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Why it’s hard to get clients to engage with Financial Planning

Recently we have been doing quite a lot of work around client engagement. By engagement I mean getting clients to be engaged with their long-term financial planning on an ongoing basis. Nailing client engagement can be tricky at the best of times but it can be particularly challenging for financial advice businesses.

Most advisers are looking to hold on to the profitable clients they have, at the same time as generating leads for new clients. So how exactly do you get clients, and prospects, to engage with financial planning on an ongoing basis?

Two key challenges are that many financial plans, may not actually come to fruition for a decade or two, or even three, and many clients can’t picture themselves (or don’t want to) in twenty or thirty years’ time. It’s all to do with tangibility and emotional engagement.

If we take banking, (not from a financial advice point of view I hasten to add) it’s far easier to engage with clients – everyday banking helps people service their day-to-day needs: homes, cars, food, clothes, holidays, luxuries etc. On the other hand longer term investments can feel more like putting money into a bottomless pit, with no tangible gain until some form of income is taken or large purchase is made.

Everyday banking solutions by their nature are far more tangible and what’s more, clients are engaging daily with them – through every purchase they make, as well as keeping track easily via mobile apps. So, how do we achieve the same for financial planning where the tangible gain may not be felt for some ten, twenty, thirty or even forty years?

It’s not uncommon for advisers to have clients with tens, or even hundreds of thousands of pounds invested one way or another, but they find it difficult to get them to engage! It can be like pushing water up a hill. It’s easy to stop trying to engage these clients and put them in the ‘lost cause’ pile.

Bryony Thomas, in her book, Watertight Marketing, introduces the concept of the “Logic Sandwich” where emotion and logic play different roles at different stages of the buying, or decision making, process. At the start emotion plays the key role, before moving into a more logic driven decision making process, before finishing with the emotional need for confirmation that you’ve made the best decision. Advisers can be great at the logical and technical content, but sometimes aren’t so good at the emotional piece of the puzzle.

To overcome this, think about how you can engage your clients emotionally and be sure to bring what your proposition offers to life in the clients mind. An example I saw recently was a simple call out box with the message that saving a little more each month could make the difference between the retirement you’ve always wanted and a retirement spent worrying how to make ends meet.

This simple message strikes an emotional chord and is also tangible. A comfortable retirement is something that is likely to be important to the client making it emotionally engaging and tangible. All of a sudden the client becomes more engaged with financial planning for their future. Make sure all your communications have emotional and tangible aspects to help with client engagement.

Quote of the week

Belief is a truth held in the mind; faith is a fire in the heart.

Joseph Newton

Quote of the week

Without struggle, there can be no progress.

Frederick Douglass

Quote of the week

Nothing will work, unless you do

Maya Angelou

What’s the plan?

As we enter 2016, many advice and planning firms will be considering both their long term strategic plan and their operational goals and priorities for the coming year. The problem with most strategic and operational plans is that they are so long and detailed, that they become a chore to monitor and review.

In this, my first post of 2016, I wanted to share with you my thoughts on the 5 key components of an effective plan. One that is simple and therefore easy to use as a working document.

1. Why your business exists?

Yes I know it’s to make money. But what I’m talking about here is… what does it do for the people it serves, i.e. your clients? What is it’s purpose? Answering this question (which is actually quite difficult) is the starting point for creating a clear strategic plan.

2. What is your “Strategic Vision”?

This is a simple description written in the present tense, but from 3 years in the future, about exactly what your business looks like. How many clients will it serve? What about the number of professional and other staff? The level of revenue and profit? What do you want clients, suppliers, staff and commercial partners to say and feel about the business?

Once you have these first 2 components nailed, it makes the decision making process around what to do (and what not to do) so much easier.

3. Critical Success Factors

What core competencies have helped you to get to where you are today? What new competencies do you need to develop in order to continue to be successful? Remember, what has got you to where you are, may not get you to where you want to be. What are the 5 key things, that if you execute them really well (and consistently) will make your business hugely successful financially and from a customer attraction/retention perspective?

4. Operational Goals

These are simply the most important goals for your business in the next year. And to make sure that you pay attention to all aspects of your business, not just the financial results, specific objectives should be developed in the following 4 areas…

  • Financial (revenue/profit/recurring revenue)
  • Client (quality/acquisition/retention/experience)
  • People (professional development/performance management/recruitment/retention/remuneration)
  • Process Improvement (efficiency/effectiveness/consistency/automation/cost reduction)

Establishing clear measures for each of these goals to help you track progress through the year, will give you a solid and effective framework for monitoring how you’re doing.

5. Next Steps and Key Decisions

Once your goals are set, you will need to identify your “Big Rocks”; the key actions or steps that need to be taken in order to execute the strategy effectively. Having a plan is one thing. Executing it is entirely another. Most businesses struggle to fulfil their potential, due to their lack of ability to execute effectively.

Having a framework for recording and tracking these “big rocks” and ensuring that one individual is accountable for ensuring they get done, is crucial. It requires discipline to set the time aside to do what needs to be done and regular reviews to hold everyone accountable for their part in executing the plan.

We have helped many of our clients to completely transform their results, using this structure and approach to creating a strategic and operational plan. We know it works.

Why your clients won’t pay 1%

Adviser charging

RDR asks big questions about the charges that financial advisers make for advice, and the biggest challenge for advisers seems to be in the shift from commission to fees. Everybody is talking about it, and a lot of people are worried.

Here’s an article from the US where, although they don’t have RDR, they’re wrestling with fundamentally the same problem. The article highlights a question from an investor, which is “Is 1% a fair price to pay my financial adviser?” What you’ll find is that the answer given by most advisers is that yes, 1% is fair.

Hold on a minute…

1% of WHAT… and for WHAT?

1% of R10,000 is R100 and 1% of R10M is R100,000

And that’s just the cost side of the equation. What does the client get for their 1%, and more to the point, what do they want, or perceive value in? Can advisers successfully articulate that?

How can we blindly continue to perpetuate this myth that 1% is “normal?” Or are we just being lazy? I’m not saying 1% is the wrong answer, or that it isn’t fair. If all your clients have R10M in their portfolios and what you do for them is perceived as valuable for R100,000, then that’s cool.

What I’m suggesting is that your client book doesn’t look like that, does it? And your business probably offers a different level of service to clients than mine would, or that the IFA down the road does. Would you pay a Mercedes price for a Ford product, or vice versa? Is a Ferrari “too expensive?” I don’t see many Ferrari owners grumbling. They are not put off by the transparency of pricing, and that is fundamentally what advisers fear, because the truth is, we’ve never had to be transparent before.

RDR isn’t far away. Get this straight as soon as possible. It takes time to get it right.

Business transformation in 12 months or less – can it work?

6 months ago, we took on a new client.

He is typical of most advisers. He cares about his clients, was trained to sell products, and is worried about the future impact that RDR will have on his business. A particularly big clawback that nearly finished his business, was the trigger for change.

The first thing we did was to look at his business, and the initial hurdle was a lack of data. There was no system to manage revenues and he relied on data from product providers. This is a common problem in South Africa, and we enlisted external help from our friends at Linktank to get the data.

When we got it, what we found shocked him.

segmentation table

Of 110 clients, 11 were responsible for 90% of his regular business revenue (excluding initial commissions) and only 4 were generating enough to cover his costs.

Clawback liabilities on 79 clients showed that he was still getting “unpaid” for the work he had already done!

I call this the “Transaction treadmill.” Most brokers are trapped on it, and it’s not just those in the risk space.

The next 3 months involved unpacking what his clients really wanted and valued, what he wanted to deliver, and he put together a series of documented services. We discussed pricing options and he set some fee levels. I’ve cut corners here, but he will tell you that this was hard work. He stuck with it and had faith, but he didn’t always have confidence.

Then came the tough bit. Articulating it all to new prospects and existing clients. This is where theory meets reality! And we spent a lot of time crafting an entirely new conversation.

The first breakthrough came in the very first conversation. For the first time ever, he pitched and won a direct fee. How much? R2,500. Don’t mistake this as a failure. It is a massive step and I was so proud of him.

Fast forward 6 weeks, much practice, and some pressure from me to “just keep having the conversation”.

He now quotes (and is winning) fees of between R9,500 and R17,500 for initial advice, and has set retainer fees at R10,000 and R30,000 a year. What’s really interesting, is that in none of those conversations has he talked about policies or products.

Go and tell him that clients won’t pay fees for advice. Go and tell him that South Africa isn’t ready. He will smile, and politely disagree with you.

Product providers are damaging advice relationships

RDR brings a requirement for transparency into the nature of relationships between customers, their advisers and product providers. This transparency is especially relevant around issues affecting:

  • The charges that customers pay and what they are for (cost)
  • The responsibilities that each party has (responsibility)
  • The control and influence that might exist in conflicted situations (independence)

Most of the participants in financial services are quick to defend their attitude toward customers, but if my experience is anything to go by, there is a problem.

In March 2014 I set up a medical aid policy with a well-known large provider. The policy was recommended through my Independent Financial Adviser. As far as I’m concerned, my relationship is with my adviser, and the product provider is simply the supplier of a product.

3 months after inception, I received a call from the product provider to directly sell me a supplemental policy. When I asked if my adviser knew we were having this conversation, the telesales agent said yes.

When I contacted my adviser, he said he wasn’t aware that the conversation had, or was going to, take place, but he wasn’t surprised since product providers frequently do this. Apparently  it’s a common practice among certain (most?) multi-channel life assurance companies.

The product provider has no knowledge of me or my circumstances, and the only question asked was whether or not I had smoked tobacco in the last 12 months. They were clearly happy to sell me a policy on the strength of that information.

Who is responsible for the sale and any advice?

It turns out the product provider would have paid 80% of the commission to the adviser and retained 20% for themselves. Where are the lines for responsibility?

I wrote to the CEO and received a reply from the head of marketing, essentially defending the action as being intended not to maximise sales, but rather to ‘support advisers’ on what is an uneconomical activity for them. An offer was made to engage further on the discussion, and when I chose to do so, there were no further replies.

The exercise featured in my book Keep-Calm &-Survive-RDR as a study in what is wrong with the relationships underlying the financial services industry.

18 months later, in October 2015 I received a cold call from the same telesales department of the product provider, this time trying to sell me an additional benefit to my existing medical aid policy. Again,  I asked the salesperson whether my adviser knew we were having this conversation and this time, I was told that it was in my interest to deal directly with the product provider since going through my adviser would involve the addition of commission to the premiums, which could be saved if I by-passed the adviser.

That’s an interesting way to ‘support’ advisers.

I e-mailed my adviser to explain what had happened, and copied the head of marketing into the e mail. The same one that had failed to engage with me 18 months earlier.

He confirmed that he had in fact listened to the call recording, and was horrified. The call centre operation was blamed as having not followed procedure and evidently the actual salesperson was in her first month. Did she decide to make this sales script up on the spot? I doubt it. And if she didn’t, at what point does the training team realise that what the call centre staff are trained to say will come out on a recorded call. Either way, the company has trained this script.

There were, again, profuse apologies  from the product provider. I doubt they are genuine. I don’t trust them, and unfortunately, that lack of trust impacts on my adviser.

Less than a week later, I had yet another call from the same department on exactly the same matter. I terminated the call as quickly as possible and sent another e mail to both my adviser and the head of marketing. Apparently, I have now been removed from the marketing database. It remains to be seen whether I will get further calls.

As a customer, I am left wondering what is going on. As a former financial planner  of 25 years, I know exactly what is going on. The industry is controlled by big insurance companies who largely treat customers and financial advisers with complete contempt.

I don’t really care who my insurance is with, as long as the policy delivers the benefits it promises to. I’d even pay a bit more not to be treated with contempt. These companies are ruthless in their quest for distribution and unless the culture changes (it won’t), or the regulator hits these firms hard (hint!) things will not change.

There is significant value in the client/adviser relationship, and the quality and independence of advice from control and influence from a third party product supplier.  If financial advisers are to be seen as professionals, product providers must stop, or be prevented from, engaging in the many behaviours that control, influence and damage independence.

What do you think?

Quote of the week

Not failure, but low aim, is a crime.

James Russell Lowell


Quote of the week

Make each day your masterpiece.

John Wooden