When it comes to financial advice in Australia, there’s a lot going on. From the royal commission wash-up, to potential litigation, to the ban on grand-fathered commissions, to the Productivity Commission review of superannuation, understandably, people’s heads are spinning.

Throw in the new requirements under FASEA, the discussion regarding dismantling of vertical integration, the potential shift to self-licensing, the ‘robo’ revolution, growing disintermediation and potential new pricing structures, and it can feel as if our world is coming off its axis.

I typically see a couple of instinctive responses from advisers to these storms. The first is to dive under the duvet and wait for the storm to pass. A second is to transform themselves into whirling dervishes, attacking every perceived problem with a significant amount of energy and enthusiasm but with very little focus or effectiveness.

Suffice to say, neither of these reflex responses are optimal. Indeed, my view is that at this time of extraordinary change the advice businesses more likely to survive and prosper will be those who go back to the basics of what our profession is about.

Of course, in responding to change, most advisers have good intentions. Typically, they want to do what’s best for their clients while growing their businesses by focusing on where they can add value ‘above the line’ in a comprehensive and consistent manner.

That’s admirable and is surely the way to go. But you will only get the ‘above-the-line’ success once you have implemented a ‘below-the-line’ value proposition in a client-centric, best-advice, evidence-based and efficient manner.

Going back to basics means getting the fundamental building blocks of your client value proposition right. It’s like building a home. You should only start worrying about the interior design and furnishing once you have the foundations in place.

Trust will always be the primary reason people are willing to do business with you. What you offer at the product level ‘below the line’ in terms of investments, risk insurances and lending is important, of course. But unless these rest on a consistent philosophy and commitment to sound advice and client welfare, you will be starting off on the wrong foot.

Invest with a purpose

In getting back to basics in an investment sense, ask yourself whether you really truly add value by trying to pick stocks or market time, by picking forecast-based managers and blending them into an internal model portfolio. Ask whether you really add value by basing your approach on “I reckon” this, and “I reckon” that.  Maybe you are, but the key here is not thinking you are adding value, but knowing you are. And being able to demonstrate your value, and support your value with evidence.

As an example, evidence-based investing represented only around 2 per cent of global assets under management the early 2000s. It now represents over 40 percent today, and growing. That’s a trend.  While there are more asset managers in the US than there are stocks, just two evidence-based managers last year – Blackrock and Vanguard – accounted for about 60 per cent of all net new flows.

When I refer to evidence based investing, I am talking about a philosophy that can of course be supported by evidence. As an example, it’s clear that lower cost portfolios will, on average, outperform higher cost portfolios. But that’s just the start. SPIVA (Standard & Poor’s Active Versus Index) continues to inform us that circa 70 percent of managers endeavouring to produce alpha, actually detract value form the return to which the investor is entitled.

This 2 per cent to 40 per cent growth is coming from somewhere, and consumer demand is at the heart of it.

So a back-to-basics approach in an investment sense, means asking yourself whether you have an investment philosophy that is adding value compared to the risk being undertaken, for any given portfolio. In layman’s terms, are you offering value for money. Can you and most importantly your clients – and prospective clients – rely on it? Is it sustainable and based on evidence, rather than guesswork and hope? Can you and your team articulate it and demonstrate the value you add through it?

Do you really need to be blending funds, building model portfolios and rebalancing at the end of each year after distributions? Or could a fully implemented, outsourced solution offer a better outcome at a lower cost, while achieving daily (rather than annual) rebalancing?

In an increasingly disrupted world, if advisers want to compete, they need to be able to demonstrate and articulate value. Right now, they are swimming against strong tides.

Control the controllable

My experience dealing with advice businesses around the world is that the most successful ones put their biggest investment of time and energy into controllable factors. The investment solution works best when the emphasis is on transparency, efficiency and simplicity. In contrast, I’ve found that firms that spend a lot of time and effort blending managers and doing annual rebalancing don’t often get the best value for clients, or for their own businesses from all that activity.

Remember, your top 10 clients are probably on someone else’s top 10 prospect list. If you don’t have a defendable position, that relationship may soon be over.

On the other hand, if you get these basic building blocks right, your existing clients will benefit from achieving the returns they are entitled to, you will have greater clarity over your investment process, you will achieve greater efficiency and you will differentiate yourself from competitors.

This global need to achieve clarity ‘below the line’ in order to target growth ‘above the line’, together with goal of helping advisers win by helping their clients win, is what drove me to set up by my consultancy, Global Adviser Alpha, in the first place.

In times of dramatic disruption, and strong head winds, back to basics is not about randomly setting off on multiple projects in response to external change. This is an intrinsic process that begins with getting off the hamster wheel you are on, then setting about simplifying, de-cluttering and going back to basic foundations of your mission and purpose. Why are you in business and what are you trying to achieve?

The world of professional advice is now ‘above the line’. Firms can achieve enormous growth by helping their clients achieve all that’s important to them, but they do so only once they absolutely nail their basic building blocks ‘below the line’.

Think about your own goals. Benchmarking surveys tell us the no.1 factor most advice practices are trying to achieve is growth. But on average, they are not growing anywhere near the rate they would like to. Average growth net of market at circa 5 percent per annum, compared to top quartile growth of circa 33 percent per annum on AUM, and 24 percent per annum on revenue.

As was once said, the definition of a business is to extract money from someone without resorting to physical violence. Of course, not a bad start, but we need to do a whole lot better than that. As advisers and business people, we can have anything is life that we want, if we just help enough people achieve what they want.

The basic fundamentals are core to advice businesses. Focus on the controllable factors, rather than the distractions.

Getting the fundamentals right will release the efficiencies you need to work on other areas, transitioning you back ‘above the line’ to a broader and more sustainable value proposition and the success that has proved elusive until now.

David Haintz is founder and principal of business-to-business consultancy Global Adviser Alpha. He is a CFP and a past director of the Financial Planning Association of Australia (FPA), where he was instrumental in the push for professionalism. David has had a 26-year career with his own firm and subsequently became a founding director of Shadforth Financial Group. He departed Shadforth in 2015 and established Global Adviser Alpha.
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