As the industry continues to evolve, simply reacting to events is not an option, says Brett Davidson of FP Advance. Advisers need to take control of their businesses and design the future
"I see three types of adviser in the UK. First up are committed financial planners - people who want to provide holistic fee-based cashflow planning. I reckon they are significantly less than 5% of the adviser population so, if you are one, you are in rarefied air.
The next group I'll call mixed best-of-breed advisers. They want to provide advice on a "client-driven" basis - sometimes it is fee-based and holistic and sometimes it is not. Many of these aspire to move up to the first category - and they will - while others will stay in this middle sector and provide a great service based on clients' requirements.
There may be another 35% of those while the rest I will call 'committed sales people' because that is the nicest way I can explain it. They just want to stay as they are and sell stuff - and that is alright too if that is what you want to do. Even so, in 'product provider world', there are very few players who have done any sort of segmentation and realised they need to talk to these people differently - hence the big spend and the hit-and-miss broker/adviser relationships.
As an adviser, you can think "This is a major problem, I am going to kill myself," or "This is an opportunity, I can make a quid out of this". I know which camp I am in. You can simply react whenever the FSA brings out the next layer of regulation and says you have to do this weird and wacky thing, based on something that does not look anything like your business or you could actually design the future - take control of what you want to do in your businesses and how you want to work with customers.
So what does our designer future look like? It looks like a move from upfront commissions to a form of renewable income stream. I don't care if someone's Auntie Mary writes you a cheque every month - as long as she does it religiously, that is a trailing income stream. It might be easier to collect it via a wrap platform or a trailing brokerage or a monthly direct debit - it does not matter. We are trying to build ongoing income where people retain us for advice.
Designing the future is all about focusing on the client - something our industry is terrible at - and using a client service strategy as the lever for growth. It is also about increasing the sale value of your business - if you build an ongoing income stream, someone will buy it off you. And it is about creating leverage from compliance rather than just seeing it as a burden. We are all going to have to do the compliance thing so, if I can turn it into a marketing story and add value to my customers' perception of my business and my competitor can't, I win.
It is about attracting and retaining quality people. To be honest, who wants to work for some idiot who is in a flap all day with no technology and no systems? The only people who work for people like that are ones who can't get a job anywhere else - and that is not the greatest recruiting story in the world. Lastly, designing the future is about enjoying work again.
So why can't you stay as you are if you are not in this space yet? Well, this is a free country and you can do whatever you like. But at the end of the day, if you stay selling stuff to people while other advisers are making the changes, you are going to start to look funny. Or else you are going to start to have to compete with the high street banks.
And they will do the simple stuff with more credibility than you - not better, but people buy into the brand and they will put up with a degree of ineptitude because they trust them. Compete in that space if you want - but that sounds like a tough place to be.
One of the top three pressures for change is client age, affluence and sophistication. That is all about the baby boomers - the first generation not to save enough for what they need to do in the future. There are all sorts of advisory issues around that. Furthermore, though I personally don't feel like it, we are the wealthiest generation ever in the history of the world.
Reason two is Government influence. The change from defined benefit to defined contribution pensions requires good advice and thus better regulation than we have had in the past and so the Government is really in the background driving the agenda.
Third is industry margin squeeze. Whether you look at IFAs, networks, product providers, wrap players or whatever, everyone is being squeezed on their margin - and consumer groups still reckon we are all too expensive. Everyone is under pressure.
This is having some effects on distribution. Firstly, advisers are being forced, whether they like it or not, to start to talk about providing advice. I would have thought that is a great place to be if you have got 'adviser' in your name - there is a marketing benefit there - but, at the end of the day, you are going to have to go down that road even if you just sell stuff. Better advisory processes are being adopted - advice is just a process after all - and technology is playing a much greater role, though not great enough for my liking. I still go into advisory businesses where there is no financial planning technology system. I don't know if you find that slightly scary. Imagine if you asked your bank for your account balance and they said they'd give it to you in a couple of days. Would that be good enough?
We are going to have to manage clients' affairs more simply. If you were a client, would you want to receive 27 bits of paper once a quarter telling you what all your stuff is worth? That would not rate anywhere on a survey of what makes sense as a business proposition, so why do we still impose that on people? We need to use technology to create value for ourselves and simplify our customers' lives.
We can either look after more people and get some scale or we can look after the people we have got more effectively and reduce some costs or we can spend more time building relationships with the people we have got - any of those is a desirable outcome.
The biggest challenge for IFAs is getting their heads around the issue of how they start to do all this effectively. So if you are an adviser, you can stay as a committed financial planner, mixed best-of-breed adviser or a committed sales person, that is up to you. But you are going to have to address these issues for change - the regulatory environment, the consumer environment, the baby boomers and so on - and design a business that can work effectively within them.
What are the roadblocks for UK advisers? We have all been brainwashed by history as, for the best part of 300 years, mutual organisations have sold on a commission basis. That can be hard to unwind. We all believe at times that we are only worth money if a thing gets sold but that is patently not true. We add value all over the joint and we need to start to recognise it.
Even if people understand their value, they can struggle to communicate that value to their customers so it is all about the packaging. If you are a great technician, excellent, but you can still go broke if you can't package up your expertise.
There are four key touchpoints. It is about the first meeting - how do you tell people in about one hour what you are going to do, what it is going to cost and what they are going to get out of it? Then there's the presentation of the advice. We have got to package it so people can understand and yet still enable us to do a good job in the background.
Next is the ongoing review - we need to be talking to clients on a regular basis because the value of our advice diminishes over time. And we need to be able to market our business in a way that lets people see our value - let them come and talk to us and know whether we are in the right space for them. Ultimately, whether we charge fees or not is not really the issue."
The ideal broker consultant?
"If you are a broker consultant and I am an IFA, please come and tell me some good ideas. Help me cut through all the noise and provide some insight as to what is going on in the world. Send me examples of what other people are doing well - you are my eyes and ears in the marketplace and this is the stuff that I can't easily do. And if you can do all that, perhaps you can become a preferred supplier to my business and we will have a high-quality business relationship."
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