“You take the blue pill, the story ends. You wake up in your bed and believe whatever you want to believe. You take the red pill, you stay in wonderland and I show you how deep the rabbit hole goes.” – Morpheus
- The world has changed and customers want a different experience.
- The regulator is facilitating this process with changes that affect the way advice firms get paid… also known as RDR.
Of the two points above, the one most likely to kill your business is not the second one. It’s the first one.
I wrote a blog post a few weeks back called The Experience of Insight. It was described as “A bit deep” so I’ve tried here to make it more practical. In this post, I want to focus on the first three or four steps that make up the experience of insight, and put them in the context of RDR.
Step 1: You need to recognise that you have a problem, unresolved issue or tension
For financial advisers this tension comes in the two points above.
Financial advisers don’t have a regulation problem. They have a business model problem.
Why will clients pay to be sold products when distributors with scale will offer them directly at lower cost?
Why would investors pay 100 basis points for investment advice, when they can go online and buy an asset allocated portfolio that matches their risk profile, for around 30 basis points. “Robo-advice” is a significant threat if all you are really offering is investment advice, and your skills as a fund selector.
Hoping none of this is real, is a ‘blue pill’ choice.
Step 2: Once you recognise the tension, you need to be open to engaging with the issue
Closed minds will remain closed until they are prepared to face the issues with an open mind. Rather than react with anger or frustration, or blame the regulator, try and see the opportunity, because if you can do that, you can make progress much more quickly.
Step 3: You need to be confronted by the reality
Here’s where the rubber meets the road. And where Neo took the red pill!
Having been ‘opened’ to the idea of engaging with the challenges, you need a reality check. You need to see what is real. This is a moment of truth. One of our clients faced his reality recently. He chose the red pill.
Of the 100 or so clients he has, only 11 generate any recurring revenue, and only 4 generate recurring revenue above his minimum level. This guy is a well qualified, client-centred, extremely nice person who does a good job. Like most advisers, he wants to help people, and like most advisers, he was never trained to run a financial planning business or have financial planning conversations.
He’s been living in the Matrix.
What do you do when you realise that in all probability, 90% of your clients are unprofitable? What will you say when, post RDR, your clients ask you “What do I get for my money?” What do you say when they ask “What does it cost?” What will they say when you tell them that your financial advice services are no longer “free”
What do you think the reality of that all means?
It means that at some point, Step 4 happens.
Step 4: The ‘Impact’ comes suddenly and unexpectedly
Have you ever had that experience? The realisation that something that you thought was real wasn’t, or that the things you’ve believed in don’t seem believable any longer. That’s the point at which insight happens and things change. That’s swiftly followed by an “A-ha!” moment.
Maybe for some advisers the impact will be felt very quickly after RDR when clients say “No” or leave the business. Maybe it will be at the point many years later when the owner is stressed out and wants to sell up, but can’t find a buyer.
Let’s go back to the adviser I mentioned above. The one who has chosen to take the red pill. Having always worked on commission, he recently presented a fee conversation to a new prospect, who said “Yes.” He told me, “I nearly fell off my chair!” It’s not, yet, the kind of fee he should be charging, but it’s a big step forward and he now has a different reality.
He has a new insight. Clients will pay fees. Yes, even in South Africa. A-ha!
It doesn’t happen overnight, but it can happen quickly if you are prepared to invest time and some money into developing your business.
My fear is that the doomsayers are right and South African financial advisers will be decimated. My hope is that financial advisers will do something about it. I can only offer my help, having been through The Experience of Insight myself. And if you read the original post, you will understand why I’m still going through it, many years later.
“There’s a difference between ‘knowing the path’ and ‘walking the path’. I can only show you the door. You must be prepared to walk through it Neo” – Morpheus