Time to update your world view
Practice Management / Client Value Proposition / 19 January 2017
David Haintz is principal at Global Adviser Alpha. His column will appear in the February print edition ofProfessional Planner, coming soon. Until then, the following article, including a brief Q&A, provides a taste of his far-reaching insight.
Advisers globally are operating in a rapidly changing environment. ‘Advice’ is seen as too expensive, too product-based, full of conflicts of interest, and catering mainly for retirees with large investment balances. The global financial advice industry is heading towards a seismic shift, in form and operation, towards client-centricity. And we need it!
We’re now moving to a world of increasingly explicit and transparent fees. What worked in the past won’t work in the future. This model and proposition will eventually break the nexus between product and advice, as there will be no need to generate revenue by product sales for a business to be successful.
The global financial advice industry is undergoing a profound evolution, from the perceived value of stock picking, market timing, forecasting and crystal ball gazing, ‘below the line’, to a valuable and sustainable profession based on client goals and lifestyle-focused coaching ‘above the line’. How advisers manage a client’s behaviour and mindset, and deliver real sustainable value, is more influential now in helping clients achieve their goals than how you manage their money.
Advisers unwittingly get sucked into building a service proposition ‘below the line’ that focuses primarily on the products and investments they sell. They need to be reminded (again), educated and empowered regarding why clients want and need this ‘new’ proposition, and how to deliver it.
Most people plan their vacations with better care than they plan their lives.
An adviser’s role is to help successful people make smart decisions about their money, so they can achieve the things that make that money important to them.
More often than not, this is much deeper than the money aspect itself – it’s about helping them achieve what’s important to them about their lives”.
‘Above the line’ is why advice businesses do it. ‘Below the line’ is how advice businesses do it. Our lives are the sum of all our choices. Our industry needs to focus where life meets finances. Don’t get me wrong, reliable, low-cost, evidence-based portfolios are important, but goals-based outcomes are more important. In other words, as I have said for years, “…people don’t want guitar lessons, they want to play the guitar. They don’t just want the meat on the plate, when there is a whole dinner party going on. This is a change in culture and mindset for the whole industry, not just advisers. I want to help the new breed make that transition.
Cost is an issue only in the absence of value.
A 1 per cent AUM fee for overseeing an investment portfolio has as much future as an old video rental store. Clients will and are gradually waking up to how much they are paying in fees, and more and more will start to question everything: service, charges, performance, value. Everything. Meanwhile, some other advisers out there, somewhere, will always offer to do what advisers do cheaper or better or simply promise to deliver a better return than others. Successful advisers will deliver a compelling value proposition, time and time again, year after year, that makes clients say, “Wow! Why don’t all advisers do this?” My experience is that most clients are value conscious, not cost conscious. The demonstration and articulation of value (both tangible and intangible), along with client-centric, automated, efficient workflow is more important than ever.
So those are the macro global trends. Some other trends to touch on are:
- a shift away from channels aligned to product manufacturers, towards non-aligned independent advice businesses
- fintech is clearly having a greater impact in either disrupting or helping advisers become more efficient; new portfolio structures such as managed accounts are enabling more efficiency ‘below the line’ to give advisers more time to work on their businesses, and on client-centric value propositions and outcomes;
- the dramatic increase of low-cost passive or evidence-based portfolios by investors is undeniable.
With all this change, advisers will need to change from running practices to running businesses. They will see they are not in the business of financial advice, but in the business of getting paid for financial advice. In fact, I think we will see a shift from financial advisers running businesses, to business people running financial advice businesses.
The keys to success in the industry going forward will be enhancement of the client experience, a focus on goals and objective-based advice, and advisers being able to demonstrate and articulate their value. In a world increasingly driven by compliance, client-centric soft skills will be the new hard skills.
I am doing this is to make a difference to as many clients (and future clients) as possible, globally. The business-to-business model enables me the leverage to make a significant difference.
How far advanced do you think Australian advisers are in terms or responding to these trends, compared to their overseas counterparts?
Having been in 17 countries in calendar 2016, I say there is no question that on the global scale, Australian advisers (in general), are seen as ahead of the curve. That said, I think they are ahead compared with overseas counterparts, not relative to where the general public would like us to be from the perspective of trust, confidence and value proposition.
What can Australian advisers learn from advisers offshore?
Good businesses are good businesses anywhere. There are some great advice businesses in Australia, and some great advice businesses overseas.
Great advice businesses are focused on great outcomes for all stakeholders – clients, but also staff and shareholders. For sustainability, they need to coexist.
In Australia, a typical adviser would look after circa 80 to 100 clients. An efficient advice business in Australia would operate on circa $200,000 of revenue per FTE (or more).
We are seeing fintech help practices run as businesses, with new client-centric customer relationship management tools (like Salesforce in the US or PractiFI in Australia) shaping the industry from outside-in. New portfolio structures ‘below the line’ such as managed accounts are enabling efficiency and the highest and best use of adviser time.
The US would be the leading market in fintech. It’s not unusual to see US advice firms operating on circa $350,000 of revenue per FTE (or more), almost double their Australian counterparts. There are many reasons for this but fintech, new portfolio structures and efficiency are at the centre of it. Some US firms are now able to leverage fintech and new portfolio structures to operate on up to 600 clients per adviser, a level most Australian advice businesses would think unachievable.
What can Australian advisers teach their global counterparts about how to respond to these changes?
Australian advice businesses are generally ahead of the curve. As an early maturing market lead by compulsory superannuation and, accordingly, regulation – but now more and more by consumer demand – there are a number of areas where global counterparts can learn from Australian advisers. This list would include comprehensive and holistic goal-based advice, as opposed to simply managing investment portfolios. Having moved from commission-based advice to fee-based advice, now with more and more disclosure and transparency around this, the focus on the value of advice is an area Australian advisers continue to need to work on, but they remain ahead of the curve.
Why is a global overview of trends (and advisers’ responses) useful to Australian advisers?
If one simply stands still, one goes backwards as others advance. There is always someone doing something better than you, as small as it may be. The best advice businesses constantly and consistently work on their business, not just in it, and set regular time aside to do this. This may be as simple as a local face-to-face peer and study group swapping notes and solving issues, or global conferences, or study tours. More and more, we are all part of a global community. As such, we need to reach out, both to learn and to assist peers in the process. The Japanese word kaisen means we don’t need to be the best, we need to be our best. Reaching out globally is about self-improvement to be the best you can be.