Your product expertise is a crucial skill

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You sometimes might get a sense from some quarters that the only skilled work of a Financial Broker is in financial planning, and that the product side of your customer relationship is, well the ugly side of it… This is flawed thinking. Yes, financial planning is an important and valuable skill, but implementing the optimal product suite is also a critical element of the value chain of a Financial Broker.

As an important element of the research completed for Brokers Ireland on “The Evolution of the Broker Market 2030”, we identified 12 areas to be considered by Financial Brokers to help prepare your business for the changing market environment.  We now consider the fifth action identified, which highlights the importance of maintaining and building your product expertise.

At the end of the day, product advice and implementing product solutions will always be a very important component of the work carried out by Financial Brokers. Planning and guidance will only get clients so far; products are the vehicles that enable those plans to be implemented. If we go back a decade or so, products were pretty much the central element of client engagement. Looking forward though, the product piece will be just one component, albeit a critical element of an overall proposition. The challenge though is that clients place diminishing value on the product selection process, and so for Financial Brokers to deliver valued services, the planning and guidance elements must be delivered too.

In carrying out our research and interviews, we noted several product trends that will potentially emerge over the next decade. These are captured below. Financial Brokers need to consider if or how these will impact their business and what steps need to be taken to mitigate any negative effects.

Pensions and Investments

The pensions market in Ireland seems to go through constant change. As we look back over the last year, we only have to consider the impact of the effective withdrawal of Executive Pension Plans and the emergence of the PRSA as a contract of choice.

Also, after many false starts, auto-enrolment finally looks like it will happen… possibly in the next year or two? It is difficult at this point to see the role Financial Brokers will play in this market, as a viable advice proposition under the proposed charging structures does not look possible.

One of the trends most frequently mentioned in interviews during the research phase is the likely proliferation of centralised investment propositions within Financial Broker businesses. Managing the money and making investment decisions will be outsourced, with Financial Brokers no longer feeling the need to position themselves as investment gurus. This shift will also remove a lot of risk from businesses.

The interest in and application of sustainable investing solutions is currently becoming much more mainstream, and this is likely only to grow. While regulation is a driver of sustainable investing solutions today, the expectation is that as climate change and other forces become more urgent, client demand for sustainable solutions will increase.

Blockchain technology will probably also become more mainstream and Financial Brokers will need at a minimum to fully understand it. It is already visible in some areas today,[1] and while Financial Brokers may never recommend cryptocurrencies to clients, they need to fully understand how they work and be able to discuss them intelligently with clients.

Protection

Protection is an area of future growth for Financial Brokers, whose market share is currently around the 60% mark, significantly below the broker share of the pensions and investment markets. Making the process easier with technology will be a key deliverable here, with product providers likely playing an important role here. For a digital savvy consumer unused to the financial services space, the process of arranging a protection product is time-consuming, cumbersome, and tedious. An improved digital experience will be to the benefit of consumers, Brokers and providers alike.

Mortgages

Having had a market share of less than 10% after the financial crash, the market share for Brokers today is back up at 52%. This is a recognition of the benefits of engaging a Broker in the mortgage process, and a result of new lenders looking to achieve quality and scalable distribution. Brokers that offer a streamlined and efficient process will be able to continue to build a strong transaction-based income stream into the future.

How to prepare

The first step to ensure your product skills remain up to speed is to identify all of the product areas that will be important to your specific target market, and to build expertise in each of them. You then need to stand back, coldly evaluate your own skills, identify supplementary expertise that will be required and build your knowledge. This might be for example in wealth extraction and exit planning for business owners, inheritance and legacy planning for families etc.

Your next step then is to consider shortcomings in your current product approach. Do you require a centralised investment proposition, is your proposition around sustainable investing sufficient etc.? The final step then is to create a methodology to continually build your product knowledge to maintain your expert positioning. You need to be excellent today… and then remain excellent into the future.

While there is no doubt that some commoditisation will occur in the product space, there will always be room for innovation, expertise and personalised product solutions. My advice is to ignore the naysayers, and to recognise the important role your product skills will play in adding value to your clients in the future.

 

Have you segmented your existing clients in a structured way?

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As an important element of the research completed for Brokers Ireland on “The Evolution of the Broker Market 2030”, we identified 12 areas to be considered by Financial Brokers to help prepare your business for the changing market environment.

We now consider the next action identified, which sets out the importance of carrying out segmentation of your existing clients in a structured way. I wrote in a previous piece about the need for Financial Brokers to have different service propositions or service packages for different groups of clients. Higher value clients will expect a premium level of service and engagement, which will entail more time and cost inputs from the Financial Broker. At the same time, it will not be viable to deliver this premium service in a profitable way to all clients.

With their different service packages defined, Financial Brokers will need to segment their existing client base into the same number of segments, to ensure that every client receives an appropriate level of service.

Some Financial Brokers might previously have allocated clients to different segments simply based on their recollection of individual clients; however, this approach has some potential flaws. A structured segmentation exercise will usually expose these flaws, such as popular / very pleasant / over-demanding clients being allocated to too high a segment based solely on these characteristics and being over-serviced to a level that is unprofitable for the Broker.  Likewise, high value clients who are never demanding or seeking meetings etc. may end up slipping off the radar and being allocated to a low segment, and then not being adequately interacted with. This of course runs the risk of another Broker attracting them away.

Another popular but flawed approach is to allocate clients to segments based only on asset values, treating high asset clients automatically as top tier clients and so on. The challenge with this approach is that it ignores a range of other factors that should be considered – the profitability of individual clients, their future potential, their access to other high value clients, their likeability etc. Each of these factors should play a part, albeit to different degrees, in determining the segment that a client belongs to.

The key to a successful segmentation exercise is to identify a range of factors that enables all clients to be scored. Once the factors are developed, they should be weighted appropriately, and a scoring mechanism devised. All clients are then scored and allocated to segments.

There will always be exceptions, but these should be kept to a minimum. For example, even where they have scored poorly, a Financial Broker might want to ‘promote’ family members or others who provide regular referrals to the business, in the interests of maintaining excellent relationships with these people.

A successful segmentation exercise will result in each client receiving an appropriate level of service.

Once the segmentation exercise has been completed in a structured manner, the next step is to communicate with your existing clients so that they understand the service level that will be provided into the future. This usually happens at the next review meeting.

Some clients might push back at the segment they are being allocated to. This usually happens where a client has been over-serviced in previous years, simply as a result of being very demanding. The challenge with these clients is that they are often unprofitable for your business. These clients must be listened to and shown a route to a higher service level – this may entail them increasing the assets they have under advice or increasing the level of trail commission on existing assets in return for the level of service that they desire. With actions such as these, the client becomes profitable to your business at a higher service level. Otherwise you need to consider, are these clients worth the very high effort involved for a relatively low return?

New clients will of course be relatively easily added to appropriate segments, as your different service levels can be explained during your initial engagements. Adding your existing clients to each segment will ensure that every single client receives an appropriate level of service.

Different strokes for different folk

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As an important element of the research completed for Brokers Ireland on “The Evolution of the Broker Market 2030”, we identified 12 areas to be considered by Financial Brokers to help prepare your business for the changing market environment.

We now consider the third action identified, which is that a “one size fits all” offering won’t meet the needs of many of your clients, or indeed of your business itself. It is likely that Financial Brokers will need to have different service propositions or service packages for different groups of clients. Higher value clients will expect a premium level of service and engagement, which will entail more time and cost inputs from the Financial Broker. At the same time, it will not be viable to deliver this premium service in a profitable way to all clients.

When there is only a single service level on offer, clients who are generating more revenue for your business simply subsidise those who are lower value clients. This situation is very attractive to your low/no value clients, while being unfair and unattractive to those clients who are more valuable and the drivers of your business.

There must be a better way… and that is having different service levels to suit different groups of clients. For the more valuable clients, Brokers will need to offer a range of financial planning, advice and support services, along with ongoing ‘hands-on’ guidance. These are the types of services that the research identified as being important to and valued by your clients. For clients who are generating little or no revenue for your business, a lower level of service is likely the only viable option for your business. Such a lower-level support packages will probably entail some form of a hybrid offering with little time spent by the Financial Broker him/herself.

Of course, designing your service levels with reference to the value of clients is only one potential route. You may decide that clients can be grouped by other dimensions – factors such as the age of clients might be appropriate too.

Picking up on this age theme, consumer research gives some clues as to how services might be delivered by Financial Brokers in the future. As an example, in research carried out for Brokers Ireland in June 2022, clients of Financial Brokers were asked how they see themselves planning their financial future going forward. Of those aged over 55, 78% see this continuing through face-to-face meetings. However, this falls sharply through the age groups, with only 34% of those aged 25-34 seeking face-to-face meetings.

Also, consumers across all age groups who currently don’t use the services of a Financial Broker identified lower costs as the dominant factor that would encourage them to use a Broker in the future. Among the younger cohort, better advice apps and online meetings are also very important factors. Financial Brokers who want to operate in these target markets will need to devise lower cost offerings that require lower cost inputs by themselves.

Financial Brokers need to carefully consider such findings, examine every aspect of their service and client engagement proposition, and then devise service packages to suit the different group of clients. This will require you to pick apart each individual element of your service and client engagement, for which different levels of service will be offered and then identify the appropriate level of service to each individual service package. Once you have identified which service package fits best for each of your existing clients, and you have target numbers for future clients at each service level, you then need to review your capacity and capability to deliver. How many clients can you actually deliver a premium service level to, in a way that will demonstrate how much you value those particular clients? Your capacity to deliver is key – otherwise you can end up in that awful place of over-promising and under-delivering… Challenge yourself, but always with a healthy dose of realism!

The purpose of differentiated service levels is to provide more value to those clients who provide more value to your business. Or to be able to provide services to different groups of clients in ways that they want to be serviced. While at the same time ensuring that your precious resource, the time spent by you and your team looking after your clients is allocated optimally. Clients are happy… and so is your bottom line.

Is your Client Value Proposition future ready?

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As an important element of the research completed for Brokers Ireland on “The Evolution of the Broker Market 2030”, we identified 12 areas to be considered by Financial Brokers to help prepare your business for the changing market environment.

We now consider the second action identified, which is the development of a bespoke Client Value Proposition that you can articulate and communicate clearly to all prospective clients in your target markets and that you can relentlessly promote.

The research found that the successful Financial Brokers of the future are likely to be those who are aware of and focused on advice services where significant value will be experienced by their target market clients, and these being in areas that cannot be easily commoditised.

While the provision of product advice and implementation of product solutions will always remain an important element of the work of Financial Brokers, it is likely that digital advancements will expedite the commoditisation of these services. The research suggests that life will get tougher for Brokers who focus solely on product selling.

Financial Brokers sometimes forget the enormous value they add, providing clarity every day to consumers who are otherwise confused amid the complexity in the personal finance space.  For example, consider the confusion within the pensions market over the next few years. EPPs are no more, PRSAs are suddenly more attractive, Mastertrusts have emerged, auto enrolment is on the way. Advice will become more important than ever, as people will need guidance in steering through this web of complexity in finding the optimal retirement planning products and investment solutions.

While many Financial Broker businesses today might be positioned as product experts, their offering is in fact much broader than their positioning. The wise counsel, guidance and management of client behaviours that are delivered every day by Financial Brokers are extremely valuable elements of the total service offering. Instead of being positioned narrowly as a seller of technical product solutions where the primary objective is choosing the right product, the expectation is that the Broker of the future will instead position themselves as the provider of valued financial guidance and ongoing behavioural coaching to clients.

The research suggests that the most successful Brokers of the future will be those that have a very simple business model, excellent processes and are likely to provide a full range of financial planning and advice services, including product advice as an important element – but not the only element. Their proposition will be based around providing a financial plan to a client and then delivering this plan in collaboration with the client over many years.

This is a common theme around the world. In an interview during the research, the Personal Investment Management and Financial Advice Association (PIMFA) in the UK said, “The growth areas are in financial guidance and planning. While there always have been and will be wealth management businesses, these are all about the money. Financial planning is more about non-financial issues, it provides services around guidance, behaviours, and the well-being of clients. Unlike managing the money, these areas cannot be [as] easily commoditised or digitised”.

There are some specific actions for you to carry out to develop a winning proposition that is future ready.

Start by writing down all the services that you offer to clients. Then critically review the list. Are you doing enough for clients? Are there other services that you should add or are there services that you are currently providing that you are not currently giving sufficient weight to?

Then consider the advice services that clients receive most value from, and that cannot be easily replicated by digital solutions. With the growth in comparison tools in recent years and more recently the surge in Artificial Intelligence (AI) solutions, this list is getting longer, particularly around the product elements of your proposition. But machines cannot tap into emotions that you encounter every day with your clients – worry, uncertainty, doubt, over-exuberance, greed, over/lack of confidence etc. You have the unique skill of identifying the traits of each individual client and guiding them accordingly.

Then you should develop out each of the advice service areas, setting out the features and benefits of each and the value that clients will experience. Being ready to articulate the value of your proposition is the first important step in being able to communicate it effectively to prospective clients.

The final step is to start shouting about it from the rooftops! Promote the breadth and value of your services through all your available marketing and client communication channels. It’s time to inform your target market of why you are the right Financial Broker to meet their needs.