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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.

Set great Performance Goals for 2015

I wrote a few months ago about the important role that goal setting plays in getting your whole team pulling in the same direction. We’re now going to dig a bit deeper and set out a few thoughts on how to develop really effective goals to help to drive your business forwards.

Align the Goals

In my previous article on this topic, I set out the importance of alignment between the goals of each individual and the actual goals of the organisations. This might seem obvious, but sometimes I come across obscure goals that really have no relevance to the objectives of the organisation – this can happen when the process is rushed or not thought through properly.

Focus on Behaviours as well as the Numbers

Again (and for the last time!), as covered in the previous article, don’t just set quantitative goals. Behaviours drive activity, which drive results. So focus goals on behaviours, as well as on the numbers.

Create effective goals

Easier said than done? Well maybe… Goal setting does take time but it is time very well spent. Effective goals will help to drive effective behaviours, giving a better chance of better results. I don’t think that you can go far wrong if you check that each of the goals you set display SMART characteristics. SMART goals are ones that are;

  • Specific – The goal must be clear to the individual and not ambiguous at all – they must clearly understand what is expected of them.
  • Measurable – The goal must be capable of being measured fairly so that the individual can clearly see the progress they are making in achieving the goal.
  • Attainable – The goal must be realistic and fair. If it is completely unachievable, the individual is unlikely to be motivated to achieve the goal.
  • Relevant – The goal must make sense in terms of the “bigger picture”. The individual should be able to clearly understand the purpose and reason behind the goal.
  • Time-bound – There should be a specific time period (often the calendar year) in which the goal should be achieved. It can’t just be left open-ended.

Involve the individuals in setting their goals

In a previous organisation that I worked in, the employees themselves developed the first draft of the goals. This was a very effective method as it created an immediate level of buy-in to the goals. That’s not to say that the manager immediately accepted them though! There was inevitably a level of negotiation involved in finalising the goals, but the initial buy-in remained.

Set the goals in time

A gripe of mine again based on prior experience… Many organisations don’t take goal setting seriously or don’t give it the priority that it deserves. This results in delays in getting the goals finalised – I’ve seen calendar year goals getting finalised in May or June, when the year is half over!

Don’t set too many goals

It’s important of course to set goals that will help the individual to deliver the behaviours that you are seeking and of course the results that your business is striving for. But don’t get over-enthusiastic and start getting lots of goals to cover every base. If someone has too many goals or too many different measures feeding into their goals, the whole process can become too daunting for the employee as they feel they are juggling too many balls in the air. A good rule of thumb is to set no more than 5 goals.

Don’t try and be too clever!

I’ve also seen situations in the past where goals are set that try to cover every base – remember Specific in SMART goals. I’ve seen single goals that have been constructed as “…achieve €x in income from y group of clients while ensuring z% retention levels in business from that group and overall profitability of xx%!” Is that 2 or 3 goals rather than a single goal? The employee in this case will probably feel that they’ve very little chance of achieving the goal, as there are so many hurdles to be negotiated.

Don’t be afraid to change them!

This can be a tricky one but sometimes a review of goals is the only sensible option. However this needs to be a two way street… If goals are set at the beginning of the year and the company subsequently changes direction, the goals may no longer make sense. So don’t be afraid to review them. You’re better off with updated goals that make sense and a newly motivated employee, than a disgruntled employee who has no hope of achieving his/her goals as a result of factors that are not of their own making.

And finally, reviewing goals together regularly throughout the year is an important part of the process. It also can be very motivational for the employee, who will see you “pulling” for them, helping them to achieve their goals. Remember if the goals are well aligned, everyone will be a winner if the goals are achieved!

Segmentation, targeting & positioning – fundamentals of adviser marketing

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.

Are your Advisers doing what YOU want them to do?

A challenge faced by many financial advice firms… The target market is clearly defined, the value proposition is carefully constructed and articulated and a suite of marketing supports are developed to help the team of advisers go out and attract a cohort of new clients. And then…nothing.

Well not quite nothing, but not the results that are being sought by the principals. Instead the advisers continue to work as they always did, going after business as they always did. Hitting their sales numbers (maybe) but not in the way that the firm wants it done – that is building up strong and durable relationships with clients in the chosen market segments, adding real long term value to the business.

This is quite a common occurrence, one I’ve come across in a number of firms, so why does it happen?

The goals are all wrong

This is where the problems usually start… Often the adviser goals are quite poorly constructed and actually are not aligned at all to the goals of the organisation. The principals might be clear about what they want to achieve and have Key Performance Indicators (KPIs) to help them track their progress. But unless they link the individual adviser goals to these KPIs, they really have little hope of them being delivered by the adviser. At the end of the day, the more aligned the goals of the adviser are with those of the organisation, the more likely those KPIs will be achieved.

The focus is only on the numbers

When you are trying to influence advisers to change the way they carry out their daily roles, you are actually trying to change their behaviours in their day-to-day activities of finding and targeting prospects, delivering advice and providing ongoing service to clients. But often, the behaviours receive scant attention as the year goes on; the focus tends to be always on the numbers. While the numbers are of course critical, it is the behaviours that actually impact them. It is so important to set expectations around behaviours, to monitor them and to measure them. If they are not being achieved, there needs to be interventions such as training, reinforcement of expectations, encouragement or sometimes good old fashioned pressure to deliver the required behaviours!

Rewards must be aligned with the KPIs

At the end of the day, money drives behaviours for a lot of people, and in my experience this particularly applies to salespeople! They work at the sharp end of the industry, in a role in which it’s pretty nigh impossible to hide, as results are clear for all to see. For this, they expect to be well rewarded.

But if their remuneration is based solely on their overall sales result, well that is where their focus will be. In this situation they will likely pay little attention to;

  • Those all-important behaviours
  • The quality of advice given
  • Product mix
  • Client retention

So what should goals and rewards look like?

The key is alignment between the KPIs of the organisation and the individual goals of your advisers. Obviously income generation will be a significant part of this, as this is going to be a goal of both the organisation and the individual. However, the level of “credit” that is given to advisers may be adjusted to take account of;

  • Are the new clients signed up by the adviser in the stated chosen market segments of the business?
  • The “shape” of the income – the level of upfront commission / ongoing income (i.e. trail) taken
  • An adjustment may be made to reflect the retention of business written by each adviser
  • Overall satisfaction levels of each adviser’s clients (this is surprisingly easy to measure).

One of the biggest challenges facing advice businesses is encouraging the individual advisers to work towards building up long-term value in the business. This is a big ask if their goals and rewards are based only on short terms factors. If you really want your advice team to play their part in building up value in your business, are you willing to reward them for doing so through long term incentive schemes or indeed through a route to a share of ownership in your business? Because at the end of the day, this is what it may take to really get them aligned with your objectives.

Do you use any particularly innovative methods to reward your advisers? If so, I’d be very grateful if you would leave a comment below.

Can you get more from your CRM system?

In the last year or two, there has been a significant upsurge in financial advice firms wanting to unlock the opportunities offered by CRM systems. For some, this has meant seeking to place it at the heart of their sales processes, for others their challenge has been to use it as more than a glorified address book. For others, they are now taking the jump from an excel spread sheet for the first time! It can be a very daunting task…

Here are a couple of thoughts to help you reap the benefits while minimising the frustration.

Understand what you want it to do

There are a number of industry specific CRM systems that many of the brokers in the Irish market are using today. These systems offer a very broad range of valuable features and offer functionality to help deliver many of the activities carried out by brokers every day.

But when you’re new to the system, the array of features can be quite bewildering and can leave you wondering where to start.

The place to start is not with what the system can do for you, it’s to identify how the system can help you address your own particular challenges. So you need to identify what these challenges are; do you need a system to help you in the segmentation of your client base, is to help you identify the right clients to contact at the right time, is it to track interactions with your clients or indeed is it to ensure you are delivering a more compliant business process?

Once you know what you want from the system, these are the areas to focus on with the system supplier rather than the 200 other features! Once you get comfort that the system can deliver what you need, then it just may be the one for you.

Capture hard and soft data

The record keeping aspect of the system is obviously very important, capturing all of the key information that you need to retain for your clients. Having this data in your system obviously makes it easier to retrieve information and indeed to use it again in the future. And your CRM system can provide a very useful audit trail in relation to your client interactions, which will assist you from a compliance point of view and may prove very useful down the road.

But it’s equally important to pick up and capture softer information about your clients that may not necessarily feature on your average factfind; the client’s financial goals and dreams (which should be central to your advice in any event), their aspirations for their family, their interests and indeed their likes and dislikes in relation to the method and frequency of communications. All of this information can make for a much richer relationship.

 

Talk to other users

Find out how others are using the same system. Ask your peers to even demo what they’re doing – from my experience, most advisers are only too happy to collaborate and help each other improve their business. Ask others at networking events about the features that they are using the most. Another route is through the excellent groups available to advisers on LinkedIn. There are a number of great groups (the PIBA, IBA & QFA groups come particularly to mind) in which you can pose a question with a good chance of getting some feedback from others.

Use all the time saving features

Ok, so now you’re up and running and using the system. Now is the time to start investigating how you can leverage the system beyond your initial aspirations. A good place to start is by investigating the many time saving features of the system. These will come in many forms. The capability of downloading data from providers will enable you to avoid a lot of the tedious initial data entry. Then look at the features that allow you to easily import data from for example factfinds completed online by your clients, which will save you or a member of your team having to type in the information.

Also consider how the system integrates with other systems that you use; capturing your client emails, quotation systems and any scanning and document management systems.

Get help in these areas. Getting help from an IT professional and/or the CRM system vendor will result in a lot less frustration and lower blood pressure!

Stay close to the vendor to leverage the full capabilities of the system

At the end of the day, nobody knows the system like the vendor so stay close to him or her! Give them feedback as they are always looking for ways to improve the system. Tell them what else you’d like the system to do, what you find difficult or “clunky” – after all, their main aim is to retain you as a user! Look for tips and help from them as to how you can better leverage the system. Show them how you’re currently using it and look for their advice as to how you might improve your usage of their system. Also, look for insights into where the system is being developed, as these developments could result in improvements to core parts of your business and advice processes.

Yes, starting to use a CRM system can be a very daunting experience. But it need not be. Focus on what you want from the system, seek help and then commit. The results in terms of saved time and effort, deeper insights into your clients and better business processes will make it all worthwhile.

Bowl your Clients over with your Content!

One of the main marketing challenges faced by many of the financial advice businesses that I meet, is around the production of good quality content that will really help them engage their clients. Here are a few thoughts to help you overcome this challenge.

Be Organised & Committed

The secret ingredient! We’ve all faced that looming deadline for “my turn” to produce that article we’d promised to go into a newsletter or as an update on the website. It’s tough when you’ve no idea what you’re going to write about! The good news is that you’re not alone, this is the single biggest challenge faced by everyone tasked with writing content.

To avoid this, set up a “Content Calendar” for the year. Get all the potential contributors into a room for an hour or so and brainstorm loads of article topics. As potential subject areas come to mind, drop them into the calendar with a few bullet points of what the article might cover.

What will this achieve? First of all, it gets you started each month – you know what you’re going to be writing about. Secondly and as important, as new ideas come along over the year, they get inserted ahead of other articles that mightn’t be as strong. So now you’re driving up the quality of your topics. You’ll actually find after a while that you’ve too much content and now can actually start being selective about what you write. Hard to believe but it happens, every time you have a Content Calendar.

And once you start, stay committed to the process. Don’t stop now!

Be Relevant

Your audience are far more likely to engage with your content if it is relevant to them. So as you develop out your content topics, spend some time thinking about them from your audience’s perspective. The latest developments in investment software or some obscure technical point about pensions might be of interest to you. But your clients probably won’t give a hoot!

They want to know about topics that will impact their lives, so put yourself in their shoes and develop your content with them in mind. Of course you need to know who your audience is before you can do this. Are they business owners, professionals or are you focused on personal protection etc. for families? If you have very diverse audiences, you might need to target specific content at specific people. All pretty straightforward to do with the wonders of modern technology!

Be an Educator, not a Salesman

Your audience will switch off if you spend your time pushing sales messages at them. At the end of the day, they will see your content as simply an ongoing sales campaign and will disengage.  Add value by writing about financial issues or challenges that affect them in their lives, in which you can exhibit your expertise. Aim to be seen as an expert, an educator, someone with valuable insights that will help your clients, rather than a salesperson.

To make this easier for yourself, write about topics you know. This means that you won’t have to spend loads of time researching topics, and this familiarity with the subject will help you write better content too!

You see the world of marketing has changed. Rather than trying to constantly interrupt people with messages to sell, sell, sell; successful advice businesses are establishing themselves as thought leaders, as educators and as experts. So then when potential clients at their own time of choosing have a financial need, they will naturally gravitate towards these advice firms that they already see as valuable.

Be Alert

Great topics to write about will emerge from a range of sources. Presentations you attend, conversations you have, comments from other clients. Once your antenna is up, you’ll start to identify nuggets from what other people say – their challenges, their areas of interest, the issues they want to read about. So write about these!

Also when reading a newspaper or surfing the web, you’ll come across loads of topics of potential interest to your audience. Put your own spin on these topics and write about them too.

Be Brief

Be expert but also be brief. The purpose of your content is to engage your audience, not to demonstrate that you know every intimate detail of a topic. Typically an article of 750 to 1,000 words can be read (and written!) quickly and will perform well in search results. If you only have 500 (good) words though, go with that – don’t pad it out to get to 750 words.

Make your content easy to read too. Use headings and/or bullet points to make it easier for the reader. If the topic is just not capable of being explained in anything close to 1,000 words, break it out into a series of articles. And now the challenge next month has just got easier…

Be Found

What has this got to do with Content? Well, one of the key drivers of strong performance in Google search results is original, good quality content. While this might not have been a driver behind your efforts to produce a regular stream of good content, it’s a very valuable bonus!

At the end of the day, I reckon the initial thought of producing a lot of content is far more daunting than the reality! I hope these thoughts help you with your challenge.






image courtesy of Flickr / Mohammad ALNajdi