Your role as a financial therapist

I really think the importance of the role that financial planners play in the lives of your clients cannot be highlighted enough… To think of your role solely in terms of products, investments and even financial plans simply doesn’t do it justice. Each of these are important, but in terms of the lifetime benefits that clients will get from dealing with you, they are simply the tangible means to bring your value into the open.

Where clients encounter the most value is in the psychological and emotional benefits they get from you in your role as their mentor, their guide and yes, their financial therapist. While it might not always be expressed in tangible results in the endless research we see about the value of working with a financial adviser, the benefits are irrefutable.

People want direction

We gain peace of mind when we have clarity in our direction of travel, or what we are trying to accomplish. Having goals in our life is healthy, giving us motivation and an aspiration to achieve. A good financial planner helps clients identify their goals in life and then gives them the roadmap to achieve them, in the form of a financial plan. This clarity of objectives gives clients direction, as opposed to the fog of uncertainty experienced by people who have no aspirations or idea about where they are going.

Advice conversations aid collaborative relationships

I wish I had a euro for every time an adviser has told me a story of a client in a meeting saying to their spouse something along the lines of, “I never knew that was important to you or you thought that!” Deep financial planning conversations will often uncover viewpoints and thoughts that have either not been considered, or which one partner has not openly articulated.

As these new perspectives are brought out into the open and addressed, they result in enriched and more collaborative discussions about money, and even life in general, into the future.

Clarity breeds confidence

In the most recent 2023 Value of Advice report from Brokers Ireland, 58% of people feel more confident and in control of their finances having accessed financial advice. You will find numerous other studies globally that back up these findings. Of course there are financial benefits of receiving advice, and hey, who doesn’t mind having a bit more money to invest or spend? And that is aside from the advice probably resulting in less tax being paid, better structured debt and greater lifetime income and wealth. Each of these are valuable and tangible benefits.

But the real magic comes from people gaining satisfaction and clarity about their financial situation, and from being in control. Knowing their money is being optimally managed, provides mental wellbeing. That gnawing uncertainty of not being in control and making poor money decisions is removed through sound financial advice.

People like to be listened to

This might sound obvious, but we all encounter situations in our lives where our voice is simply not heard. This might be at work, when dealing with a bank or sometimes in a medical situation. The so-called expert on the other side of the table isn’t really interested in what we think and is working from their own well-honed script.

The most effective financial planning conversations are those based on carefully crafted questions and deep listening by the adviser. This is where those hidden, key objectives or values are brought to the surface, which then become centrally embedded in the financial plan. Then the client really feels like they own the plan, that it is theirs and theirs only. So whether it’s about some mad dream the client might have, or gaining crystal clarity about their investment values and preferences, uncovering these can turn good meetings into life-changing conversations for the client.

Regular progress reminders reassure people

Regular review meetings provide ongoing reassurance to people. When reminded of where they started from, where they are trying to get to and where they are on that journey reinforces those positive vibes. We all like to see that we’re making progress in every area of our lives, whether that’s in relation to our career, our finances… or even our golf handicap.

So, do you think your role is as a financial expert? If that’s all you think, I respectfully suggest that you are seriously underselling yourself.

How come you’re not selling more protection?

This is a question I’ve found myself asking of several firms that I worked with this year. Their businesses are growing revenue strongly, their proposition is very client focused and they are seeking to add value at every turn… but there seems to be surprisingly little focus on protection.

When I dig a little deeper, it typically emerges that their background is in the investment and/or pensions space and this is the foundation on which they have built their business. They live and breathe economic matters, the markets and investment propositions. Most have successfully transitioned their businesses into the financial planning space too, with excellence being delivered in this area. But somehow, protection doesn’t seem to feature much.

The need for protection is clearly understood by them – they have heard and sometimes seen among their own clients the devastating impact of illness or death on individuals and their families, and the peace of mind afforded by protection insurance.

So, what are the reasons I’ve heard that are stopping them from selling more protection business? And what are the alternative perspectives they maybe should consider?


Our clients want us to focus on their investments

This is a legitimate reason, as it is one that I believe clients sometimes put forward. They see the value in their financial planner being delivered by the development of the financial plan, and then the support they get in selecting the optimal investment and pension propositions. They see the value coming from the growth of their wealth.

However, in these situations it is prudent for the financial planner to take a step back and demonstrate the importance of considering financial protection as one of the bedrocks of a comprehensive financial plan. After all, much of the conversation about investments will centre around risk – the economic backdrop, achieving the optimal asset allocation, potential stock market outcomes and even the performance of individual active managers. How can you have a conversation about risk without discussing the most impactful risk of all – the mortality, health and circumstances of the client?


Our clients see protection as unnecessary / poor value

This one takes education of the client. Certainly, if discretionary income is tight, clients can baulk at seeing protection premia dripping out of their bank account each month. And while car insurance is a legal requirement and mortgage protection is a condition of approval of a mortgage, the likes of specified illness cover and income protection are not a mandatory requirement. And so, they become a grudge purchase…

The answer to this is in stressing the importance of financial protection. After all, if someone loses their income due to an accident or illness, every asset and service that is reliant on this income is threatened. Income protection is the glue that holds everything together. Without an income, a mortgage can’t be paid and a home is at risk, loans cannot be repaid, day to day expenditure becomes a major challenge and all luxuries are gone. Is this a risk worth even contemplating?


I don’t have the time or expertise

This is one I’ve heard and that I just don’t buy… Your clients are poorly served by your lack of time or expertise. You claim to have their interests at heart but are neglecting a fundamental part of the service they should be receiving from you. Your clients are probably not even aware of the importance of financial protection, but you as their professional adviser are the person responsible for raising this awareness.

A lack of time or knowledge are not acceptable reasons. Hire another person and/or build your own knowledge and deliver a truly comprehensive service to your clients going forwards.


My clients generally have enough cover anyway

Again, this one is valid – some of the time. Some clients have benevolent employers who provide a broad range of employee benefits that may include life assurance, income protection and some sick-pay benefits. But there are equally many more employers who provide partial packages only, or in lots of cases no benefits at all.

When a client suggests they have sufficient employee benefits, I believe it is still incumbent on a financial planner to validate this information, with a view to confirming that there is sufficient cover in place… or not. Again, your client will thank you for this. Yes, there is a financial cost to putting more financial protection in place, but for clients who as a result of your advice become fully financially protected, the peace of mind is immeasurable.

My personal belief is that a financial plan is not complete without a full view of future cashflows, and that the real value of this part of the plan is considering a broad range of scenarios – the “What if” questions. When you get into these scenarios, this exercise can only be considered to be complete when you have examined the impact of an illness or death. And the results of these scenarios in most cases raises the need for protection products.

So my challenge to these advisers is; Are you actually completing a comprehensive financial plan, without a full conversation around protection needs and solutions?

Have you segmented your existing clients in a structured way?

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.

What’s your advice business worth (to someone else)?

This is the first in a two part-series of articles that examines the sale of financial advice firms. In this initial article, we consider the various valuation methods that can be used to place a value on your business. Next month we’ll take a look at some of the ways that you can (positively) influence that value.

How to value your business

There are many methods that are used to value businesses, however the most common methods are,

  1. A multiple of recurring income
  2. A multiple of EBITDA

We’ll examine both of these in turn.


A multiple of recurring income

This is still the most widely used valuation method, and it is certainly the one used in casual conversations among advisers. This is the basis that is quoted in relation to any “buy back” agreements in place in the market. This basis is popular because of its simplicity, and also because a potential purchaser will be satisfied that they are buying a future income stream. The value of the business is not skewed by a huge uplift in new business sales (and attaching initial commissions) in the year or two before the sale of the business.

Of course the next question is – what’s the multiple! And that’s really where the negotiations start. This will be determined by a whole range of elements including;

  • The business retention strategy in place and the actual retention record of the business. This is a critical factor for would-be purchasers.
  • The compliance profile of the business – are the systems in place robust or is it all a bit lacklustre, with potentially significant hidden problems down the road?
  • The synergy between the seller’s business and that of the purchaser. This includes target markets, systems and the ability to easily integrate the two firms. These factors may make one potential purchase a better prospect than others, as the purchaser may gain more from synergies and be willing to pay a higher price.


Multiple of EBITDA  

The simple calculation based on recurring income is not deemed sufficient in all situations. For larger firms, a more refined calculation method is often deemed necessary, and this is where the multiple of EBITDA (Earnings before interest, tax, depreciation and amortisation) comes in, as this takes a much broader view of the business as a whole and looks at the actual profitability of the business.

When this calculation method is used in relation to smaller firms and where the business owner’s salary is the main overhead, EBITDA is often adjusted by removing the owner’s salary from the calculation as this can often significantly skew the EBITDA figure. With the salary excluded from overheads, a prospective purchaser can get a clearer picture of the real profitability of the business.


Payment Terms

Usually when an advice business is sold, there is a handover period where the previous owner remains with the business for a year or two to ensure a professional handover of the clients to the buyer, and to assist in the retention of those clients.

As a result, the payment terms usually include some of the purchase price to be deferred – maybe with half paid up front and the remainder paid in tranches over the following two years. There will typically be penalty clauses if the retention turns out to be lower than anticipated. These terms are really important, as they align the interests of both the buyer and seller towards a smooth handover with high retention rates.


Make the process easy

Due diligence before a sale is key. Once any confidentiality agreements are in place, it is really important that the required information is easily accessible to a prospective purchaser. If they feel they have to drag the information from you, they will wonder what you are hiding. So make sure you are capable of providing the required information before you start seeking out a buyer.

Equally, be realistic in your price expectations. While of course you may not choose to take the first offer that comes your way, don’t hold out forever for that elusive windfall sale price.


These are thoughts solely on the financial side of selling your business. In a follow-up article, I’ll look at steps you can take to actually increase the value (and more importantly the price!) of your business.

What’s the right charging structure for you?

Trail commission. Is it the silver bullet that enables Financial Brokers to be paid for the value they add, to build value in their businesses and eventually sell the business at a healthy multiple? Or is it a somewhat opaque way for advisers to be paid, sometimes with very tenuous links between the value provided by the adviser and the payment received?

Trail commission is far and away the most popular method of being paid today. First of all it’s relatively easily explained. Clients understand it. And of course trail is very easily collected. Clients don’t have to write another cheque, which is always a potential hurdle. Clients also see a level of alignment of interest – if the portfolio sees strong growth, both the client and the adviser win. Also there is no VAT payable on trail commission, that will apply to retainers and fees if the adviser’s fee based turnover threshold for VAT is exceeded. This is good news for personal clients.

For the adviser, trail makes a lot of sense. It’s the most used factor in advice firm value calculations and trail tends to naturally increase each year in line with portfolio growth, and as new contributions are paid into investments and pension policies. Very importantly too, it doesn’t tend to dominate review meeting conversations. Many advisers have moved to Modular AUM-based Pricing, which is where prices are linked to AUM, but then varied based on the level of service. This has become very popular in Ireland, as the focus of the conversation shifts from the price paid to the value added.

But trail is not perfect. As we see asset management fees fall dramatically in some markets, trail levels will come under a lot more scrutiny. In any case, some advisers (and/or their clients) already baulk at the idea of their remuneration being based on the client’s asset levels rather than the value provided. This might be where fees come in.


How do you structure a fee?

I am often asked this question by advisers who have decided to go down the fees route, usually just for a segment of their clients, but on occasion for their business as a whole.

There are of course many different ways of structuring fees – below are listed some of the most common structures used in Ireland and/or in other markets. Of course each of them has their merits and drawbacks, but hopefully this list will help you identify one or more structures that suit you and your business. First of all, the most common structures are,

  • A fixed rate for each service (plan preparation, annual review service etc.). These rates can differ for different levels of complexity associated with different clients.
  • The “McDonalds Menu” approach of bundling services together into service packages, and then charging different fixed fee levels for different service packages.
  • A monthly retainer

Some advisers are now combining one or more of these, including combining them with trail commission. The most often used combination is a fixed fee for preparation of a financial plan alongside modular based trail commission or a retainer for ongoing services.

Other less often used structures include,

  • Hourly charging – rates are quoted by lots of advisers here, but few actually end up using this basis…
  • A model used by advisers in some markets aimed at millennials and others with low asset levels but often high incomes, is advice fees linked to the client’s income and net worth, instead of to AUM.
  • A subscription model based on client preference and personality. A client who is a “delegator” pays more than a client who is simply looking for validation of their own decisions, who in turn pays more than a DIY client who simply wants help with product execution.

As you can see, there are many different bases that can be used, and often the preferred structure is a combination of different structures. The challenge for you is to identify the model that fits best with your own client proposition and that reflects the value that you are adding.


What’s the right niche for your business?

As someone who runs a niche business myself, concentrating solely on the financial advice sector, I’m a real believer in the potential to run a niche financial advice business. I’m also aware of lots of financial advice businesses that are pursuing niche strategies.

I’ve written before about how niche strategies can make your life so easy. When you build expertise in a specific target market, you can then market your services to this group with a laser like focus. You have the opportunity to stand apart from the crowd by establishing your credentials as the specialist within that target market. And having that deep knowledge of a client sector and constantly talking directly to that sector enables you to build a deep and valuable connection with them.

One of the biggest challenges that advisers have when going down this route is to identify the best niche for themselves. I personally don’t consider a focus on business owners as a niche strategy as the group is simply too broad to be considered niche.

So how do you identify the best niche for you?


Who do you enjoy working with?

This is as good a place to start as any! Working with people you like will result in greater effort from you and it makes your working life so much more enjoyable and rewarding. When I established StepChange, I knew I wanted to work with the financial adviser community. I was fully aware of the value you add to your clients and I wanted to be part of that journey. I can only imagine how difficult it must be to wake up every day and dread conversations with clients that you have no time for….

Of course you need to be confident that the niche you would like to work with is big enough, the chosen target market must be capable of supporting your business at the level you want it to. This requires research and groundwork before you commit to specialising within your chosen sector.


Can you add increased value?

Once you know who you want to work with… now how can you stand apart from the crowd? This is typically going to be through deeper and more specialised knowledge of your chosen sector. As an example, let’s assume you have a real passion for the entertainment industry and decide to target freelancers who work within it. To stand apart from other advisers, you need to understand the nuances of this sector better than other advisers – how people in the sector are paid, the nature of contracts, their working environment and unique challenges and what are their specific pain points. When you understand their lives better than other advisers, now you have an opportunity to stand apart from the crowd and become the go-to person for that sector.


How can you demonstrate that value?

It’s all well and good knowing who you want to work with and building the expertise in the sector, one of the biggest challenges is establishing your presence as the best adviser for your chosen sector. This is where the hard work really starts, as there is no single silver bullet to demonstrating that value. Instead it’s going to come from many small activities executed well and delivered consistently over time.

Testimonials from existing clients within your chosen target market, case studies of work you completed that demonstrate your specialist knowledge of the sector and an online presence that speaks directly to your target market. These then need to be supported with a regular stream of fresh content that speaks to your target market about their specific challenges – maybe in the form of blogs, videos, podcasts or webinars etc.


What’s your route to your target market?

Then you need to build your presence within your target market. Of course, this will include working from the “bottom up”, one client at a time. However, you also should be looking at getting out in front at an industry level too – this might be through partnerships with other sector specific professional firms (accountants who specialise in the sector, agencies etc.), industry bodies, trade associations, sector publications and any centre of influences within the sector. Building links with them takes time, effort and patience, but if done well it will deliver strong dividends over time.


Does a niche strategy rule out other clients?

The bottom line is, no it doesn’t. A niche strategy enables you to narrow your focus in terms of the clients that you are going after, but it doesn’t prevent other clients from outside your niche approaching you about your services. From my own experience, people from outside the financial adviser community have approached me over the years to determine if I’d be willing to work with them. You are then in the fortunate position of deciding who you want to work with.


I’m a fan of niche businesses. Do you know who you want to work with?