the year now, when we all start to turn our attention to next year and are (hopefully!) working on how to make 2017 our best year yet! For many businesses, income levels will define this, so here are 5 ways in which you can look to drive up your income during 2017.

 

1. Get more customers

The most obvious way and also probably the most difficult! This one will be influenced by many moving parts; your own activity levels, the quality of your advice proposition and the number of referrals you get from satisfied customers, the consistency and quality of your ongoing client engagement processes, your networking and other client acquisition methods and all of your marketing activities.

Getting more customers is usually the sum of many activities. If I was pushed and had to pick one? That would be to get out of your office and meet more people. The more face-to-face time you spend with prospects, the more new customers you are likely to acquire.

 

2. Improve your proposition

Getting more customers is great. However this also creates new challenges in terms of minding these customers into the future. What if you could earn more income without increasing your customer numbers?

This is where your proposition comes in. There is huge benefit in regularly and critically evaluating your advice proposition. Is it good enough? Are there more services that you could offer, which would allow you charge more? Or (as is very often the case!) are you delivering the right services to your customers, but they are simply not aware of them as a result of poor communication by you? If you can improve their knowledge and engagement with your proposition, can you charge more?

I suggest you take some time out to review your proposition and how you are communicating it. You will probably be pleasantly surprised when you actually visualise the depth of services that offer, and maybe also will realise that you can charge more for the value you are delivering.

 

3. Attract more assets

Financial advisers constantly tell me of situations in which they are only managing a portion of a client’s assets. I just don’t really get this one to be honest… Yes I can understand that a client may think they are better off having a few advisers and not having all of their eggs in one basket. However, isn’t that the adviser’s job to manage that challenge on behalf of the client?

To my mind, this situation often arises as a result of an adviser being happy to simply get a new client on board, even when they are only getting a portion of the client’s overall assets. But how can you advise the client properly when you are only partially informed? Surely this situation will result in a completely misaligned portfolio? And if you carry out future cashflow planning, this is rendered pretty meaningless if you don’t have full visibility.

Work on your script with clients where you suspect you are only advising on a portion of their assets. Is it possible that you are settling for partial assets too easily and are just not convincing clients and being firm about the importance of total visibility of assets? After all, more assets will often result in higher revenue for you.

 

4. Don’t ignore cross-selling opportunities

Sometimes it’s easier for an adviser to position himself or herself as an investment specialist or a retirement practitioner. And sometimes as a result the adviser can be reluctant to step outside of his or her specialist knowledge zone  and advise in other important areas such as protection etc.

Yes of course you need to be confident in your capability to provide excellent advice in these other areas, but this is not really a stretch for many advisers. And no, I don’t believe that it undermines your positioning as an expert in your main area of specialisation. Clients will be grateful if you are watching their back in these other critically important areas too.

 

5. Increase your rates

This one might sound a little obvious, and also a bit unrealistic! But when did you last actually review your advice rates? I see enormous disparity between rates charged by different advisers, and sometimes when there is little or no difference in their propositions.

Sometimes it’s a case of one adviser having set their rates in 2009 when the country was on it’s knees and not having revised these rates since then, while the other adviser set their rates in 2014 / 2015 when the economy was back on a pretty stable growth path. So is it time for you to look again at those rates you are charging – are you selling yourself short for the value that you’re delivering?

 

These are just a few ways in which you can look to increase your income in 2017. The next step is to do some more detailed planning around each of them, with the aim of hitting the ground running on 1st January next. The very best of luck!

Is Trail the right Financial Model for you?

Trail commission. Is it the silver bullet that justifiably allows Financial Brokers to build value in their businesses and eventually sell the business at a healthy multiple? Or is it a somewhat opaque way for advisers to be paid, sometimes with very tenuous links between the value provided by the adviser and the payment received?

Is it the right model for your business?

 

Trail commission is not perfect

Okay, let’s get the negatives out of the way first… Trail is far from perfect; in fact one could argue that it has some potential conflicts of interest for Financial Brokers. The word potential is highlighted for a reason – trail commission doesn’t in itself cause the conflicts, but the use of trail by individual Financial Brokers could. Let’s look at a few areas of possible conflict for advisers,

1. A client gets a windfall, let’s say an inheritance. If the adviser’s income is based on the amount of assets under management, income increases if the money is invested. If the client pays off their mortgage, it doesn’t.

2. What does the client with €3 million invested through the adviser get that’s different from the client with €500,000 invested? Are bigger clients simply subsidising smaller clients?

3. Similar to the above, a wealthy client gives you €500,000 to invest. You then find out that they have €2 million invested elsewhere themselves. What additional services will they get when giving you the money to manage, that will justify your huge increase in fee? Of course if you are providing comprehensive financial planning, with future cashflow planning sitting at the heart of it, there’s part of your answer – you need visibility of all assets to provide the complete picture.

And then there are the negatives simply in terms of trail commission as a business model. You secure a senior executive in a large company as a client. But after your factfind and analysis you find that the client’s wealth is tied up in a company sponsored pension scheme, also with an AVC scheme on great terms. Unless the client has other investment assets, there’s not much earnings potential for you on a trail basis.

And what happens when markets fall sharply or indeed the client decides that its now time to de-cumulate assets? Your earnings take a drop, even though your work may not.

 

But there’s a lot to be said for it!

First of all it’s relatively easily explained. Clients understand that a small percentage of their money will be taken as charges. Trail is simply an addition here and clients “get” that.

Then of course trail is very easily collected – this is such an enormously important point! Advisers say all of the time that it’s hard to get a client to write another cheque, especially year after year. Trail makes this problem go away and the adviser / client relationship continues each year without this hurdle.

And clients see a level of alignment of interests too – if the portfolio sees strong growth, both the client and the adviser win, if the portfolio falls in value, they both lose. Is this fair for the adviser? That’s a question for another day!

 

It’s all about your proposition

To me, this is the nub of it. If an adviser is simply adding trail onto policies as a means of securing ongoing payment without giving too much thought about what they are delivering, I believe this is a very flawed model and a very risky strategy. If an adviser cannot demonstrate and communicate their value, and as a result link the trail back to what they do, they are on very unstable ground.

On the other hand, if your advice proposition is crystal clear, clients understand it and are happy to pay for it, well then trail commission is a very appropriate method of collection of your fee. And were trail commission ever to disappear as a means of collection of fees, clients would be clear about the value you are adding and the fees that still need to be paid.

 

What would I do myself?

I’m not an adviser so you could argue that it’s easy for me to be a bit sanctimonious on this issue! However I could also argue that trail is not a feature of my business model (which is based entirely on fees) – so I only get paid when I can demonstrate value. When you have to demonstrate value to get paid, trust me you work very hard on your proposition!

At the end of the day if I was an adviser, I think I would use trail commission as a method of payment. But I would link it clearly back to the value that I’m adding, and ensure the client sees the trail commission as simply a method of payment for the advice given. The quantum of trail would be decided by the services provided. I’d give clients choice; fees, retainers, trail etc. Their choice, but they need to be clear that they are paying you for the value of your advice, rather than the setting up of a product. Because it is in the provision of advice where Financial Brokers add value and change clients’ lives for the better.