It’s time to plan for greater numbers of female clients

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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 have considered previously the importance of developing the best proposition and services for different groups of clients and prospects. We now consider the next action identified in the research, which focuses on planning for greater numbers of female clients in the future.

 

According to research by the Royal Bank of Canada, women will manage two-thirds of household wealth by 2030 and increase their share of global wealth from about half to 70% within two generations.[1] While women have taken significant strides in the workforce over the last two generations, much of the fortunes of men who pass away will also end up in the control of female spouses, who tend to be younger and live longer.

 

In Ireland, there are more women than men, with the ratio of men to women now at its lowest level since 1871.[2] There are also more women in the workplace today, and so demand for financial advice should increase from them.

 

More generally, it is important that couples are advised on a very collaborative basis, with the full involvement of both partners. The days of just dealing with the main breadwinner are long gone. Both voices must be heard in conversations about household finances and wealth, to engage and leverage the unique perspectives and insights of both partners.

 

Some of the specific challenges faced by women when it comes to financial advice also need to be considered. For reasons such as past inequality in the workforce and women taking breaks in their careers to raise their families, women typically have smaller asset pots than men today. In Ireland, a gender gap in pension income – the percentage by which women’s average pension income is lower than that for men’s – of 35% exists today.[3] The advice and solutions offered by Financial Brokers will play an important role in helping to close this gap.

 

So when it comes to planning to attract greater numbers of female clients, the starting point might be to review your marketing presence to ensure it is appealing to both male and female clients. Carefully review the imagery and text on your website and social media profiles to ensure it is appropriate and appealing to all.

 

The next step is to consider your own advice approach and proposition, and how well it is positioned for both male and female clients. Are you talking to your clients in an unconsciously male oriented way? Are you really tapping into the specific challenges that women are facing and building these in as a core part of your proposition and your messages? Of course as part of this, it is crucial that you have firmly communicated the importance of having both partners in a relationship at the meeting, to ensure that both voices and their unique perspectives are equally heard.

 

Finally there is real value in reviewing your client base, with a view to identifying the gender gap in household incomes. This opens up the opportunity for you to build solutions for this gap as part of your advice recommendations, adding value to both the couple themselves and for your business.

 

The bottom line is though, when you think of your target market you typically look for ways to meet the needs of the largest segment within it. Focusing on females is a sensible place to start.

 

Have the right cost model in place

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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 have considered previously the importance of developing the best proposition and services for different groups of clients and prospects. We now consider the next action identified in the research, which focuses on developing a cost model that makes sense for both the client and also for your Financial Broker business.

This starts with recognising that being a Financial Broker is a very worthy profession that delivers a lot of value to clients. Good Financial Brokers deserve to be well rewarded for the value that they add, helping clients to achieve their financial objectives and transforming their lives.

To achieve this, a well-thought-out remuneration model that is linked closely to the value added must be developed and articulated clearly to clients. This may appear difficult to some, who have simply been ‘price takers’ in the past.

While there is a sense that fixed fees may be charged for project-type work such as some complex planning services, there is a strong and unanimous belief among all Irish participants in this research project that the current commission model, particularly in relation to ongoing charging on an assets under management (AUM) basis, works efficiently and will continue.

With regard to explaining the level of charging, Brokers will need to be able to clearly demonstrate and confidently articulate the value delivered. In the future, it would be prudent to anticipate that trail commission won’t continue without value actually being delivered.

There is an expectation in some quarters that enterprise level charging structures (irrespective of where business is placed) will emerge. In this case, Financial Brokers will need to set their own pricing for different products, and not vary this based on terms given by different providers. Additional benefits supplied by a provider would then go to the client.

Charging for younger clients and those of limited asset amounts is recognised as a real challenge for the industry. They are not attractive to either providers or Brokers today, but they are the valuable customers of the future. The belief is that many Financial Brokers will take a long-term view that as these people’s careers progress and their assets build, in time they will become attractive clients. For clients with low assets, Brokers will need to continue to receive initial remuneration to make this business worthwhile, either by commission or through the levying of some form of an administration fee. As discussed earlier, the service level provided to these clients will need to be relatively light, in line with the income generated for the Financial Broker.

So, what are the steps for you to take to develop a cost model that will serve you well into the future?

The starting point is to review your current remuneration levels across your different client segments, ensuring that they are fair and equitable to your different groups of clients, and to you. Your next action is to take a step back and identify all the areas of value that you deliver, and then place a cost on these based on your time, expertise and the value experienced. This may require you to adjust your remuneration amounts accordingly.

Running in parallel with these actions, we also think it prudent to actively consider an alternative remuneration approach for younger / lower value clients, to ensure that they are not loss-making for you, while also delivering positive outcomes for the clients. Your cost model needs to be proportionate and attractive enough for these clients, while also making sense for your business.

Finally as you look forward out over the 8-10 years and should enterprise level charging begin to emerge in the future, it might be worth considering the levels of charge that you would apply to remove any suggestion of provider bias in your recommendations.

Fees and charges are always a tricky area to get right. The solutions you develop must be transparent and fair to your clients, while also providing the level of income required by your business to ensure you can afford to continue to deliver a world class service to your clients.

 

Know your target market

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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 first action identified, which is the importance of identifying and getting to know deeply your target market.

Based on the research findings and the numerous challenges faced in providing a viable and valued advice service to people of modest financial means, it is likely over the next decade that Financial Brokers will continue to mainly target the mass affluent and high net worth sections of society. Within this, individual Financial Brokers will target different segments of the market, based largely on their areas of expertise or where they can access clients easily. This is who they will target, and the positioning of their business will need to be centred around the target market. Connecting with their target group will be a primary goal and activity of the business.

Financial Brokers should consider where they can add most value. Will this be with families, assisting them in managing every aspect of a household’s finances and assisting them in achieving all their financial objectives in life? Or will their target market be business owners maybe in a specific geographic region, where the Financial Broker will be the guiding hand in all areas of wealth extraction, succession planning and achieving a successful business exit? Or will the Broker build a superior knowledge and understanding of the unique features and attributes of a particular profession and advise them – maybe sports people, entertainment professionals or people in a particular industry? Building a superior knowledge and understanding of a specific target market is a powerful positioning and will enable a Financial Broker to become the ‘go to’ person among that cohort of potential clients.

The value experienced by clients will be in the Financial Broker’s superior knowledge of a target market, the quality of advice delivered, and the products arranged to implement the advice.

That is not to say that Financial Brokers will only have clients within a narrow target market. Other clients will emerge that the Financial Broker did not actively target – some may also be high value clients, however others will be less valuable, maybe having been introduced to the business as a child of a high value client or a referred client etc. However, the marketing efforts of the business will be aimed at the desired target market – these are the people you are putting all your efforts into appealing to.

We identified a number of specific action points for Financial Brokers to carry out.

First of all, it is important to consider your available markets and the ones that offer the scale and best opportunity for you to add value and ultimately succeed. To do this, you need to build a view of the estimated population (households, businesses etc.) within your target market – there are many research resources available to help you do this. These include the CSO, government websites, local business sites etc.

Once this is completed you then decide which group(s) you will target. This will be decided based upon having confidence that the target market is viable and big enough to sustain your own business goals and ambitions, and being able to identify clear access points to this market. You need to have a good sense from the outset as to how you will reach your market.

The third point is often the one that is skipped lightly over – at a great eventual cost. It is very important to develop a deep and superior knowledge and understanding of the attributes and specific financial challenges of your target market. You need to know this market better than anyone –  the characteristics of the people, their own specific challenges, what are the concerns that keep them awake at night and what are the particular financial challenges that they face. The more you understand their own dynamics, the better you will be at empathising with them and delivering advice that is based on knowledge and expert insights. This will be truly valued advice and will enable you to stand apart from every other adviser trying to build relationships with them.

Once you have built this deep knowledge, the final step is to use it to stand apart from your competition. You do this by refining all your marketing channels and efforts to build your presence among this target market. Don’t try and talk to everyone, look to talk in a deeper way with your target market.

Rather than trying to be “all things to all people”, the first step in being a successful Financial Broker in 2030 is to identify and go after a clear target market.

 

 

What will the Financial Broker market look like in 2030?

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Last month I introduced a research project that I was fortunate to deliver for Brokers Ireland with the aim of developing 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 own objectives and optimise their support services to best meet the needs of their members, and to consolidate and grow their positioning as the leading representative body for Financial Brokers in Ireland, and indeed as the voice of the sector.

In last month’s article we looked at the market today. Now we’re going to take a leap into the future and examine some of the key themes that the research revealed as to how the market will look in 2030.

The general outlook

Overall, the future demand for financial advice is expected to grow, with the future for Financial Brokers looking bright. This positive outlook is shared by Financial Brokers themselves. In a survey carried out in 2022, almost 50% of them agreed with the statement ‘The future is very bright for Brokers, I expect the market share of Brokers to increase’, with only one in five answering negatively to it.[1] Brokers currently enjoy a market share of approximately 74% and there is every expectation that this share will remain stable in the coming years.

This positive outlook in relation to the demand for advice and to the independent advice sector is shared across all global markets. As consumers make transitions throughout their lives and indeed as regulation, products and the financial backdrop within individual markets change, there is a need for expert independent advice to optimise consumer outcomes.

The biggest cloud on the horizon for Financial Brokers may come from the broader economic environment, with the outlook looking quite gloomy today. However, time and time again Brokers have demonstrated their resilience in dealing with negative external forces. The political landscape in Ireland could also experience significant change over the next decade, with some consequences for the sector.

Preventing an advice gap

The greatest challenge in relation to the demand for advice is reaching people who have never interacted with a Financial Broker and are unaware of the benefits this can bring. This challenge is one that exists in every corner of the world. As an example, it is estimated that 83% of the population of the USA have no adviser. Since the Retail Distribution Review (RDR) was introduced in the UK a decade ago, one of the major impacts has been the narrowing of the financially advised population. Similar trends have been experienced in other markets, as consumers are unaware of the value of advice and advisers cannot deliver advice in a profitable way to consumers with more limited financial resources. This has to be one of the biggest challenges for both Financial Brokers and regulators in Ireland – preventing an advice gap widening in Ireland.

In building relationships with new consumers of financial advice, the challenges of engaging the younger generations and engaging a more diverse audience were noted. These themes will be examined in more detail in future articles.

The target markets of the future

While there will be some exceptions of successful, scaled businesses with large client service machines enabling them to reach a wide group of clients, the expectation is that the Financial Broker of the future will work predominately (but not solely) in the mass affluent and high net worth segments.

The sense of most people, and lessons from other markets, is that the successful Financial Brokers of the future will be ones with deeper propositions, offered to narrower target markets – their goal will be to look after all the needs of some people. Being expert with such groups enables an advice firm to stand apart from their peers and be the ‘go to’ expert in that market. The likelihood is that Financial Brokers will seek to differentiate themselves from their peers through deeper knowledge of specific client groups or by demonstrating superior expertise in specific product areas.

The importance of every Financial Broker having their own business proposition that is then rolled out to their customers was a recurring theme. The future of successful Financial Brokers is unlikely to be as ‘product takers’, with their proposition simply being an additional advice layer to the product offerings of their favoured product provider. The expectation is that technology will play a far greater role in the delivery of advice by Financial Brokers. Again, these themes will be examined in more detail in future articles.

The 3 big questions

Over the next editions of newsletters, I’m going to examine each of the 12 ways that were identified as enabling Financial Brokers to prepare for 2030. Each of these will help you to answer the three most important questions for your business,

  • Who your clients of the future will be
  • What services you will offer
  • How you will deliver these services

[1] Brokers Ireland Financial Broker Survey Report 2022

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.

Different people deserve different things.

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How many clients have you? 200, 500 or 2,000? Often as your client base grows, it results in your number of staff growing. But the chances are that even with your increased staff numbers, you are unable (and unwilling) to provide a top-drawer service to every one of these clients…

Really the question is – why should you? After all, you derive hugely varying levels of income from each of those clients so surely the clients that are driving very high levels of income to your business deserve a higher level of service?

Of course this is not at all a novel concept! Every time you step on a long haul flight, it’s immediately obvious. Turn right for the cheap seats in Economy or turn left to be pampered in Business Class or 1st Class. And then when you book a hotel, you can pay less for a standard room or pay more for a suite with all of the bells and whistles that come with that.

Now let’s take this concept into the financial advice space where for many of you, your remuneration model is built around trail commission. If I’m fortunate enough as an investor to come to you with €1 million to invest, your trail commission might be €5,000 p.a. (assuming you charge 0.5% of assets). That’s fine if your proposition stacks up.

But what happens if I decide to place just €200,000 of my money with you? Now your trail commission falls to €1,000 p.a. Still very attractive, but obviously not as nice. However the question that’s in my head is, “What extra am I getting from you by placing the full amount with you, that’s giving you the benefit of an additional €4,000 p.a. of my money?”

If there is no difference between the services offered in each of these situations, I suggest you’ve got a challenge on your hands… Simply adding trail commission to policies without thinking through your client proposition is fraught with danger.

Not completing a robust segmentation of your clients is also very dangerous. Even without doing a segmentation exercise, I’ve no doubt that a small number of your high value clients get your best service at all times. But inevitably what happens is that there are other high value clients that slip off your radar. Either you don’t realise that they are high value or they just aren’t demanding. This is aside from some low value clients who are constantly on the phone end up getting a huge amount of attention. That’s hardly fair, is it?

So what do you do?

 

Segment your clients

For starters, do a proper segmentation exercise. Know who is valuable to your business and who is not. Don’t be put off from doing this work with the excuse of “it doesn’t capture the full picture”. Yes, there will always be exceptions within your segmentation – for example a client with very little business with you, but who constantly refers other clients to you is actually a high value client to you and should be treated as such. But don’t start with the exceptions; work out how to deal with them later on a case-by-case basis.

I’m definitely not suggesting that client segmentation be based on asset values alone – that is only one factor to be considered and used. However it is usually one of the more heavily weighted factors used by advisers in segmenting their clients.

 

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 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 more for it. The same as when they book a flight or a hotel room.

 

Don’t be afraid to say no

Yes, your lower value clients may want a better service possibly than you are offering and might try to demand it from you, without paying for it. Don’t be afraid to say no. You’ll only be doing this with your no/low value clients… And they are of little or no value to your business. Put your time into those clients that are of value to you – this is what your clients deserve and what your capacity allows.

The days of a “one size fits all” approach are over. Give your clients a service that they want and deserve.