The global financial crisis (GFC) and Australia’s is-it-or-isn’t-it recession have placed unprecedented strains on the relationships between financial planners and clients over the past year to 18 months.
However, new research reveals that financial planners whose value proposition is focused on providing reliable and competent technical and strategic guidance have fared relatively well.
Planners whose value proposition is based on generating investment performance, on the other hand, have suffered the greatest damage to relationships with clients over the past year.
The Lifeplan/International Centre for Financial Services (ICFS) research measures clients’ perceptions of financial planners on three criteria: reliability and trustworthiness, performance of chosen investments, and technical ability.
Overall, the Lifeplan/ICFS Financial Advice Satisfaction Index declined by three points between October 2008 and April 2009. The index stood at 66.5 points, its lowest level since the research started, in 2007.
The index has declined 9.1 per cent in the space of 12 months.
However, clients’ satisfaction with planners varied widely depending on the criteria examined. On reliability and trustworthiness, the decline was a mere 2 per cent. On technical ability, it was 5 per cent. But on investment performance, it was 12 per cent.
The general manager of strategic development for Lifeplan, Matt Walsh, says there are some clear messages in the results.
Walsh says it underlines a potential pitfall in a planner promoting his or her skill as an investment expert, or “just selling product, and selling that product on performance”.
Planners who have promoted their expertise as being technically competent and as being reliable and trusted advisers have fared much better in the eyes of clients.
In a practical sense, if an implicit or explicit performance promise has been made and not delivered, then the credibility of the planner has been hit hard, and clients may not be receptive to approaches with offers of the next big investment opportunity.
However, if a planner has cultivated a reputation for being trustworthy and technically competent, clients may be far more receptive to an approach to review, rejig or even change an investment strategy.
The degree of success of such an approach depends on the characteristics of the specific client. For example, female clients’ perceptions have been affected less than males’; perceptions of clients aged between 30 and 44 have stood up better than those aged 45 or older and those aged under 30; perceptions of clients with a relationship of more than 10 years have been less affected than the perceptions of clients whose relationship with a planner is less than five years old; and the perceptions of clients with larger sums of money invested tend to have withstood recent events better than perceptions of clients with smaller sums invested.
Walsh says the findings suggest that planners could profitably spend time focusing on the depth and quality of their relationships with young investors (aged under 30) and older investors (pre-retirees, aged 44 or older), and on clients with whom they do not have very long-standing relationships (that is, five years or less).
The benefit of being perceived as trustworthy and technically competent were less easy to see when investment markets were performing strongly, Walsh says.
But once investment returns plunged, a clear divergence in client perceptions became apparent.
Client relationships fell into one of two broad camps: one, in which the relationship was undermined by the failure of an adviser to deliver on what they had promised; and another, in which the relationships help up relatively strongly, despite the investment performance downturn.
In the latter group, clients “did hold their advisers accountable” for investment losses, but they also “recognise that these wobbles occur”, Walsh says.
Long-standing relationship also tend to withstand transient market conditions better than relationships that are quite new, Walsh says.
“What this [research] is proving – and I can use that word fairly strongly – is that the longer the duration of the client [relationship], the more they appreciate what the adviser does for them in a technical sense,” he says.
“They are held accountable for performance…but [clients] are saying, ‘I still trust him, and I still understand that I bought a strategy’.
“It’s really encouraging. If you are an adviser and you are just selling product, and selling that product on performance, you are going to have a major problem with client perceptions.”
Walsh says the research suggests strongly that a client base can be segmented by gender, length of relationship and age, and that each group requires a slightly different approach.
He says there is an opportunity to “cultivate relationships on a range of advice strategies”.
“Advisers should not be bashful about communicating with clients,and looking to revisit a range of advice strategies,” Walsh says.
“Now is a great time to bet back to basics, and to consider a whole range of advice strategies.
“this is the time for advisers to get back to [asking], ‘Have we got our advice arsenal as strong as we should have?’
“[Use this research] as a lens. [Ask yourself], if I am a microcosm of all this, how can I use use this lens to look at different sectors in my client base? And develop slightly different strategies for these groups.”
Key conclusions from the Lifeplan/ICFS research include:
Advisers could benefit from leveraging the more favourable attitudes of their female clients and proactively addressing their male clients where there may be more negativity towards their advice.
These findings suggest that at present, more time spent assisting their youngest clients and those closest to retirement age adjust to the market conditions could be valuable. It is also important that clients are reassessed with regards to their risk tolerance. Client’s expectations regarding asset class characteristics should be reinforced.
Advisers would benefit from paying more attention to clients that they have helped for less than five years, as investors in this category have less faith in their adviser’s trust and reliability compared with clients of five years or more.
Investors with the shortest history of taking advice, who have turned to professional advice due to the sharp economic downturn, have very low expectations regarding future market conditions. This is an opportunity for the adviser to provide the investor with high quality advice to build a long term relationship.
Advisers should not ignore their smaller value investors as they may lose them.
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