What do your clients fundamentally care about? Is it the ups and downs of the S&P/ASX 200 Index and sector leadership in the sharemarket? No, the truth is that most people want you to tell them that they are going to be OK.
While ﬁnancial planning over the years has focused on the below-the-line issues of product, asset allocation and funds under management, the real value is added in lifelong cashﬂow modelling that benchmarks clients to what I’m calling the “Am I OK?” index.
The context for this approach is the ongoing disruption in ﬁnancial planning, brought on by the growth of technology-led, skinny-margin advisory services. The change from traditional investment product oriented advice to the ‘Am I OK’ approach represents both a threat to existing tired models and an enormous opportunity for advice ﬁrms willing to shift to a new client-centred value proposition.
FROM SURVIVE TO THRIVE
With surveys suggesting more and more people would trust their ﬁnancial services to big technology brands like Apple or Amazon ahead of traditional ﬁnancial institutions, the challenge to existing players is stark. Doing what you have always done, and in the same way, is a recipe for entropy at best and catastrophe at worst. Focusing on easily commoditised services that reside below the line can leave you struggling in survival mode. In contrast, changing your entire proposition – from product to people and from money to meaning – can shift your gears from survive to thrive. The key is starting the value proposition from inside the client’s framework. Think about it. How many people know if they are going to be ﬁnancially OK? How many people know if they are on track to achieve all that’s important to them? And how many of those would be able to recognise the warning signs if they were not? This isn’t just an academic question. If less than 20 per cent of Australians have taken ﬁnancial advice and less than 10 per cent have taken ongoing advice, how many would know where they sat on the “Am I OK index”?
You can help solve this challenge through effective use of client-focused ﬁnancial forecasting or lifelong cashﬂow modelling software. 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 might show them that they really can afford to take that world cruise, buy that boat, take that redundancy or help their kids with a home deposit. Perhaps the choice is travelling more often or travelling business class. There may also be clients spending too much, who need to be alerted to the early warning signs and rein in their spending. 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 still young and ﬁt enough to enjoy it. By showing your clients they are never going to run out of money, you can help them avoid taking unnecessary investment risk and increase their peace of mind. Again, by using this approach, you are differentiating yourself by taking the focus off products and investments and putting it on the clients’ own lives. For advisers who struggle to engage the quieter or perceived less dominant person, try this approach and you’ll be surprised as to who is the dominant member of the partnership – the real decision-maker. If the conventional proposition was to help people build wealth and die rich, the new proposition is helping people live rich – whatever that might mean for them. Using the three-hat concept, lifelong cashﬂow 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 without you trying to sell a ﬁnancial product. As a result, clients will quickly commit to investing more, saving more, protecting more, etc., so that you can conﬁdently move your service to the third stage of product/investment implementation. As this is the easy part, you’ll do much more business more efficiently.
To achieve this, you need to release capacity, and this can only come from having a tidy back office. That might mean adopting an explicit investment philosophy or putting in place efficient portfolios. It is only when this is done that you will create the capacity to rebuild your value proposition. Think about what clients really need and want. Is it 6-8 per cent returns, or is their prime focus the outcome from their portfolio? Ultimately, the shift from a product-centric approach to life-long cashﬂow modelling means you will be able to show clients where they stand on the most relevant of all benchmarks – the ‘Am I OK’ Index.
David Haintz writes exclusively for Professional Planner and is principal of advice consultancy, Global Adviser Alpha.