Our industry is its own worst enemy when it comes to provoking inert client behaviours. Legal & General Retail Protection's Mark Holweger looks at what advisers can do to overcome it
It is the sleeping giant of financial services, the force that is more powerful than any marketing or sales campaign. It is the easiest thing for customers to do, yet the hardest thing for companies to change. It is inertia – and it has a big impact on firms operating in our sector.
So, what exactly is it? There is no industry-accepted definition of inertia but the term is typically used to describe a situation in which customers repeatedly purchase a particular brand or product out of habit, rather than a marked preference for the brand.
This can happen for a number of reasons. For example, some customers might fail to see any real variation between providers, while others might not have enough time or knowledge to look at the different alternatives available.
Many senior marketing and product development executives are well aware of the prevalence of inertia in financial services, yet feel that – as long as their products are being purchased –the underlying reasons creating inertia become less important.
While there may be some comfort in taking this view, there are serious risks involved if your book of business contains lots of inert clients. Not only does inertia create compliance risks, it also creates retention risks as inert clients are never truly loyal, although they may appear to be so.
In the protection industry, inertia can cause particular problems as inert clients have no real loyalty to either adviser or provider. They are not engaged with the process of buying protection, which means they may not be choosing the right products.
For example, inert clients may simply renew their life insurance, income protection and CIC policies without assessing how their circumstances have changed, which could leave them without adequate protection.
As a result, in addition to being unprotected, these inert clients will typically be very surprised – and angry – when and if they find themselves without appropriate cover.
The financial services industry is its own worst enemy when it comes to provoking inert customer behaviours. The sheer number of different products available can contribute to inertia.
Many people will simply stick with what they know – even if they are not happy – rather than trying to compare numerous similar looking products and services from different firms.
So, what can companies do to overcome this? First of all, advisers are key to helping inert clients become more engaged in financial services, as it is part of good financial advice to make sure clients have the right policies in place.
Inert clients can often be persuaded to switch products if they are given the right information, such as a clear breakdown of the differences between providers as this will make it much easier to see which product is right for them.
Similarly, many inert clients can be persuaded to move by getting a better deal somewhere else as the potential to save money can override their reluctance to engage with new products.
Advisers also need to reassure clients that, once they have the right policy in place, they can focus on other more exciting financial matters. Mortgages – inextricably linked with the excitement of moving house – are a great 'ice-breaker' product for tackling inertia.
If advisers are willing to actively engage with their clients at this level, customers will be much more likely to tell friends and family about their good experience and also engage on wider financial issues.
Regular contact with clients will also help to combat inertia and stop it from spreading. Relevant, regular contact will help advisers to assess whether the client's circumstances have changed significantly and whether now is the time to re-evaluate their products.
For example, getting married or starting a family are classic triggers to change the amount of protection a client requires, yet many clients will not know that unless an adviser informs them.
As an industry, we need to make sure clients stay financially active. For most people, the sheer volume of information available makes it difficult to know which product is right for them.
Proactive advisers can encourage clients to take a greater interest in their finances and combat inertia, wherever it occurs.
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