Research into client attitudes and perspectives by IOOF has found a goals-based or objectives-based approach to advice delivery confers benefits on clients and advisers alike, but also promises “material benefits” for licensees.
The general manager of wealth management for IOOF, Renato Mota says the company’s second True Value of Advice report is based on surveys of both advised and non-advised clients, across IOOF and non-IOOF licensees.
“What it’s highlighted very clearly is there is a very significant amount of value attached to advice by investors, which was pleasing to see,” Mota says.
Mota says goals-based advice demands “a completely different” relationship and conversation between adviser and client compared to the “traditional advice process based around risk appetites and the portfolio construction aspects of advice”.
“This has implications for the delivery of advice and in particular the steps in the advice process which the adviser’s business model is based around and reliant upon,” Mota says.
“What we typically find is it creates a far simpler advice process. It also creates an environment where there is greater clarity around expectations – the investor’s expectations – and the delivery of advice. There’s a degree of re-engineering that’s required around the adviser’s business model.”
Mota says the survey does not quantify the higher profitability, but IOOF is developing its research to “get some more granular benchmarking”.
“It would be premature for me to comment on it now,” he says. “But as to why [practices are more profitable], it’s very simply because the cost of the advice delivery is lower. And we have seen some cases where, if there’s a high level of value attached to the advice in the client’s eyes, advisers are able to charge a premium for that advice as well.”
Clients could be ‘stickier’
Mota says it appears that clients tend to be “stickier” when they go through a goals-based advice process than when the advice proposition is focused on investment.
“They can more easily attribute value to the interaction,” he says.
“But that is anecdotal,” he says. “It is not based on hard data.”
Mota says the results of the research are powerful and explain why IOOF is “looking to build a business model that supports advisers in the re-engineering that I’ve been referring to, but also in continuing to study these dynamics as a means of creating insights and helping advisers build better businesses”.
Mota says that there remains a disconnect between the perception of value by clients and where they think the cost of advice is.
“When asked, ‘What do you think you are paying for?’, they’re attaching effectively the cost of the advice to administration,” he says.
“In some ways, the elements of advice that are most valuable the clients feel like they’re getting for free, and they’re paying for the elements that are probably more commoditised.”
Benefits for licensees
As more advisers begin to adopt a goals- or objectives-based approach to advice, Mota says there will be benefits for licensees in terms of better compliance and risk management.
“If you think about the biggest issue with compliance and risk management, fundamentally a lot of complaints or issues in the context of risk management arise as a result of a disconnect in expectations between what the investor expected to receive and what the adviser delivered.
“By centring around the goals of the individual, first of all you’re having a discussion about the things the investor can relate to more easily, and therefore is more likely to understand, and therefore resulting in less of a disconnect in that expectations management piece.
“What we’re finding is it’s a process where you’re safeguarding yourself around those expectations disconnects, and therefore from a compliance perspective it involves a clearer, simpler messaging that’s more easily understood and therefore less likely to create compliance issues.
“We have not quantified that, and it’s something we’d like to do in the future. [But we have] talked to advisers who have implemented this model in their own businesses and their experiences, but we’re talking about a relatively small sample size.
“But we do believe there are material benefits for licensees.”
