What advisers value in the advice they give

I took the opportunity this week to grab a coffee and have a good read of an excellent piece of research that was issued by PortfolioMetrix at the start of the summer. The research is called “The insider’s guide to the value of advice” and can be accessed here. It’s well worth a read, as it considers the views of almost 200 financial advisers in Ireland, UK and South Africa in relation to this important subject. It also overlays the research with further good insights from both advisers and from PortfolioMetrix, along with links to other relevant research and articles.

So what are the nuggets that the research tells us?

First of all, it was useful to see on one page the financial value of advice as identified by other research carried out by a number of large, international organisations such as Vanguard, Russell Investment and others. This external research reveals,

  • Advisers add between 3%p.a. to 4.4% p.a. in net returns for their clients.
  • Clients who enjoy an ongoing relationship with a financial adviser had pension wealth that is 50% greater than those who only got once-off advice.
  • The savings of an advised client will be 2.73 times greater over a 15 year period versus a non-advised client.

The PortfolioMetrix research asked the advisers to pick, and then rank, their top five attributes from a suggested list of twenty. As it turned out, only seven of the 25 attributes were selected by more than 25% of the respondents. Interestingly, there was one standout attribute that was selected by 76% of the respondents; Empathy. This is the ability to put yourself in the client’s shoes and really understand what is important to them. It is about gaining their confidence and building trust. As one respondent added in their commentary,

Without empathy no amount of professional qualifications is going to help you engage with clients

The next six attributes that were also chosen by more than 25% of the advisers were;

  • Life Goals (49%)
  • Peace of mind (47%)
  • Simplify (47%)
  • Personalised financial plan (41%)
  • Consistency & continuity (39%)
  • Behavioural coaching (36%)

Each of the 20 attributes were also identified as belonging to one of four categories which revealed that,

  • Soft skills are most important (35% of advisers)
  • Building the financial plan (30%) is next
  • Putting the plan into action (20%)
  • Ongoing service (15%)

The conclusions of the report cautioned though that It is also worth noting that what advisers think is valuable to their clients is not always matched by what their clients think. A study by Morningstar revealed a sizable disconnect between the views of advisers and their clients. Clients undervalued behavioural coaching whilst advisers overvalued understanding the client’s unique needs and undervalued maximising returns. The takeaway from this is that once you have articulated your own value proposition, it is worth running it past your clients to ensure it resonates with them.

This is a current and valuable piece of research that is worth reading by all advisers.

 

 

How do you build trust?

I recently shared the most relevant findings for financial advisers in the Edelman Trust Barometer 2020, in which we saw continuing challenges for the financial services industry in relation to trust. However we also saw that trust in the financial services industry is growing faster than any other sector, so the graph is definitely moving in the right direction!

I got a lot of feedback in relation to this article, thanks for all your likes and comments – much appreciated as ever. A few advisers have since asked me what they need to do in order to build trust. So here goes – my thoughts on a few ways that really help to build trust.

 

Be visible when the going gets tough

This is so relevant today, with the Covid-19 pandemic and investment markets crashing to the floor. Now is not the time to go to ground and hope that clients won’t ring about their falling investments. Instead now is the time to be calm, show your leadership qualities to clients and remind them that their financial plan will deliver the desired outcomes over time. Yes, acknowledge the discomfort caused by markets today, but remind clients that this will pass. Your visibility and reassurance will provide comfort to clients, and will help build their trust in you.


Communicate how you work with clients

One of the most important ways to build trust, particularly with potential clients, is by communicating really clearly how you will actually work with them. Many people only sort of know what a financial adviser does – something to do with pensions and life assurance? Let potential clients know the problems you solve and the outcomes you achieve for them. And then explain how you will work with them. You can give huge levels of comfort by walking the client through your advice process in detail, showing them what to expect and the value that you will add. This will help to remove any doubts in their mind.


Provide client testimonials

Continually seek out client testimonials, they are really important. In my book, you need to seek permission to use the client’s actual name (and logo if a company). Testimonials from “John H, Dublin” don’t really count – in fact someone might suspect they are made up! Genuine client testimonials are really powerful – who can advocate for you better than people who you’ve helped in the past, whose lives you have potentially changed?


Seek recommendations on LinkedIn

LinkedIn is a really important platform for financial advisers; it’s where many prospective clients will check you out before picking up the phone to you. After all, when they Google your name, the chances are that your LinkedIn profile will appear high up the search results. Recommendations from clients on your LinkedIn profile are a very powerful endorsement of your services, so look for these at every opportunity. They are great trust builders.

Presence in mainstream press

Some advisers have built up great profiles by regularly appearing in “Opinion” columns in national newspapers and some even building positions as regular commentators on TV and radio. These are great for building trust, as they demonstrate your industry knowledge and authenticity as a voice worth listening too.


Your qualifications

Sounds simple? If I was a CFP, I’d tell everyone at every opportunity! Why not advertise the fact that you are part of a highly qualified cohort? Prospective clients will value the fact that you are investing in yourself and are willing to keep learning in order to stay at the frontier of providing the very best financial advice. It will also help you to achieve high levels of trust among clients.

 

There are of course many more ways of building trust; advertising any awards that you win, communicating your opinions with your clients via newsletters and being active on social media. Hopefully the ideas above will give you a few pointers as to how you can continue to build trust with your clients and prospective clients.

Do people trust you?

“OF COURSE THEY DO!” I hear you shout indignantly! Because trust sits at the heart of a financial adviser’s business. It’s that critical ingredient that you can’t survive without, but unfortunately you can’t just go out and buy it, or even simply ask for it. It can only be earned by what you do, and by what other people say about you.

 

Trust in business is low…

Every year, I review the very insightful Edelman Trust Barometer, an annual, highly credible review of trust that has been carried out for 20 years now and across 28 different countries. They announce the results each year at the World Economic Forum in Davos. The full results for Ireland in 2020 are available here and are well worth a look. Edelman look at trust in each of the countries (one being Ireland) and examine trust across different sectors and industries.

 

In the chart below, we can see that trust in business in Ireland is low. While seen as somewhat competent, businesses score poorly in terms of ethical behaviour and we lag our international counterparts in this regard.

 

 

 

 

 

 

 

 

 


What’s the situation in relation to Financial Services?

As can be seen from the graph below, Financial Services is the least trusted industry sector of all. A fact we simply cannot ignore.

 

 

 

 

 

 

 

 

 

This is a critically important finding for all financial advisers to consider. While the poor level of trust applies to the sector as a whole and not specifically financial advisers, it underlines the challenge faced by all industry participants in building trust with potential clients. People you meet for the first time will often be starting out with a sense of distrust and scepticism. This cannot be ignored by you and your first task is to start building trust…

However every cloud has a silver lining. While financial services is the least trusted sector and is coming from an extremely low base after the economic crash, the sector is moving towards the other sectors. A lot done, a lot more to do…

 

 

 

 

 

 

 

 

 

Another chart that is of interest is the level of trust across different business types. This is great news for many financial advice firms out there!

 

 

 

 

 

 

 

 

 

 

“But my clients do trust me” I hear you say!

And I’ve no doubt that your clients do trust you… or else they wouldn’t stay with you. However the challenge is about appealing to all those people out there who are sceptical of the financial services industry, and potentially of financial advisers. How do you appeal to them?

It all starts with having a clear and compelling client value proposition, which is a clear, concise and compelling articulation of how the factors that are important to the customer are satisfied by you.

 

The What, How and Why of your business

To start to build a positive picture, leading to confidence in your ability in the eyes of prospective clients and ultimately to building trust, it’s worth considering the lessons of Simon Sinek, the famous author of “Start with Why”. Yes you need to be able to clearly define initially what it is that you do, so that clients can see the outcomes that they can expect. You then need to be able to communicate this effectively to clients. However it is difficult as a financial adviser to stand apart from the crowd in terms of what you do, as many of you deliver similar services.

However when you can set out in an engaging way how you work with clients, now you’re starting to get somewhere! When you are able to demonstrate the processes that you use, how you deliver advice, how you will serve your clients throughout their financial lifetimes; you are now in a strong position to start building durable trusted relationships. Potential clients will take a lot of comfort from understanding what they can expect from you, and this comfort in working with you will enhance their trust.

The real magic though in building trust is when you can clearly (and of course credibly!) communicate why you do what you do.  This will demonstrate your real reasons for being a financial adviser, your passion for what you do and ultimately your desires to deliver a really top quality proposition to your clients. And when you can communicate this effectively, this will build trust like nothing else.

 

In a future article, we will look in more detail at some of the actions you can take to help you build a trusted position in the eyes of all of your current and potential clients.

What are your goals for this year?

2020 is well underway and everyone is hard at work to make this year your best year yet. Some advisers take a very structured approach to business planning, others prefer a bit more of a “seat of the pants” approach! The latter group give a bit of thought to the upcoming year, but sometimes find it difficult to capture meaningful goals.

So here goes with a few thoughts that will hopefully make the task a bit easier. We’ll take a look at constructing goals and also what areas of the business you might want to set goals for.


SMART Goals are effective goals

The first point to consider is what an effective goal looks like. 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 and not ambiguous at all – it must be clearly understood what is expected to be achieved.
  • Measurable – The goal must be capable of being measured so that you can clearly see the progress you are making in achieving the goal.
  • Attainable – The goal must be realistic and fair. If it is completely unachievable, no-one will be motivated to achieve the goal.
  • Relevant – The goal must make sense in terms of the “bigger picture”. There needs to be a clear 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.

So now you know how to set good goals, what are the areas within your business to measure? When you think about it, there are lots of them!


Financial Measures

There is a range of measures that can be used to monitor the financial health of your business. Some of the key ones include:

  • Overall income: Yes turnover can be just a vanity figure, if your costs are exceptionally high. However your turnover gives a sense of whether your business is capable of getting customer traction in your chosen markets.
  • Profit after business expenses and remuneration: This figure is far more informative of your business health, as it takes account of your remuneration and all of the costs associated with running your business.
  • % of income coming from trail / fee/  recurring income: The traditional method of valuing a Financial Broker is as a multiple of recurring income. This metric gives a clear sense of the value of your business.

However beyond the financial metrics, there are many other metrics that you can use. Here is a sample of some of them.


Client metrics

There is a range of metrics that can be used to measure the success of your client activities and also the success of individual advisers within the business. These include:

  • Number of clients: this can be measured at an overall level and also within segments of your target client groups.
  • Average revenue per client: This will give you a sense of whether you are building greater value into your propositions and whether you are reaching your ideal clients. Again this may be carried out at a segment level.
  • Average recurring revenue per client: This will give you a good sense of the future health of your business.
  • Average trail percentage: This will give you an indication of whether your ongoing service packages are delivering value to your clients, and whether they are willing to pay for this value.
  • Number of new clients: Always a useful measure of whether you are growing as a business or not.
  • Activity: This may be the number of new clients secured, first meetings secured, financial plans completed or indeed review meetings completed. It is always useful to get a good sense of the activity levels of each of your sales team.
  • Client satisfaction: This will give you a sense of your likelihood to hang onto your clients into the future. Again this can be carried out at a segment level. The Net Promoter Score is a very simple but useful measure of client satisfaction.
  • Risk register: Are there problem cases that need to be monitored? If so, a firm oversight needs to be maintained, both in relation to the number of cases and progress of these cases towards a solution.

 

Marketing Metrics

Most marketing activities can actually be measured! Here are a few of the key ones that will help inform your marketing activities:

  • Contact data quality: This might be as simple initially as tracking the number of client email addresses you have secured. Email offers you a no cost method of getting marketing messages out to your clients.
  • Numbers and source of leads: Tracking the numbers and source of new lead is one of the best inputs into decision making around future marketing activities. If it worked before, it might be worth repeating!
  • Website analytics: Google Analytics will give you a wealth of data in relation to your online marketing activities and can tell you the likes of;
    • The number of people finding your website
    • Where website visitors came from – Search terms, social media, directly accessing your website.
    • The content that attracts people to your site…. and also drives them away.
  • Social media interactions: Likes, comments, Retweets! These terms are “Double Dutch” to some people, highly valued endorsements of your content to others!

So there are many potential areas to measure. It’s a case of identifying the most relevant ones for your business, setting SMART goals around them and then getting stuck in and achieving those goals…

Are you happy your value and cost propositions are right?

Lots of the conversations that we’re having with financial advisers are in relation to the ongoing value you are providing, and the cost being charged for delivery of that value. However if we are to be completely truthful, it doesn’t always start out from that point….

Quite a number of the conversations start out from the point of, “I’m charging 25bps / 50bps and I’m not comfortable that I can really stand over it and justify it if pushed”. Advisers are looking over the horizon and seeing potentially greater levels of scrutiny from clients (and the regulator?) in relation to trail commission. You recognise that you must be able to comfortably justify your trail commission if you want to grow the levels of it, or even to maintain it. This inevitably results in advisers remaining in the supposed easier place of a low trail commission rate, in order to avoid any pushback around price.

After all, trail commission has been extremely good to many advisers, who have seen recurring income rise substantially for relatively little effort in some cases, while also building long-term value in your business. Investment markets have delivered excellent returns over the last decade, and your trail commission has increased accordingly. You don’t want to lose this growth, hence the pressure to justify it. However you’re now looking at investment markets today and recognising the significant fall in your income that will happen, should there be a biggish correction in the market. Also if your income is very tied to the investment of your client’s assets, any under-performance against benchmarks also raises a question over the validity of your fees.  These issues arise when the only determinant of your trail income is asset levels. The problem is that when you’re only thinking about asset values and your costs, you’re starting from the wrong place.

The only place that this whole conversation can start is with the value that you are providing. Otherwise, it is a serious case of the cart before the horse… When you work out in detail the different levels of value that you are providing to your different clients, it is only then that you can start to price your services in a structured and robust way. Your income is now tied to the services that you are providing, giving you certainty and control over your income stream. Many advisers who do this properly continue to collect their income via trail commission, however now they have minimum charges for each of their service levels. These minimums protect them against falls in the market, and indeed enable them to meet the demands of clients for high service levels where their asset levels alone do not justify them.

When you get crystal clear about your service levels and can easily articulate and communicate the value that you are adding, that nervousness around your trail levels subside. Instead it goes the other way – it gives you the confidence to maintain and increase your trail levels, when you know that your services warrant these higher levels.

Now you can be firm and brave in relation to pricing. When you are clear about your services on offer, you can stand over your pricing as a premium advice provider to relevant clients. With clients who demand premium service levels from you, you can demonstrate the breadth and value of your services, and then justify that you are more expensive. Yes you can have lower cost packages, but within these packages the clients should be left in no doubt about what is included and more importantly what is not.

Clarity around your value gives you a strong position when negotiating your price. Without it, you’re forced to keep watching your competitors and make sure you are undercutting them. A race to the bottom… However if you want to charge higher prices than your competitor, you have to able to deliver more. So it is very important that you can actually deliver what you promise. The last place you want to end up in is the dreaded “over-promising and under-delivering” experience for clients. This is the certain road to losing clients.

 

Spend your time now looking at the value that you add. Do this piece well, and the cost side will fall easily into place, giving you confidence and greater certainty around your future income stream.

Are you asking the right questions when buying a book?

We have written before on this very topic, but as there is lots of activity currently in the Irish market, we’ve developed our latest thinking to help you ensure that you get maximum bang for your buck when buying a book of business.

 

The last few years have generally been very good times for financial advisers. Many of you have grown significantly through your own efforts and those of your team. However there are many of you who have looked to turbo charge this growth through acquisition, either of a book of business or indeed through buying another advice business – lock, stock and barrel. Done well, this can help you significantly increase your growth potential. Here are a few questions to consider,

 

Why?

First of all, be crystal clear about why you are actually in the market to buy a book or another practice. What is the strategic rationale for the acquisition? Are you seriously in growth mode, or have you simply run out of ideas in terms of developing your existing business? Maybe some work on your own proposition and properly planned organic client acquisition tactics are a better alternative to going into the market for an acquisition?

 

What?

What are you actually looking to buy? Have you run out of opportunities in your existing business and need an injection of potential clients? Are you looking to buy a book of clients hoping you will unlock a few nuggets in the belief that your advice approach is superior to that of the selling broker? Or are you looking to buy a very well-developed business that is going to lift your own business onto a new level through bringing better processes and opportunities than those that exist within your own business? The challenge in answering these questions may be how you will actually leverage the opportunities.

 

Who?

So you’ve decided that the strategic rationale justifies a purchase. The question now is which book or business to actually buy. This is where you need to carry out careful due diligence to really understand what you buying: the quality of the clients, the processes and the client propositions.

Are the clients that you are buying going to increase your recurring income stream over the long term, or are they going to fall away over the coming years through no relationship and loyalty to you? Are they going to really help you to gain a foothold in your target market? At the end of the day, are they going to be worth more or less than the sum of the parts?

The people that will come with a business (if any) will of course also be a tremendous asset or liability going forwards. You need to make clear and educated decisions as to whether they are a good fit for your business or not. Bringing in a strong group of people could really help you to drive your business to the next level.


How much?

So you’ve found your purchase target. If you’re simply buying a book of business, the chances are this is going to be a fairly straightforward transaction based on a multiple of the income stream. However if you are actually buying the entire business, there are many other factors to consider.

Are the existing owners remaining involved and if so, in what capacity? Are they going to be part owners of your newly enlarged business, keeping them with skin in the game? If they are remaining as shareholders, they are much more likely to stay committed to growing the business. On the other hand, if they are remaining in the business simply to help the transition, you should be looking to build in clear earn-out targets. This will ensure that you reap the rewards of their ongoing involvement, as they will be financially incentivised to help you transition the clients into your business.

You should also examine closely the profitability of the business you are buying. If they were struggling to make meaningful money, how are you now going to do it? Can you see cumbersome administration practices that you can immediately replace with your own well-developed processes, extracting immediate savings? Can you see savings to be made in terms of people – maybe you don’t need all of their staff? And possibly you can see opportunities to broaden the proposition that was offered to their clients, increasing the revenue potential. Any of these factors will help you realise more profit potential.

 

What are the risks?

We’ve highlighted a lot of the risks to success in the earlier sections above. However you also need to protect your business against the sins of the past that may not have been uncovered in the due diligence process. What protection have you extracted against poor advice given to clients in the past? What warranties have you been given by the seller about the quality of advice given, the products sold, the performance of ongoing service for trail commission, the promises made to clients? You need to consider how long the seller remains “on the hook” for these issues, as the last thing a buyer wants is a string of complaints (or worse) arising in the future. A seller of a very clean book of business with excellent advice given in the past should not have an issue in providing reasonable and fair warranties.

 

These are just some of the questions that you should ask yourself before you step into the market to buy another firm. Buying a business is a big step – take your time, ask yourself the hard questions and do careful due diligence in order to seriously enhance your prospects for achieving a value adding purchase.