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.

Never forget the importance of building trust

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Trust. It sits at the heart of a financial broker’s business. It’s that magic 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.

Every year, I review the very insightful Edelman Trust Barometer, an annual, highly credible review of trust that has been carried out for 23 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 2023 are available here and are well worth a look. Edelman looks at trust in each of the countries (one being Ireland) and examines trust across different sectors and industries.

Two graphs in particular caught my eye this year.

 

Economic Optimism

The first is in relation to economic optimism and whether people believe they will be better or worse off in 5 years time. Maybe after Covid, the ongoing war in Ukraine and the recent cost of living crisis, it really is no great surprise that every country (with the exceptions of Sweden and China) sees a reduction in optimism since 2019. The levels of optimism have really fallen away in the developed world, and this is seen in the results for Ireland. Only 31% of Irish people believe they will be better off in five years time and this should definitely be a concern to policymakers.

 

 

 

 

 

 

 

 

 

Low trust in financial services

As can be seen from the graph below, Financial Services is one of the least trusted industry sectors in Ireland – a fact we simply cannot ignore. What is also worrying is that trust in the financial services is declining from an already pretty low base. Of course we need to consider how broad the financial services sector is, and how every scandal in one corner of the sector tarnishes everyone.

 

 

 

 

 

 

 

 

 

But this is a very important finding for all financial brokers to consider. While the poor level of trust applies to the sector as a whole and is no way reflective specifically of financial brokers, it underlines the challenge faced by all industry participants in building trust with potential clients. The situation is likely very different with your existing clients – if they didn’t trust you, they wouldn’t stay with you.

However the challenge is about appealing to all those people out there who maybe are looking to interact with the sector for the first time, or in a different way. They are sceptical of the financial services industry, and potentially this might include financial brokers. How do you appeal to people you meet for the first time, who may often be starting out with a sense of distrust and scepticism? This cannot be ignored by you, and your first task on meeting a prospective client is to face this issue head-on and start building trust…

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.

 

What is your business proposition?

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 broker 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 broker, 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.

 

The Financial Broker market in Ireland today

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We were delighted to be asked by Brokers Ireland in 2022 to complete an extensive research project to develop a future-facing view of what the Financial Broker sector will look like in 2030. The primary purpose of the research was to inform Brokers Ireland as to how they can shape their objectives and support services to consolidate and grow their positioning as the leading representative body for Financial Brokers in Ireland, and indeed as the voice of the sector.

A secondary piece of work was also commissioned to extract the key learnings from this report, with a view to helping Financial Brokers prepare your own businesses for the future.

The research methodologies included focus groups with Financial Brokers, interviews with senior executives from product providers, interviews with other service suppliers to the sector and interviews with experts from five developed markets outside of Ireland – namely the UK, USA, South Africa, Australia and Canada. This was further supplemented by structured consumer research and online survey research carried out with Financial Brokers. Extensive desk research was also carried out to build out a comprehensive view.

Over the course of the next year or so, we will share the key findings from this research, beginning below with a piece about the advice market as we see it today.

 

A market in rude health

Financial Brokers in Ireland are the dominant distribution channel and source of financial advice and personal financial products for consumers in Ireland. When investment-only business is excluded, the channel currently commands an estimated market share of 74%. This is a significant increase on the Financial Broker market share that had fallen to 54% before the financial crash in 2008. Financial Brokers have demonstrated your resilience and value to consumers over the last 15 years.

The overall personal finance market in which Financial Brokers enjoy a commanding position has been very buoyant in recent years. The market experienced growth overall of 23% in 2021, which continued with further growth of 23% in the first half of 2022.

 

The changing role of the Financial Broker in Ireland

While the core role of Financial Brokers as the primary source of expert and independent financial advice in Ireland continues, several factors have fundamentally changed the business models for many of you. These changes have been largely positive and have enabled you to grow more sustainable and valuable businesses. They include:

  • The growth of trail commission as a mainstay of the remuneration model of Financial Brokers.
  • The negative deposit rates (that are currently inching upwards again), offering good opportunities to Financial Brokers to offer better saving and investment alternatives.
  • The growth of financial planning as part of a deeper service proposition.
  • The impacts of COVID, which resulted in Brokers embracing process improvements in the shape of remote meetings with clients, the use of digital signatures etc.
  • The upskilling of Financial Brokers in the form of professional education qualifications and the use of technology in areas such as future cash flow planning.

The general opinion among interviewees is that Financial Brokers simply have a better value proposition than other channels such as banks, direct sales forces and online providers. Your personal touch, your independence and your comprehensive offerings enable you to stand apart. The resilience and adaptability of Financial Brokers was also remarked upon on numerous occasions by interviewees. A recurring theme was that the future of Financial Brokers constantly seems to be threatened by some external force, but you continue to manage hurdles in your path, survive threats that you face, and ultimately thrive.

 

The Financial Broker market globally today

Generally, across the world, the independent financial adviser markets are in rude health. Several common themes emerged in relation to those markets today.

  • Reaching the non-advised community is the biggest challenge facing the sector globally.
  • There is an ongoing drive for increased proficiency and upskilling globally within the profession.
  • The older age profile of advisers and the challenge of bringing in new blood is an ongoing concern in all markets.
  • The enormous and disproportionate burden of regulations and compliance requirements that are faced by often “micro-businesses” is a significant issue for the sector.
  • All markets are experiencing an ongoing drive for increased transparency for the benefit of consumers.

Next month, we will set out a summary about the expected evolution of the market over the next 7-10 years. Following that, in each of our subsequent newsletters, we will share one of twelve action areas for Financial Brokers to prepare your own businesses for 2030. These action areas are also contained in an information guide that Brokers Ireland have produced for Financial Brokers.

We hope you find this research interesting and thought-provoking.

Lessons from other industries

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Going back to my days in college, I can recall a number of the key marketing principles that were ground into me; 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 brokers today, the principles that I find myself returning to more and more to address your challenges 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.

There are also valuable lessons to be learned from how these principles are applied in other industries… but more about that in a minute.

 

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 broker market in Ireland?

Many financial brokers 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 focusing 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 with specific propositions, while offering a different proposition to other groups of clients. Some are even offloading their lower value clients to only 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, savvy advisers are taking that final step of actually positioning their business and their communications to appeal directly to their target markets, even at the risk of alienating other potential customers.

 

What can financial brokers learn from other industries? 

The best examples come from the airline industry. They make it very obvious that high value passengers get a superior service, they certainly don’t apologise for it! Apart from very noticeably “turning left” on entering the plane, we see 1st & business class passengers enjoying benefits such as;

  • A pick up service to bring them to the airport
  • A fast track route through the airport
  • Waiting in a private lounge
  • An airline official at their beck and call to manage any issues that might arise
  • A shuttle service directly to the plane so that they don’t have to wait at all
  • Planes are sometimes even delayed to wait for a late 1st class passenger!
  • And then you’ve all the on-board perks!

Now who wouldn’t start to feel a little special?

There are similar stories of exceptional services offered to loyal users of some of the world’s leading hotel chains – room upgrades, limousine services, free laundry, sourcing tickets for high demand events as well as in-room food and drink services. All to make you feel that bit special.

So what can a financial broker take from this?

 

Develop your service packages

Develop service packages for your business that reward clients depending on their value to your business. Make your high value clients feel really special, reward them for trusting you with their money by giving them a truly rewarding client experience. Build a moat around them and pull up the drawbridge from your competitors by providing a second to none service.

Let your mid-tier clients feel valued by your business, while at the same time making them aware that there is lots more you can do for them (if they are willing to pay for it).

And of course your no/low value clients will begin to realise that it’s a business you are running and that they don’t have 24/7 access to you. If they want access to superior service (ongoing advice from you), they pay. The same as when they book a flight or a hotel room.

 

Do you know which of your clients should turn left and which ones should turn right?

Help your clients retire well

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One of the primary reasons why clients reach out to financial planners is to plan for financial security in retirement. Of course, financial planners today deliver far more than helping clients to simply save money for the future. You help clients to visualise what their retirement will look like, you put a cost on this life and then develop a plan to help your clients to achieve the life that they want.

This is very valuable, but clients need more help than this.

Retirement has a huge impact on clients, who overnight go from being very busy people to well, maybe not having a lot to do… Not working any more creates a huge void in their life. Of course for some, this is a very welcome space, for others it brings a range of issues with it. When they’ve hung up their boots, it is often only then that people recognise how important their colleagues were as part of their social fabric. When this daily interaction is no longer there, loneliness can ensue. Of course on top of this is the loss of a sense of purpose every day. Before retirement, your client got out of bed every morning to go to work, to earn money and to achieve their work objectives. Now these are no longer there, what drives them every day?

As their financial planner, you can help your client prepare fully for retirement by expanding your conversations far beyond the financial aspects of their later lives. Here are some areas that you might help them consider,

 

Being with their partner every day

This is not a punishment! But it will definitely take adjustment for both your client and their partner. Routines will now change for each. Your client needs to develop a new routine and the immediate thought might be to hang out with their spouse every day. However their spouse may be happy with their own existing routine (that doesn’t include your client) and might not want to change it.

Of course the answer is in finding a balanced approach. It is about awareness of each other’s space, routines and hopes for the future together. The key to this is talking about it and working through it together. As their financial planner, you can gently guide this conversation.

 

There is time to fill

The thinking around this needs to begin long before retirement. The working day, including commuting time often punched in 11 or 12 hours every day. That’s a lot of time to fill now, so how is your client going to do it? Are they going to play lots of golf and even then, what will do with the rest of their day? Are they going to study or do voluntary work? Are they going to travel to all those places they had long promised themselves to see?

Your clients need an activity plan, as well as a financial plan. You have worked with many clients as they transition into retirement. Tell the stories of these other clients, how they transitioned, the activities they carried out, how they made retirement work for them. Hearing other people’s experiences is always a useful guide.

 

Encourage clients to mind their health

You have seen the cost of clients getting ill. Bring good health practices into both your client’s financial plan for retirement and also their activity plan. Will they join a golf club or a leisure club with a pool and gym? Will they go for a walk every day?

Also encourage your clients to stay sharp mentally too. Their plan should include cashflow for meeting friends, getting out and about and maybe even going back to college to study. All of these will help your clients stay fit and strong.

 

Remind your clients of their value

Your client has so much to offer in terms of experience, expertise and time. Some people can retire with an ensuing perceived loss of value. Previously a company and colleagues relied upon them, and now that is gone. All that actually needs to change here though is that while previously your client was paid for their time and expertise, they can still use their skills, but maybe without payment or for lower payment. Your client can now work on their own terms – maybe for someone / a charity that they want to work for, at times that suit them and in ways that make them feel good about themselves. Your client will add enormous value, whether that’s to a voluntary organisation, coaching a sports team or mentoring less experienced business owners. Many retired people build up nice little income streams for themselves in retirement, by putting their skills and expertise to work, all on their own terms.

 

Helping your clients to get their finances in order is very important for them to enjoy a happy and satisfying retirement. But it’s the other factors that will make them feel good about themselves and will help them to live their life to the full for many years to come. As their financial planner, you can guide your clients to think about these areas and help them achieve a full life after retirement.

Succession planning in a family advice business

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While there has been a very welcome influx of young, qualified individuals into the financial advice profession in recent years, a significant proportion of successful advice businesses continue to be led by older, experienced advisers who built up these businesses from scratch. A high number of these businesses have seen children of the owner join the business, build up their experience, gain relevant and valuable qualifications and help bring the business to a higher level. This is a follow-on piece to last month’s article about structures in family advice businesses.

And the time then comes when the business owner wants to step back, take life a bit easier and start enjoying the fruits of their many years of toil. They also want to pass the business to their children as seamlessly as possible, a situation that we have seen played out many times in Ireland. With a consistent stream of advice businesses undertaking a succession process, there are a number of lessons that can be learned from previous successions that delivered on all of the intentions, and from those that didn’t.

 

Planning needs to start many years in advance

Succession planning is definitely a carefully planned process as opposed to a transaction event. The most successful successions are those that are planned from many years out – there are a lot of elements to get right! Careful thought needs to be given to the timing of the succession, the terms and basis of the transaction, the tax opportunities that can be leveraged, how the transaction will be funded, the ongoing role (if any) of the parent who established the business, the future direction of the business and the roles of the various children who will be taking the business forward.

This all takes well-executed planning. A poorly planned succession process will be quite unsettling and will likely introduce tension and sometimes fractured relationships among the family members.

 

Be open and inclusive in the planning

While the business owner often started and built the business pretty much on their own, succession planning is not something to be carried out unilaterally.  A seamless transition and the future prospects of the business will be enhanced by involving the family from the get-go. If the children (future owners) of the business are involved in the planning, they will be more engaged and committed to the process.

 

Don’t paint yourself into corners

Another advantage of the business owner not planning the succession alone, is that they can avoid making decisions that ultimately don’t fit with the ambitions of the children and that become difficult to row back from. Involving the children in the planning may uncover some unexpected surprises – maybe the expected future leader of the business doesn’t want that role at all, instead they want to have a strategic voice but not be the leader of the business.

The children as a group may have a different future vision to the current owner – their parent. Maybe the new owners see a future as a specialist financial planning business as opposed to a more transactional business. While the latter may have been the preference and right course for the business today, the new owners may see a different future.

 

Get external help

Surprisingly often the downfall of a succession plan is the family believing that they know what they want and can sort it all out themselves. This may very well be the case, but it can fall down in two areas.

First of all, external oversight brings a new dimension and often identifies additional opportunities and sometimes issues with the chosen plan. Family members can become so immersed in the whole process that they end up not seeing the wood for the trees. External people bring additional rigour and valuable challenging of the plan, which otherwise may be missing. This can happen quite easily in a family scenario where everyone is on their best behaviour, treading cautiously around the whole succession and not wanting to cause offence. The second area where external oversight can help is in drawing out the thoughts, goals and contributions of the quieter or more reserved members of the family. An external can make sure that every voice is heard in the process.

 

Don’t forget about non-family staff

Don’t forget about non-family members of staff throughout the process. They can feel very side-lined if the whole focus of the business is on the succession process. It is really important to keep them informed and motivated throughout the process, as their contribution and commitment to the business is needed before, during and after the succession happens.

 

An effective succession within a family business is a momentous milestone in a family’s life. Give yourself every chance of this happening smoothly.