Kristen Paech outlines the issues you’ll need to be across in order to not just survive but prosper in the new year.

To say that the year 2008 has been an extraordinary one would be an understatement.

What began as a problem in the sub-prime mortgage market morphed this year into a global financial and economic crisis that is expected to spark a prolonged recession in at least the major advanced economies of the US, Europe and Japan.

Plunging stockmarkets across the globe have drawn parallels with the Great Depression and prompted unprecedented policy responses from central banks around the world.

The recent 75 basis point interest rate cut by the Reserve Bank of Australia (RBA) to 5.25 per cent is yet another indication of continued concern over the Australian economy, and while the market should benefit from looser monetary policy, volatility is expected to continue well into 2009 – if not beyond.

Frank Uhlenbruch, investment strategist at Perennial Investment Partners, says taking into account the sharemarket falls on October 27, there has only been one other time in history where the market was down as much, based on rolling one- year returns, and that was 1929.

“Since 1884, we’ve got a year-on-year which is a little bit more than three standard deviations below the long-run return of the sharemarket,” he says.

“At that level it’s only happened three times in Australia’s history.”

Looking back on the year in which investment banking giants fell over and were swallowed or propped up, and financial market contagion brought an abrupt end to the bull run, it is easy to be pessimistic about the future.

To the contrary, now is an opportune time for financial planners to demonstrate the value of advice – but it will not be easy. Many clients – particularly those who invested in the sharemarket for the first time in June last year on the back of the Costello superannuation reforms – have never experienced a market recovery before, and will be feeling disheartened by the depreciation of their portfolio values.

Brian Parker, investment strategist at MLC, says the key job for planners at this point in time is getting clients to stick to their disciplined investment strategy.

“It’s a lot easier to get that message across if [clients have] experienced that recovery before,” Parker says.

“I suspect a big problem [planners] are going to face, and it partly explains some of the angst that’s out there, is that a lot of people put money into investments in the last five years or so, and they put their money into growth-type products, equity-oriented products, thinking they were a risk-seeking investor; and a lot of people at the first sign of trouble have come to the conclusion that they’re not a growth investor after all.

“It does highlight that a critical part of the adviser’s initial conversation with clients is to get that risk assessment right, to really get inside the client’s head and understand what type of investor they are, rather than what type of investor they’d like to be.”

For financial planning firms, surviving and prospering in 2009 is as much about hanging onto existing clients as it is about attracting new clients.

Jim Stackpool, managing director at Strategic Consulting and Training (SCAT) says planners’ ability to do both will depend on them ending 2008 with “a loaded gun” – that is, a clear picture of where the business stands and where it is headed.

“Advisers are tired, advisers are frustrated, advisers probably feel like corks bobbing up and down on the tumultuous ocean and they’re looking for plain sailing but they’ll never, I don’t think, be able to go back to what they used to do,” he says.

“The business person in early 2009 needs to make a decision; which of our clients will take advice and which of our clients have only ever come to us because we’ve been in the right place at the right time, with the right product or the right process?”

This means segmenting the client base into those that represent the firm’s past, and those that represent the firm’s future, he adds.

Going forward, Stackpool believes it will be harder for financial planners to be “generalists”, serving both low-value clients with little complexity and high-value clients with huge complexity.

“It will be harder and harder to serve both camps,” he says.

“Therefore, before [planners] get into 2009 they have to make a decision as an owner; where are they going to focus their resources? There is still an arbitrage to be made on selling some of those clients; there are still more buyers than sellers – use that to your advantage and those that really do represent the future, by hook or by crook, find out what their complexities are and then solve them with an advice proposition. Then, identify the niches within your client base that have common but complex issues and become an expert for those niches.”

He adds: “I don’t think you’re going to be able to charge a premium going forward to insulate yourself from the markets unless you are either really addressing a client’s complexity, or you’re an expert in a specific niche.”

The starting point for any firm looking to begin 2009 on the front foot should be a re-examination of the business model, including the advice proposition, remuneration structure and client base.

While that might sound obvious, Paul Haselhurst, executive director of Bstar, says in these market conditions, it is essential to get your core business model right.

“Most [business owners] haven’t necessarily paid the attention they should have to [the business] because the market’s been bubbling along and growing so they could pretty much ignore their business,” he explains.

“This is about having a very good core business model, it’s about having a plan, and not only a plan for growth but a plan for how you’re going to service your clients; what your clients’ needs are, the services you’re going to offer, how you are going to charge; so basically, how you are going to grow and transition your business in the future.”

For many practice owners, the planning firm is not only their most important asset; it’s also their largest asset, Haselhurst says.

By re-focusing on the business, practices may identify new market opportunities that might have been overlooked when markets were booming.

Bstar, for example, is highly active in the small and medium enterprise (SME) space. With roughly 1.9 million business owners in Australia spread across the owner-operator through to the SME business, Haselhurst says it’s a huge market, virtually untapped by the advice community.

“If you have a look at the business owner needs in relation to planning, wealth creation, risk management, all of those issues that everyone has when they run a business, there are very few of them that have advisers providing them with those services,” he says.

“We’re starting to see the accounting industry really focus on [SMEs] and one of the reasons is, it’s a great [opportunity] to get out there and tell business owners ‘your most important asset is your business and this is the time for you to really focus on it and manage it well’. I think there will be a number of groups that in looking at their own advice model will be looking at those sorts of markets as being the growth opportunities in the future.”

Another new market that provides future growth opportunities is Generation Y.

Stuart Milne, founder of Praxis Partners, says now is an opportune time for advisers to be asking clients whether their children have a financial planner.

“It’s a chance for them to mine their existing client base for the next generation,” he says.

But in order to identify the right opportunities and develop a targeted marketing strategy, businesses first need to understand what their ideal client profile is.

Without this awareness, there is a risk that firms will attract the wrong clients; clients that are unprofitable, or clients that do not see the value in the service being offered.

To date, Haselhurst says, there has not been a lot of technique in the marketing strategies used by planners because they haven’t had to do much to write new business.

“Because we’ve been in an environment where investment markets have grown year on year, the marketing spend has probably been small as a percentage of revenue,” he says.

“We see that definitely shifting; we think businesses – whatever industry they’re in – will need to change the way they market to potential and existing clients. Our view is that it will have to be more education-based, so therefore educating and creating awareness within their clients as to the issues and needs they may have and developing a service proposition against those needs.”

Bettina Pidcock, general manager, marketing and wealth management at St George, says it is essential in a down market to remain proactive in communicating with clients.

“Everything that we hear is that the volatility and the uncertainty will continue, so the important thing from a marketing perspective is not to hide in your shell and not communicate, it’s rather to share information, think about the advice you’re giving and retain as much confidence as you can,” she says.

In this environment, it may be necessary to spend more time developing trust with potential clients than in the past, she adds.

“The important thing is establishing a relationship of trust and that comes through personal interaction; it comes through asking a lot of questions and listening so you understand people’s concerns, fears, their personal situation,” Pidcock says.

“In some ways it’s not a radical departure from the way advisers may have prospected in the past, but potentially they have to spend just that little bit more time building the personal rapport and trust.”

The impact of the global financial crisis on the recruitment market has taken some pressure off the planning industry, where staff retention has been a major challenge in recent years.

National financial planning job advertisements have gone into “freefall”, according to eJobs Financial Planning’s latest quarterly market commentary on job ad trends for the period ending October 31, 2008.

EJobs found job ad numbers have dropped 21 per cent in the last month alone, 29.7 per cent over the last year, and 17.7 per cent compared to the same quarter last year.

With the balance of power shifting from employees to employers, now is a good time for practice principals to make sure they have the right balance of skills in their business to cater to their clients and service proposition.

James Godfrey, managing director at Godfrey Group, says the job market has gone through significant changes, predominantly in operational support and technical roles.

“There are always opportunities for rainmakers being revenue creators; but at a time when licensees and practices are managing cash-flow carefully, we are seeing more operational staff being made redundant,” he says.

“During current times clients need to speak directly to planners, so ‘minders’ or experienced planners that work closely with growth-focused planners are in demand. We are also seeing for the first time in a number of years paraplanners available in the market with more realistic salary expectations.”

Trevor Punnett, managing director and financial planning recruitment manager at eJobs Recruitment Specialists, says there is an opportunity for practice principals to hire qualified but inexperienced financial planners and train them up in business development.

As part of the eJobs recruitment process, the firm gets planners to do a behavioural assessment to help identify those who are best suited to business development roles.

“Principals have to make sure they get the right people on board, and I think there will be more of a push for business development,” Punnett says.

“They’ll get the young ones to do the business development, giving them more time to look after their clients.”

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