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How do you move existing clients onto a trail or fee basis?

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Well here’s my tuppence worth on an issue that many advisers are grappling with today!

How do you convince an existing client to agree to you starting to receive trail commission (or a fee) for pension or investments business written some years ago? How will you answer the pushback that you’ve already been paid?

I’m working on the premise that the overall charge is going to increase. Of course if you can receive a trail within the existing price structure (with the product provider taking a lower annual management charge), this conversation will be a lot easier!

When does trail commission / a fee make sense?

These remuneration bases make a huge amount of sense when real, ongoing value is provided by you. To my mind it’s as simple as that! I would argue that if the product provider is providing all of the value – why should you be paid a fee or trail commission? But if you are providing expertise and ongoing value to your clients, year in and year out, these are the only bases that make sense. I’ve worked with a number of advisers over the last year that have each said that clients don’t understand when a fee is not charged! When clients receive value, they expect to pay for it…

So you first of all need to add real value to your clients. You then need to ensure that you demonstrate this value in a way that clients clearly recognise the value that they are getting. And then you need to remind them of the value that you are adding, again and again.

Trail commission or fee?

If you’re clear enough about what you do and the value that you are adding, whether it’s a fee or trail is somewhat irrelevant, these simply become a method of payment. So really it shouldn’t matter?

But of course that’s not the real world. I know many advisers prefer trail as it is a bit more “below the radar” and you don’t have to ask for a cheque each year for your fee. Of course that is easier and is perfectly fine, where you are adding that ongoing value.

Adding value, being really clear about your proposition and communicating what you bring to the table in an engaging fashion also future proofs your business. We only have to look across the water at the UK, where we see the days of trail commission (without demonstrable value added by the adviser) coming to an end. This will prove very challenging for advice businesses over there that have been simply collecting trail without providing and demonstrating any real value. How will they justify a fee to their clients in the future? On the other hand, it poses no threat to those advice businesses that are clearly demonstrating value to clients and having transparent conversations about how much and how they are being paid. Trail commission and fees are simply methods of collection to these firms…

What about existing clients though?

So that’s all well and good, you demonstrate the value that you will provide in order to justify trail commission to new clients. But how do you move existing clients onto a trail basis? How do you answer the client who challenges you that you’ve already been paid?

First of all, you need to provide clients with more than they have received from you to date, or at a minimum make them aware of all that you do for them. You need to set out clearly all of the services that you will provide to your clients that you hadn’t discussed at the outset – services such as;

  • ongoing portfolio analysis and restructuring
  • rebalancing
  • future cashflow planning
  • access to your network of specialists (tax advisers, solicitors etc.)
  • your market insights
  • the money you are making / saving them every year

At the start of your relationship, you identified the right product for your client and set up their policy, and were paid commission to do so. Now you are going to add real value to these clients through the range of advice-based services that you offer – and for this you must be paid, either via a trail commission (or a fee).

You need to demonstrate your proposition that will add ongoing value year after year, for the lifetime of your relationship. You need to communicate this very clearly in an engaging way, and use case studies and testimonials to demonstrate the results that you achieve for your clients.

Doing these, you’re giving yourself every chance to gain the agreement of your client to pay you each year. Because the value they get will significantly exceed the 25bps or 50bps that they will pay.

How do you convince your existing clients of the value that you add and to pay for this by a trail commission or fee?

Segmentation, targeting & positioning – fundamentals of adviser marketing

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Going back through the eons of time, I can recall a number of the key marketing principles that were ground into me time and time again; 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 advisers today, the principles that I find myself returning to more and more to address the challenges of advisers 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.

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 adviser market in Ireland?

Many financial advisers 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 focussing 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 at the expense of other groups – for example focusing all of their attention on clients of a certain value. In this case, some are even offloading their lower value clients to truly 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, a relatively small number are taking that final step of actually positioning their business and all of their communications to appeal directly to their target market, even at the risk of alienating other potential customers.

Why STP is so important for financial advisers today

It’s this final step of having the courage to position yourself within a specific target market (or even a niche) that is a step too far for many advisers. They struggle with the thinking that while business might be quite tough today; it might actually be easier if you narrow your focus! How does this make sense?

If you offer a generic service to clients, they will recognise this. They won’t feel any particular connection with what you do, as it is not targeted at them. Instead if you have a clear target market and all of your communications are aimed with that group specifically in mind, the customers within that group will connect with your messages and are more likely to view you as a specialist who is out to serve their specific needs.

There are lots of very good financial advisers operating in the Irish market. At the end of the day, how are you going to stand apart from the crowd if you offer a very generic service?

Is a niche positioning viable in the Irish market?

My view is that it is 100% viable. Indeed you can build an extremely successful business based on a niche strategy! I’m not saying that it’s easy – you need to first of all very clearly and carefully segment your potential markets. You then need to decide the markets that you will target and have a clear strategy for building presence and scale in these markets. And finally you need to relentlessly build your positioning and re-affirm it time and time again.

I’m a believer and would argue that I practice what I preach in this area! There are 1,000’s of marketing consultants out there but not many that position their business specifically around meeting the needs of the financial adviser community. I’m really happy that I’ve pitched my tent there, attempting to meet the needs of a community that I admire and enjoy working with! Thank you all for welcoming me into your world and helping me to grow my business! I passionately believe that you can do the same within your chosen markets.

Do you have any views on this topic? Is a niche strategy viable? What are the challenges you face in running with this approach? All your comments as ever are very welcome.

Be the Hub of your Client’s Financial Affairs

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I was recently helping a very progressive financial advice firm in Cork with their marketing planning. As part of the conversation, we discussed value added services that advisers can offer today and indeed I got talking about my relationship with my own financial adviser.

I see my financial adviser as the hub of my financial affairs. My accountant does a very solid job in terms of the production of accounts and ensuring I pay my taxes on time and basically don’t break the law! But I really see him in a transactional / compliance capacity.

On the other hand, my financial adviser 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 and I’ve found this a bit unexpected and extremely valuable. He’s now the go-to guy for me in relation to my broader financial affairs – he’s the hub of my financial world.

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.

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 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 certainly isn’t appropriate for every client, but 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 Flickr / David Hunter

Why do clients leave you?

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We’ve all cheerily picked up the phone at one stage or another when a client calls, only to suffer that sinking feeling as the client goes on to explain that they are in fact moving their business to another adviser. Often you don’t even get a call, the business just quietly moves. So why do clients actually move their business and put themselves through the hassle of agency transfer letters, bringing a new adviser up to date with their affairs etc.

It’s not about price, or at least very rarely.

The management consultancy firm Bain carried out research some time ago among a large group of accountants, 360 of them in fact. While I know they are not financial advisers, it’s a relevant survey as accountants are service providers in the financial space with SME’s and professional clients. When asked, 80% of the accountants felt they delivered above average service. The researchers also asked the same question of 360 clients, one from each accountant. Just 8% of them felt they got above average service. What a perception gap!

They also asked the accountants why clients leave them. The number one reason given was price. This was number 8 on the list of clients. Their number one reason was they just “didn’t treat me right”.

So what’s the lesson in this for all of us service providers? Worry about your proposition more so than your price, and work on effectively communicating your proposition to your clients so that they never forget the value that you are adding. Make your clients feel loved by you!

While we all might go through a short period of reflection when we lose a single client, it may be necessary to take a bit of a deeper look if you find that a steady stream of clients are heading out the door. So what are some of the questions you might ask yourself?

 

How good is your proposition?

Picking up on the Bain findings above, how good really is your proposition? Has it actually kept pace with developments in the marketplace and are you competing with the best advisers out there who may be wooing your clients away? As clients experience the benefits of structured budgeting support and the really valuable insights that future cashflow planning delivers to them, how are you competing with this? At the end of the day, are you really offering true financial planning rather than just a transactional product focused service?

 

How good are you at keeping your clients engaged?

Your clients receive great advice from you at the commencement of your relationship and receive the benefit of a review each year. But what value do they get from you in the other 11.5 months of the year? More and more advisers are making great strides at improving their communication with clients, enabling them to add value to clients throughout the year. However, they also target these communications at prospective clients too – and these might be your clients currently….

Are you satisfied that your ongoing engagement of your existing clients will keep these threats at bay? Do your clients see you as the important cog in their financial affairs?

 

What are your competitors doing differently?

There may be other areas that are influencing your clients to move to a competitor. Are your competitors more active than you at networking locally, or seen as a valued support within the business community? Have they just developed a bigger and better (and more influential) brand presence than you that is swaying clients to move? Are they very clever in the marketing of their business? While their proposition may be no better than yours, does your client as a result of their greater presence perceive them as a better proposition? It might be time for you to revisit your marketing activities and bring more structure and focus to them.

 

Is price a factor?

While price is not the usual reason for clients leaving you, it can be a contributory factor if you are way out of line. You need to satisfy yourself that your price is in the ballpark. If it’s higher than the norm, can you back this up by demonstrating that your proposition is better than the norm? After all, clients will only pay a premium for a premium service.

 

These are just some of the reasons why clients walk. If possible, talk to clients who are leaving you and try and get to the nub of why they are going. They may at first be slow to give the real reason in order not to hurt your feelings. However, if you persist with professional questions asked with grace, you might just uncover some nuggets that will help you avoid the loss of clients in the future.

Will Clients Pay Annual Fees?

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The whole area of fees sends a chill down the spine of lots of financial advisers. How much do you charge? Will clients pay? Will they pay every year? These are some of the questions I’m asked all the time.

Yes we’ve seen moves towards fees in other markets, with a lot of focus on the changes in the UK in particular. But that doesn’t mean that we’re moving to a fee only environment in Ireland. In any event, I think the question of commission v fee is the wrong question… To my mind, it’s all about what you’re being paid for, rather than how you are paid.

Maybe let’s start with some of the reasons that clients won’t pay annual fees, whether this is paid by an annual fee, a monthly retainer or as a trail commission.

 

They can’t afford them

There’s no doubt, there are many clients out there who just are not in the position to write you an additional cheque every year. Their income may be low, their outgoings may be high and these clients are seeking the minimum number of financial products to meet lender requirements and to provide basic levels of protection for their families. These clients are not going to pay fees.

 

They don’t see why they should

This is a more interesting group… These people can afford fees, have multiple financial advice and product needs but don’t see why they should pay for it each year. Whose fault is this? Well it’s theirs if they think that they can get your services for nothing. But maybe it’s your fault if they just don’t place enough value on what you do? You need to consider;

  • How much value are you providing beyond setting up products?
  • How robust and valuable is your planning and advice model?
  • How well do you communicate this to clients?
  • How well do you link this value proposition with your charging basis?

Get these right and you’ve a better chance of convincing this group to pay your fee each year.

 

They know another adviser who won’t charge a fee

There is always another adviser who will undercut you on price, indeed there are execution-only options out there for clients. However this is where the focus is solely on the product implementation. If you can demonstrate to the client that the fee is for the excellent and valuable advice that you give and that this will positively impact their outcomes, they are more likely to decide based on value gained rather than the price paid.

This group is a tricky one for advisers who hate to see a client go elsewhere. But if you’re not being paid a fair price for the value that you bring, it sometimes makes sense to walk away…

 

So what are the main activities that you need to undertake in order to give yourself the best chance of convincing your clients that the annual fee is worth paying?

 

Develop a compelling advice proposition that clients value

I know that there is a huge amount of talk at the moment about the need for a clear value proposition… But it really is a basic requirement if you hope to convince people to base their purchase decision on value rather than price.

Your value proposition needs to demonstrate to clients and potential clients, what you do, where you add value, why this is important to them and the positive impact that you will have on helping them achieve their financial objectives and better outcomes. Think this through from the client’s perspective – if they can’t connect with the value for them, you’re going to find it more difficult to justify your fee.

 

Make sure clients value your advice, not the product purchase

Move the conversation away from choosing the right product and then implementing it. At the end of the day, the clients don’t place much store on this. Advisers who are today receiving large portions of their income from fees focus more on helping the client really understand their life and financial objectives and then develop a plan for the clients to help them achieve these objectives. The products merely become vehicles to help them get there.

 

Deliver a great service and review process

If you’re going to look to charge your clients each year, you’re going to need an ongoing service that clients believe is second to none and worth the price paid. This will mean being available, adding value throughout the year and communicating regularly with clients.

Central to this is developing a really powerful review meeting. This is not just about communicating updated values (even though you do this too), but it is about really demonstrating to the client how they are progressing towards their financial objectives, and why continuing on this journey with you offers them the best opportunity of achieving their desired outcomes. So broaden this meeting out, bring in all of your undoubted experience and expertise and package it, so that your clients will seek out these value meetings with you, year after year! And it makes it easier for you to justify your fee.

 

What experiences have you of charging fees? What are the main hurdles that you encounter? Please feel free to leave your comments below

 

 

Photo credit:www.LendingMemo.com

Beat your competition all ends up!

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You’ve been approached to pitch for the opportunity to advise a really great prospective client, maybe a wealthy individual with a lot of assets to manage or a pension scheme for a local company. However you also know that another adviser has been given the same opportunity….

So what do you do? One route obviously is to go in “as cheap as chips”, provide your advice for free and cut your transaction price to a level that just about makes it worth your while. Yes, you’ll win some clients this way, but not the ones you really want. Because every future conversation will result in a haggle over your price – no surprise really as you started it!

The alternative is to beat the socks off your competitors and demonstrate to the prospective client that you’re the only game in town for them to consider. Your challenge is to have demonstrated this by the end of your first meeting (your pitch) with them. Here are 5 ways you might achieve this;

 

Know the customer better than your competitor

Today there are so many ways to learn lots of really valuable information about your prospect before you meet them. This can give you a real edge, enabling you to anticipate questions or issues and to chat knowledgeably about areas of interest to them. At the very least, it shows your interest in them and their business.

Starting with their company website, you can learn about their business, getting a sense of their markets, their size and what is important to them. The prospect that you’re about to meet might feature in the “About Us” section so check this out too.

Check out their social media profiles. In particular LinkedIn may give you very rich information about the person. You can learn a lot about the person professionally, as well as their interests etc. You can also see if you have connections in common – this can be useful for the social chitchat at the start of the meeting.

 

Focus on their objectives and outcomes, not yours!

At the meeting, your initial goal needs to be to connect with the person and build trust before you can get into problem solving. To do this, you need to find out what their problem or challenge is and fully understand what their actual objectives and goals are. What will success look like for them? What will they consider a good result?

Your questioning style is very important here. The key is to use lots of Open questions; “what is your biggest challenge”, “why is that challenge so significant for you”, “how have you addressed this so far”, “when are you expecting a result” etc. Questions that cannot be answered with a simple yes or no!

This initial stage is all about getting the client talking. Once they are talking, their issues will become clear and then you can start to think about demonstrating how you can address the actual challenges that they are facing!

Hopefully at the same time, your competitor will dive in and start setting out their credentials and their approach to solving the client’s problem – quite probably not the right problem at all!

 

Then demonstrate your credentials

Once the client’s problem is clear to you, now is the time to set out why you are the answer to their prayers! This is a critical step – after this the client will decide who he is appointing to look after his affairs!

First of all, you can demonstrate your professional approach easily and effectively by walking your client through your planning and advice approach. This will give the client comfort that you are a professional with a robust approach, helping to build that all-important trust. I believe that this is best delivered using a short presentation on an iPad or similar device.

Case studies (anonymous) are another effective way to demonstrate your credentials. They allow you to showcase innovative approaches that you might have used in the past. They also demonstrate your experience in dealing with challenges similar to that posed by the prospective client.

Finally testimonials are a great endorsement of your capabilities. I always encourage financial advisers to seek permission to use the full name of the person giving the testimonial, as it gives it credibility – does “John T, Dublin 6” really exist?

Hopefully your competitor has just been having a chat with the prospect, saying how good they are but not really backing it up at all…

 

Practice – it’s not easy!

These last two areas of questioning the prospect effectively and then demonstrating your credentials are not easy. Road test them on your staff, friends and family. Get people to critically appraise your approach. Like all similar tasks, it’s going to take a few goes before you get it spot on. The last thing you want is to be trying it out for the first time on the best prospect you’ve had in a long time!

 

Start delivering value long before your pitch

This point should probably have been made at the start but I kept it to the end as not all advisers are in a position to deliver it at the moment. Providing ongoing content to clients is so important, deepening the relationship, demonstrating expertise and adding value. This might be in the form of an email newsletter or other such communication. If you do this, add your prospect to the list as soon as the first contact is made (get any necessary permission to do) and start sharing your content with them straightaway.

This will immediately set you apart from your competitor, giving the prospect a taste of what they can expect from you – a valuable, professional, robust approach to all that you do!

At this stage, hopefully you see the other guy’s white flag!