Financial planners need to act decisively to expand the advice they provide, build deeper client relationships and demonstrate the value of their advice to both clients and the regulator.
Historically, the transactional nature of advice disengaged consumers but made it possible for financial planners to build large client books and collect a passive income stream of trail commissions. Even today, despite a constant stream of reforms and reams of legislation, there are still many practices with hundreds, if not thousands, of policyholder customers who receive little to no service.
But that business model is under extreme pressure. Advisers must now provide some form of ongoing service if they want to charge ongoing fees. They must also provide fee disclosure statements to these clients that detail the services provided over 12 months. New clients must formally opt-in for ongoing advice every two years.
Upon reviewing their business models, many advisers will conclude that they need to find ways to foster deeper client engagement and add greater value, which will probably involve asking more poignant questions and delving deeper into a client’s personal situation to uncover their true financial position and long-term goals, objectives and priorities, in order to identify areas where they need help.
Adopting a strategic advice model that considers a client’s total needs (not only their superannuation and insurance needs) and seeks to develop and implement a holistic financial plan that maximises the probability of them achieving their goals will not only lead to improved client outcomes, it’ll also help advisers meet their obligations under the Future of Financial Advice reforms, including the best-interest duty.
The mind-blowing thing for many advisers is that strategic advice may not involve a product recommendation or sale. For example, there’s no product associated with advice on budgeting and cashflow management, debt reduction, investment property, self-managed super, estate planning, succession planning or aged care.
Less is the key to sustainable growth
The business model of the future will involve advisers providing a high level of ongoing service and advice to a smaller number of clients, probably no more than 150-200 per adviser.
The challenge for advisers is to gradually expand their relationship with individual clients, price their services accurately and confidently ask to be paid for the work they do and the value they add.
Given people are increasingly time poor, and tax and superannuation are complex areas, many clients will pay for good advice and the peace of mind from knowing their financial affairs are being professionally managed.
Although there is pressure on advisers to either service passive clients or sell them to someone who can, they don’t have to make the leap from transactional product-based advice to full-on strategic advice overnight. There are many stages in-between.
Ultimately, advisers can journey to strategic advice at their own pace and incrementally add staff and resources as they expand their scope of advice. For a traditional risk-only adviser, that may start by offering coaching on saving, budgeting and cashflow management to clients who want to pay off their mortgage faster. At a later date, they may decide to branch out into superannuation and investment advice.
For a financial adviser who mainly provides superannuation and investment advice, it may mean adding value by modelling investment property scenarios and moving into wealth protection to help clients assess their insurance needs and gain adequate cover.
How licensees can help
- Build a relevant strategic advice proposition.
- Price their services appropriately.
- Clearly articulate the value advisers deliver.
- Establish formal systems and repeatable procedures that ensure the consistent delivery of strategic advice.
- Sensibly expand the range of services on offer.
- Identify existing clients who may be suitable candidates for strategic advice.
- Find a new home for unsuitable clients.
- Gain expertise in new areas through continuing professional development.
- Improve client engagement and satisfaction, potentially leading to more referrals.
- Develop referral relationships with centres of influence.
- Grow and diversify practice revenue.
- Increase the capital value of practice.
This is an extract of a Matrix white paper on strategic advice titled How to Thrive in the New Advice World. To read the full white paper, click here.
Allison Dummett is head of strategic advice at ClearView/Matrix.
