Building bridges with the next generation – Part 2

This is the second in a two-part article on expanding your client base into the next generation of younger clients, by accessing the children of your clients. In last month’s article we looked at how you might build links with these younger potential clients.  In this second instalment, we’re going to consider some of the specific ways in which you might treat this younger cohort, in order for them to fully engage with you and to become long-term clients.

 

Tweak your proposition

If your proposition is all about managing assets, this is not going to resonate with these younger clients – because they often don’t have any! However what they do probably have is significant income growth potential and the ability to build an asset pool in the future. If you want your proposition to engage them, it needs to clearly reflect these factors and how you are going to help them grow and protect their wealth with these factors (low assets, high income potential) in mind. It may mean smaller steps than you usually take with clients, but with a significant end goal in sight for you of helping them grow appropriately over the long term, with you there guiding them on their journey.

 

Lifestyle planning is relevant

Quite often advisors will say that lifestyle financial planning (and cashflow planning in particular) just doesn’t really engage younger clients. I strongly disagree with this… How you position lifestyle financial planning is the key here and also how you charge for it will be an important factor (see the final point below). The reason it is so relevant is that younger people tend to have heads full of future dreams, goals and ambitions, more so than older people where life has become a little more settled and simple. Younger people have no sense though of how achievable their dreams are, or what they need to do to bring them to reality. That’s where your skills as a lifestyle financial planner come in.

 

Targeted communication is a must

Producing regular and engaging communications for your clients is a significant challenge. However you’ll need to accept that it’s going to become even more of a challenge as you build up a cohort of younger clients. Sending “one size fits all” content to your younger clients that you use to engage your clients in their 50’s and 60’s just won’t wash – your younger clients won’t be able to relate to it.

You will need to alter your communication approach with your younger clients, by developing separate content that connects with them and their specific challenges at their stage in life.  It’s definitely more effort, but worth it in the long run.

 

Look at the profile of your team

Something that we see time and time again is that most client bases tend to generally reflect the adviser in terms of age and other demographics. Potential clients tend to gravitate to people that they can easily connect with, who appear to be “like them”. This is something you need to carefully consider with younger clients. If you’re 20+ years older than your target younger clients, are they really going to connect with you? Or will they feel more comfortable with a younger adviser who they can easily relate to, and who will be with them over their full financial journey. If you have younger members within your advice team, maybe you should hand all of these younger clients over to them? If not, is it time to go out and hire a younger adviser, if you are really serious about expanding your client base among younger clients?

 

Consider an alternative pricing model

This is a significant headache for advisers… how to make this segment viable, particularly as asset levels are low or non-existent. Unfortunately the answer here is that you may need to take a bit of a bet here with these clients. A trail commission basis won’t work for you and these clients may well baulk at / not see sufficient value in a standard retainer or fee arrangement. So you may need to review your proposition to a “lite” version at a lower cost, with a view to increasing the services and your fees as the years progress. This is a tough one to get right, but can be achieved with careful planning and execution. The payoff will be down the road.

 

Building bridges to the next generation is a significant challenge, both in terms of attracting them and then delivering a proposition that engages them. However if you do this well, it will add significant long term value to your business.

Questions to ask yourself when growing through acquisition

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. However if you don’t think it through carefully, an acquisition can result in many headaches and lower than expected results.

So what are some of the questions you should ask yourself before stepping into the market place and looking to buy?

 

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 instead of spending your money, it’s time to really unpick your own client value proposition, get crystal clear on the type of business you are and then look at all of the potential means to grow your business. There may be better alternatives 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 a 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 the latter situation here is to ensure you actually extract these opportunities, rather than letting the business you are buying fall back to the levels of your existing business.

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, the client propositions and of course the advice that has been provided to their clients. After all, poor advice given in the past could result in a whole host of headaches for you into the future.

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?

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.

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 success.

Building bridges with the next generation (Part 1)

This is the first instalment in a two-part article about expanding your client base into the next generation of younger clients, by accessing the children of your clients. In this first piece, we consider the challenge of gaining access to the children of clients. Next month we’ll look at how you make this work within your business.

For many established advisers who have been offering financial advice and solutions to their clients for many years, their challenge is that their clients belong to the same generation as themselves. These clients are moving towards retirement age, at which stage they will stop accumulating further assets, and in fact will start de-cumulating, through living off their ARFs and other investments built up during their working lives. And as their assets reduce, so does the remuneration of many advisers whose charges are based solely on asset values.

But an even bigger problem arises when these clients die. In the United States, it is estimated that children do not retain their parent’s adviser in 90% – 95% of cases after their parent’s death. This results in the adviser’s remuneration going immediately to zero. Is the figure likely to be significantly different in Ireland?

This is a shocking figure! Shocking because of the sheer size of the figure, but on the other hand the good news is that there is a lot that you can do to build solid relationships with the adult children of your clients.

 

Get to know them

First of all, make sure that your client’s children know who you are. Seek permission from your client to introduce yourself to them – not to hound them for business, but simply positioned so that their children have a recognised and friendly face in the event of the death of the parent. Your client will want their finances handled efficiently and as per their instructions. To assist in this, at this stage you are suggesting that their children should know,

  • Who you are
  • Where and how to contact you
  • The broad areas where you are helping their parents (obviously with the parent’s permission).

Should a death occur in the family, at least now you are a friendly face who has some chance of working collaboratively with the children of your deceased client, rather than some faceless organisation that the client doesn’t know, doesn’t trust and will be generally wary of dealing with.

 

Demonstrate your value from afar

Then when you are introduced to your client’s children, take the relationship very slowly. Look to add value by adding them to your ongoing communications networks, after first of all finding out which communication channels they want you to use. – depending on their preferences, look to add them to your email newsletter, connect with them on LinkedIn, follow them on Twitter etc. If you are hosting a relevant seminar, you should even consider suggesting to your clients that they bring one of their adult children along to it.

Now you have an opportunity to remind these adult children regularly of the value that you add to your clients (and their parents), and how in time you could also add value to them. Carefully chosen messages of the value that you add just might get them to contact you as a financial need arises in their own lives.

 

Include them (as appropriate) in their parent’s financial plans

This is obviously an area in which you need to tread carefully, but there may well be areas of a parent’s financial planning in which it makes sense to involve their adult children. As parents move towards the later stages of their lives, wealth transfer, estate planning and legacy building tend to become important areas for consideration.

While parents may not want to share every small detail of their financial situation with their children, some planning will make lives easier down the road.

Talk to your clients (and their adult children) about the importance of having a will. Talk all of them through the benefits of putting an enduring power of attorney in place. Build a partnership with a good solicitor who can put these in place for them.

Ensure your clients and their adult children understand the structure and implications of making gifts from a parent to a child and of Capital Acquisitions Tax. Make sure they are aware of the annual exemptions available so that they can avail of these exemptions whenever possible.

 

At the end of the day, you want the opportunity to demonstrate to the adult children of your clients that you really care about your clients, that their interests are paramount in everything that you do. They will see you a valuable, trusted adviser to their parents. And they will also see that you can carry out the same role for them too. And how you do this last piece will be covered in a follow-up piece next month.

What exactly is Lifestyle Financial Planning?

We have seen quite a significant movement over the last few years of Financial Brokers extending the services they offer to their clients, through the delivery of lifestyle financial planning. While this service may not be suited to every client, or indeed you cannot justify delivering it to every client, the shift is happening. This is because of the value that lifestyle financial planning brings to people’s lives and because of the deeper and more engaged relationships that develop between the Financial Broker and the clients that it suits. So what is it all about?

 

What is lifestyle financial planning?

Lifestyle financial planning consists of four main phases, and each of them in turn are required. The four phases are

 

1. Discovery

This is the phase that gets skipped over the most, which is a shame as this is the most important of all of the stages. This is the phase where the planner finds out the lifetime goals and ambitions of their client, where the client can visualise the outcomes in their own terms – the type of life that they will lead, the possessions that they will own, the impact they will be able to have on the lives of others, what they will do and achieve in their lives.

Until you know the answer to these questions, what are you planning for? Just building a pot of money with no idea of what it will allow your client to do?

This phase is carried out by careful and well thought out questioning by you. And then listening intently. It is not “airy fairy”, instead it is the most important conversation that you will have with your client as you get to understand their hopes and dreams

 

2. Planning

This is where the planner then uses his/her expertise to develop the roadmap for the client to get from where they are today, to achieving the life they visualised in the discovery phase. This is generally a comfortable area for Financial Brokers, where you can utilise all of your experience and technical skills to develop a plan for your clients. As a result though of the comfort at this stage, some brokers rush to it without properly completing the discovery phase – when that happens, you are no longer carrying out lifestyle financial planning.

Important also to this phase is the use of future cashflow planning. Without it, it’s not really lifestyle financial planning. When using this process you can demonstrate to clients if they are on track to lead the life they visualised, and if not what they need to do to get on track. You can show them the impact of unforeseen events and how to plan for them, the impact of changing goals and of course the actions they need to carry out, or products they need to put in place to achieve the plan.

 

3. Implementation

The most straightforward of all of the phases and an area that Financial Brokers excel in. This is where you assist the clients in carrying out the required activities (e.g. budgeting, wills, power of attorney) and where you put the required financial products in place that will play a role in achieving the goals of the plan.

 

4. The ongoing journey

This is again a really important stage that sometimes doesn’t get enough attention. Regular contact and scheduled meetings sit at the heart of lifestyle financial planning. The ongoing interactions turn the plan into a real journey towards the client achieving their lifetime ambitions. They are the opportunity to review and restate / change goals, review the progress and performance of the actions and products that were implemented and keep the client on track in terms of their behaviours with their money and their investments.

Without these meetings happening as scheduled, it is akin to pushing a boat away from the harbour wall to sail the stormy seas alone… You need to be beside your client at every turn, helping them to navigate their way towards their dreams. These review meetings also give you the opportunity to stay close to your client, and to gently remind them of the incredible value that you are bringing to their life.

Equally importantly, having a robust and valuable ongoing service also enables you to justify your ongoing charges to the client.

This shift towards lifestyle financial planning is to be welcomed. It increases the value of Financial Brokers in the eyes of their clients, provides a richer client experience and builds value in your business through easier justified ongoing charges.

Is Future Cashflow Planning optional?

I’m a huge fanboy of Future Cashflow Planning in general (and Voyant specifically) for 2 main reasons. Firstly when my own financial planner started using Voyant, it transformed our financial planning discussions. And I have also seen the hugely positive impact that Voyant has had on so many businesses around the country. I believe that it is a key factor in increasing the value of these businesses. Voyant is available to every adviser, so can any advisers really ignore it anymore? At this stage, I think it is no longer optional for advisers…

Most advisers are investing significant time and energy in improving your business. One of the rewards that you hope to reap from this investment is a more valuable business when you finally decide to exit. So how can future cashflow planning (FCP) help you to build value in your business?

 

It adds so much value to clients

Financial planners in Ireland, the UK and further afield have spoken to me at length of how FCP has enabled them to unlock new conversations with their clients, and to completely change the relationship. FCP enables them to really wrap their arms around their clients’ financial lives and build a financial picture of every year into the client’s future, right up to death.

This is very different to the traditional financial plan of simply identifying needs and plugging those needs with products…. And at the end of the day, a firm with higher value client propositions is a more valuable business than a firm of a similar size with a less developed client proposition. More value to clients = higher remuneration = higher firm value.

 

Future cashflow planning drives higher ongoing fees / trail commissions

Many financial planning firms are now offering different levels of ongoing service to different groups of clients. When examining these different service packages, access for the client to FCP is the key difference between the high value and low value service packages. So apart from FCP justifying significantly higher fees at the initial development of the financial plan, the ongoing updating of the future cashflow plan as a result of changes in client circumstances, investment markets etc. will enable advisers to charge higher ongoing fees. The beauty of Voyant is that the original plan is retained so the client’s growth story can be viewed year after year.

The main model still used today in valuing financial advice firms is the multiple of annual income model. So if FCP drives up your annual income, your firm is worth more.

 

Future cashflow planning drives stickier client relationships

One of the main benefits of using an FCP approach is how much more interesting it is from the client’s point of view. Instead of simply reporting on what happened in the markets in the past year ,the focus is future orientated. In fact the past becomes less important as the client buys into the financial plan more and more. How they are now positioned to meet their future financial goals becomes the only concern. The longer term orientation injects patience in investment decisions. Short term buoyancy becomes less important in comparison to the longer term vision. The software automatically gives a new picture every year of the client’s future financial outlook and is completely dynamic, updating the client’s picture in line with those changes. New information can be handled on the go interactively.

  • Does that new job and increased income make retiring early a possibility?
  • Can you afford to buy that holiday home in 5 years’ time… or maybe next year?
  • Can you afford to start gifting the maximum amount to your children this year?

Clients will come back year after year to learn more. Client retention is another key determinant of business value. Future cashflow planning builds client loyalty. Client loyalty builds business value.

 

So, if you want to really increase the value of your financial planning business, I believe that FCP is no longer optional for advisers.

 

Lessons from other industries – segmentation is the key

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! We see first 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!
  • Even at the door of the plane – turn left for first class, turn right for economy.
  • 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?