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The evolution of a financial planning

We’d love to know what you think of our new video about the evolution of financial planning which you can view below. It tells the story of the 4 stages that advisory businesses typically go through to become a successful financial planning practice and outlines some of the key challenges along the way.

It’s an animation created by Brian Foster, who heads up our operation in South Africa. We’ve had some great feedback from people who got a sneaky peak ahead of launch, so we’ve put it out there for the world to see.

Can’t wait to hear what you think. Nice work Brian.

Quote of the week

Any fool can criticise, condemn and complain… and most do!

Dale Carnegie

Quote of the week

One person with a belief is equal to a force of ninety nine with only interests.

John Stuart Mill

Are you going to take the blue pill… or the red pill?

“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

  1. The world has changed and customers want a different experience.
  2. 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

Quote of the week

Life’s most persistent and urgent question is, “What are you doing for others?”

Martin Luther King Jnr

Quote of the week

You can suffer the pain of change, or suffer remaining the way you are.

Joyce Meyer

Referrals rule

Referral business is the best type of business. But you don’t have some god given right to referrals. They have to be earned.

When you’ve earned it, you end up with loyal customers pre-sold on your expertise and credibility. They become your greatest advocates. You’ve earned their trust and confidence.

They, in turn, are comfortable telling their peers about the value you bring to their lives and/or businesses. Working with you makes a significant, positive difference.

Referral business comes from clients who are willing to:

  • Admit to their peers that they needed your help
  • Put their relationships on the line to be an advocate for you

Referral business is not an academic exercise. Referral business is not the natural result of what qualifications you have. Those may help get you started and lend some implied credibility. But the quality of the outcomes you produce for your clients is where the rubber meets the road.

Referral business results from working alongside your clients by really getting to know them.

Referral business results from being a lifelong learner. You choose to read constantly, interact with other experts and continue your own education before you educate others. When you identify what you don’t know, you take action and educate yourself first.

Referral business comes from getting up far more times than you’ve fallen down.

Referral business is fueled by asking for referrals at the right time and in the right way. Request that they write testimonials you can post on your website or use as an introduction. Ask that they write a recommendation for you on LinkedIn.

Referral business comes from demonstrating to clients that you “have their backs”. That is why they, in turn, will continue to have yours.

Quote of the week

If I cannot do great things, I can do small things in a great way.

Martin Luther King Jnr

Are South African advisers in denial about the impact of RDR?

On the face of it, RDR may not have the impact on financial advisers that some people suggest.

Currently, we get paid commission which is paid for from within a product, and post RDR we will have to charge fees, which could be paid for from within a product. Nothing has materially changed has it? Exchange the word “commission” for “fees” and Bob’s your uncle. Ok initial commissions on risk business might be reduced by 50%, so that would have an impact, but advisers taking a % on investment portfolios can probably carry on doing so, right?

So what’s all the fuss about?

I recently had a conversation with an adviser who had taken our RDR Reality Check and was somewhat surprised at the low score he achieved. “But I’m ready” he said. “I’m converting my initial commissions to annuity income”

We talked about his score, and specifically, where he had scored badly, and the following points are worth noting:

  • He has not undertaken a client segmentation exercise (and yet spoke about A, B and C clients – which I think is in his head rather than in his business)
  • His ideal client is “anyone with the means to pay” (How will he be different and appeal to everyone?)
  • He says he has a client proposition but it isn’t written down (so he doesn’t have one)
  • He’s never measured recurring revenue by client (so doesn’t know what each client generates in “annuity income”)
  • He’s never calculated what it costs to deliver his service (so cannot know what “profitable” means)
  • He says that between 26% and 60% of his clients are profitable (see the point above)
  • He says his profits have flatlined or decreased over the last three years
  • He says he’s having the fee conversation, and his clients won’t pay fees


The thing is, the changes that are taking place in financial services don’t really have anything to do with regulation. RDR is a response to a much bigger change, not the cause.

What many financial advice firms need to understand is that the world they have existed in for the last few decades is about to be turned completely upside down, and what’s called for is not a practice management ‘plaster’, but a business transformation ‘transfusion’ without which, the patient may well die!

I suspect that many advisers are secretly hoping that this would all go away, but the truth is it won’t, and I’m reminded of the line from the movie The Matrix, where Morpheus says…

“You take the blue pill. You wake up in your bed and you believe what you want to believe. You take the red pill, and I show you how deep the rabbit hole goes”

You can deny yourself the truth and live in blissful ignorance for a while, until reality hits you, and you suddenly ask yourself “What happened there?” or you can face reality, ugly though it might be, and set about doing something about it.

If you want to know what to do, take a look at my previous post “6 steps to getting ready for RDR.” And when we talk about doing client segmentation, you need to DO it. When we talk about putting together a written client proposition, you need to DO it. If you don’t DO these things, or you don’t do them properly, you run a significant risk of getting left behind.

Value your referral sources

It’s hard not to be thrilled when an existing client (or someone else you know) refers a prospective client to you. To land such a referral, you have to have done a lot of things right.

Once you get a referral, congratulate yourself. Your efforts and the strength of your relationships have paid off. But here’s something you should keep in mind: the referring person is just as important as the prospective client.

In a referral situation, you have two “clients” to think about, not just one. The first “client” is the person who put their name on the line by referring you. The second is the prospective client.

The First Thing You Should Do

When you get a referral, rather than rushing headlong into dealing with it appropriately (which you still need to do of course) take a minute to consider the generous gift you’ve been given.

Most likely, your referrer had a conversation with a friend, colleague, family member or client and concluded that you could help. They then went out on a limb and gave you a personal endorsement. That means your referrer trusts you, understands your work, and is willing to put his personal relationship with others on the line to help you build your business.

From a relationship perspective, it doesn’t get any better. You’ve been handed a qualified, potential client who is pre-disposed to work with you.

So, treat the referral like the gift it is and make contact with your referral source, who is probably curious about what you’re up to. When you contact your referral source, you should do three things.

  1. Acknowledge and sincerely thank them for the referral. When someone sends a referral your way, they want to know you got it and have the time to work with the new client. Everyone has feelings of uncertainty when they make a referral. You can remove any doubts by letting that person know how things are proceeding.

    Consider this acknowledgement the absolute minimum requirement every time you receive a referral. Skip this step, and watch your referral sources dry up.

  2. Ask if (and how) your referral source wants to be involved in the potential sale. Most times, the answer is none beyond making the referral, but it’s best to ask.
  3. Try to learn as much as you can about the prospective client and their situation. Your referral source probably has intelligence on the person and project, so don’t ignore this essential source of information. If you don’t try to get this information, you’re creating an unnecessary blind spot for yourself that could derail your success in converting the prospect into a client.

Be a Trusted Referral

You might be saying to yourself that making contact with whoever gives you a referral sounds like common sense. Unfortunately, it’s like a lot of good habits. People know it should be done, but it’s often overlooked.

Making contact with your referral source doesn’t have to be a big deal. Often, an email is enough to get started. What matters most is that you connect in some way with your first “client” in the referral process… the referrer themselves.

If you listen to any advice about gaining referrals, you know how valuable referrals are and how tough they can be to get. What’s also true is that it’s easy to lose future referrals if you ignore the fundamentals. And when someone decides to stop referring you to others, you probably won’t know it happened.

Think about a referral as the beginning of a collaborative effort, not just the handoff of a sales opportunity. If you stay in touch with that person, you can improve your chances of winning the sale, strengthen your relationship with that individual, and position yourself to receive additional referrals in the future.