The best financial planning practices in Australia do four things better than their peers, but for all firms the best way of attracting new clients remains word-of-mouth referrals, according to new research commissioned by the Association of Financial Advisers (AFA).

The AFA white paper, Pathways to Excellence, conducted by the research group Beddoes Institute, says the things that set the best practices apart are the qualities of individual advisers, the practice’s service proposition, the actual advice process and the charging model used.

In commissioning the research, released yesterday at the association’s national conference on the Gold Coast, the AFA says it set out to answer simple questions such as what clients value the most in their adviser relationships and how best practices are meeting their clients’ needs.

Blueprint for building better practices

The “best practices” surveyed are the 18 finalists in the AFA Adviser of the Year Awards this year and last. The research examined how those practices are structured and how they operate, and included in-depth interviews with 960 clients from the firms.

Rebecca Sheils (right), program director at Beddoes Institute, says no such study of the financial planning process, mapped against clients’ expectations at three clear stages in the advice process – pre-engagement, engagement and ongoing service – has been conducted in Australia before.

It has set out a clear blueprint for building a better practices – and also highlights the issues that continue to inhibit the take-up of advice by more people.

“What we wanted to do was identify the DNA of a leading practice – what is the blueprint, what makes up a leading practice,” Sheils says. “And the reason we wanted to do this was to share this information across the industry so we could assist in raising the bar of the profession. But also, importantly, to create an evidence-based pathway for becoming a leading practice – again, that we could share with other advisers in the industry.

Client journey

“This whole paper does a deep dive into the three key areas of a client journey.

“During the pre-engagement phase we first mapped what the trigger was for consumers to seek out financial advice in the first place. What we found out – probably no surprise – is there’s usually a significant life event for a consumer. They’re getting married, having children, getting a raise in their job, approaching retirement, et cetera.

“Then it’s the gravitas of the decision to trust someone with your financial affairs that means consumers take a fairly rigorous research process when choosing a financial adviser. It’s a very big decision and trust is at the heart of it.

“We probed consumers for when they’re going though this adviser-selection process and seeking out advice, what they are looking for in terms of the qualities of the adviser. What we uncovered was a really long wish list. They have very big expectations, needs [and] demands of financial advisers in general.

“But then when you really push them – quantitatively, in our survey of nearly 1000 clients – on what was the one thing that was most important in choosing your financial adviser, the thing that came out for a majority of people was a referral from a trusted source. So, again, it comes back to this notion of trust.”

Sheils says a trusted source is typically someone known to the individual, and who is already working with or has a relationship with an adviser. And if a referral can be found from a trusted source, it often circumvents most, if not all, of the rest of the usual selection process.

Key drivers of referrals

Sheils says statistical modelling of the data revealed “the key drivers of referrals”.

“There are four critical criteria by which an adviser and their firm is assessed,” she says. And, regardless of whether it’s a new client (less than one year’s relationship with the planner) or longer term clients (more than one year), there are two key issues: the qualities of the individual adviser they’re working with and their service proposition.

“If you do well in those areas, you will get the biggest return on investment,” Sheils says.

Performing well on the advice-process criteria was important for engaging with new clients in particular. Established clients focused more on “the ongoing service, the fees-versus-value equation”.

“It’s not so much what people charge, or necessarily even how people pay for their fees. It’s around the transparency of fees – so clients understanding what fees they’re paying and how they’re paying it, and having the adviser check in on an ongoing basis – but it’s also about the value they are receiving.

“In the early stages of advice it’s pretty obvious what a client is paying for – it’s a high-touch period.

“When a client progresses to an established client, a lot of the work that’s done is done behind the scenes, and it becomes less obvious, and this is when advisers need to work much harder and continue to articulate on an ongoing basis the value they are delivering.”

Quality and clarity

The chief executive officer of the AFA, Richard Klipin, says the white paper’s findings “gets away from the adviser as rock star or the adviser as guru” and presents a system or structure that any practice can implement.

“Qualities [are] what clients are looking for from an adviser point of view – that’s the face-to-face stuff – but they have to run a practice that’s got a really clear proposition.

“They’ve got then be able to deliver that value to clients. It’s got to be founded in a really strong advice process. This whole notion of what is ‘quality advice’ sits in both what does the client want to do [and] how skilled is the adviser [in being] able to get to the human stuff and also having the technical capability to deliver that.

“And it’s around the practice-charging model, but it actually goes to the heart of this issue of transparency, trust and so on.”

To download a copy of the AFA white paper, CLICK HERE


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