Are you a financial adviser, an investment adviser or a financial planner? Ultimately, does it matter what you call yourself? Instead, why not frame that question around your clients’ needs and what you can do to satisfy them?
There are those who still tend to assess their roles in terms of selling, manufacturing and distributing investment products, often unconnected to any actual client need.
In fact, we continue to see this back-to-front philosophy in the shape of restricted approved product lists, volume-related sales bonuses, shelf space fees and subsidised licensing fees.
This paraphernalia is a sign of an outdated culture and a vestige of the tied agency days, prolonged in Australia over the last 15 years by vertical integration. It certainly doesn’t suggest a profession that is wholly committed to the client.
For many years, this self-perpetuating reverse hierarchy (with the client at the bottom of the chain) has allowed some people in the industry to survive undisrupted and in relative comfort.
But change is coming, and fast.
Commoditised v real advice
Vanguard, the global passive funds giant, recently announced that in the UK it will offer its funds direct to investors for an annual administration charge of 15 basis points, capped at $250,000. Above that sum, there is no charge. In other words, Vanguard is moving into your space. And it’s hiring 3000 advisers with a minimum Certified Financial Planner designation to give clients phone-based advice for 30 basis points.
So if your business is transaction-based or purely investment-focused, you may want to think deeply about your service model. And fast.
The fact is, if you want to stay in business, you will have to articulate and deliver real value. People are no longer wowed by ‘below-the-line’ investment and product-related advice, technical or compliance talk, or promises of outperformance and greater returns than you can ever deliver with any reliability.
What clients need is ‘above-the-line’ advice that helps them meet their life goals. That’s where your true value lies. As a consequence, it’s also how you can justify charging fees above those of commoditised services and why you will keep getting paid.
Three roles for the new adviser
This isn’t a particularly radical concept. The aim is to focus on your clients and on their desired outcomes, not on their money, and you can demonstrate this by articulating three specific roles you play – or the three-hat concept:
Role 1: Life-first discovery
People are less interested in the how than the outcome. This is financial planning with an end in mind – getting and keeping a great lifestyle.
So the first role is to understand the client – who they are, where they want to go and what they need to do to achieve that. It means helping them see what they need to live the life they want and maintain that, no matter what happens.
After the discovery comes the strategy.
Role 2: Life-first strategy
This involves taking into account all the financial resources available to each client today and into the future, as well as the additional resources they’ll need to live the life they want. It also involves helping clients accept the choices and trade-offs they may need to make. From there, it is about the adviser making sensible, evidence-based recommendations to enhance each client’s position.
Role 3: Product recommendation
Only once the strategy indicate the client needs a certain financial product or investment do you need to put the adviser hat on and recommend something appropriate. The important point is this is based on client need, not on what you have to sell.
Meaningful conversations
As they become more qualified, advisers tend to get too focused on the technical requirements of their role and concentrate less on the soft skills. Instead, they should aim to ask meaningful questions and then shut up and listen to the answers.
A life-first strategic planning approach involves asking questions like:
What’s important about money to you?
What do you want to achieve between now and the day you die?
What would need to happen for you to stop doing what you no longer enjoy?
What would need to happen for you to start doing more of the things you love?
What gives your life meaning and purpose?
What do you need to make from selling your business to be able to lead the life you want without fear of ever running out of money?
What needs to happen to secure your family’s future so they never have to worry about
running out of money?
And the biggest question: How much is enough? How much do you need to enable you to live the life you want without fear of running out of money? What’s your number?
This approach means pressing clients when they say ‘One day, I’d like to…’ Ask them what they mean by one day. Remind them that time is slipping away and that their life is not a dress rehearsal. This will help you engage with clients in a completely different way – and connect with them.
In this context, financial products are just tools in your kit bag, to be used when or if required.
The real value is in the life-first process. Once you’ve helped clients understand their number, your role is to help them accumulate it, manage it, protect it and, most importantly, enjoy it.
Now think about your value proposition and its impact:
- You have changed your clients’ lives for the better and changed your own life, immeasurably
- You now feel genuinely good about the work you do and experience a real sense of purpose
- You have differentiated yourself from other advisers who focus only on product
- You have fewer clients, but they are happy to pay you more
- Spending less time on things that don’t matter leaves you with more time to spend on the
things that do.
Lifelong cash-flow modelling
Much of this approach can be achieved through effective use of client-focused financial forecasting or lifelong cash-flow modelling software.
Used properly and with prudent assumptions, this software enables you to show clients in an engaging and thought-provoking way what their future might look like under varying assumptions.
So you could show them that they really can afford to take that world cruise, buy that yacht or take redundancy. Retired clients can be shown that they can easily afford to keep the heating on in the winter. Pre-retired couples can be reassured that they can afford to retire now and spend time together while they are still young and fit enough to enjoy it.
By showing clients they are never going to run out of money, you can help them avoid taking unnecessary investment risks and increase their peace of mind.
Again, you are differentiating yourself by taking the focus off products and investments and putting it on the clients’ lives.
Using the three-hat concept, lifelong cash-flow modelling software demonstrates your second role as a ‘life-first’ strategic adviser. Clients grasp right away the immense value you bring to the table. And this is achieved without you trying to sell a financial product.
As a result, clients will quickly commit to investing more, saving more, protecting more, etc., so you can confidently move your service to the third stage of product/investment implementation. As this is the easy part, you’ll do a lot more business more efficiently.
Win-win outcomes
Because your service no longer needs to revolve around investment performance, you can keep the implementation piece as simple, as low-risk and as painless as possible. This is why the best financial planners build successful businesses with minimum hassle.
If you acquire mastery in lifestyle financial planning, the ‘money stuff’ becomes less important.
There’s no longer any need to try to shoot the lights out or put yourself under unnecessary stress by promising returns you are never going to be in a position to deliver reliably.
All you need to do is align well-researched, evidence-based solutions that deliver prudent returns in line with conservative planning assumptions and that allow your clients to stay the course. The clients’ financial plan (based on prudent cash-flow modelling) becomes the focus and the only benchmark you care about.
The old way, in which advisers spent hours boring clients with chatter about investment products and quarterly performance, may have worked when clients didn’t know how much they were paying for your service, but not anymore.
Instead, your progress meetings can become forward-looking, focusing on what is changing in clients’ lives, how their needs and goals are evolving and how external events play into the plan you have created for them.
Putting it all together
The fact is, traditional financial advice is dead.
Over the next few years, increasing numbers of clients will abandon their advisers and seek to take care of their own finances on the internet. DIY options will become more available. Fintech, robo and other disrupters are here now. Those clients that do stick with their advisers for conventional advice will put them under increasing pressure to reduce their fees.
Against this grim background, the alternative of lifestyle financial planning makes much more sense. It delivers clients what they need, it frees advisers from selling commoditised services in areas over which they have no control, and it lets them focus on high value-add areas above the line.
Clients won’t understand proper financial planning until they experience it. But herein
lies your opportunity.
