Do you see yourself as 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 some traditional advisers who still see their role in terms of selling or distributing investment products, in some case not linked to any specific 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 represents yesterday’s business model and proposition, prolonged in Australia over the last 20 years by vertical integration. It certainly doesn’t suggest a client centric profession.
For decades, this reverse hierarchy (with the ‘customer’ at the bottom) has allowed some people in the industry to survive undisrupted and in relative comfort, picking up lazy trail. But change is coming, and fast.
Product advice compared to real ‘life-first’ advice
Vanguard, the global passive funds giant, recently established its Personal Financial Advice Service in the US, where it offers its phono based advice and funds access, direct to investors for an annual charge of 30 basis points, capped at $1m. Above that sum, there is no charge. In other words, Vanguard is moving into the adviser space. And they have hired hundreds of CFPs to give clients phone-based advice, and been hugely successful.
So if your business is product based, transaction-based, or purely ‘below the line’ investment-focused, you may want to think hard, and quickly about your proposition.
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 or promises of outperformance and greater returns than you will most likely never deliver, certainly with any reliability. They are now armed with evidence and information that this proposition is non-sense.
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 keys roles of a real financial adviser
Let me be frank, this is not particularly radical concept. My first mentor, Paul Etheridge from Prestwood in the UK, introduced me to lifestyle financial planning in 1995. But that said, my experience and observations are that very few advisers are delivering on this. The adviser of the future will focus on their clients (not customers), and on their desired lifestyle outcomes; not on their money. And you can demonstrate this by articulating a clear three step process.
Step 1: Life-first discovery
People are less interested in the what an the how than the outcome. This is financial planning with an end in mind – getting and keeping a great lifestyle. Life-first advice.
The first step is to understand the client – who they are, where they want to go and what they need to do to live their best possible life.
After the life-first discovery comes the life-first strategy.
Step 2: Life-first strategy
This involves taking into account all their current and preferred position, assets and liabilities, income and expenses, goal and aspirations, both now and into the future, to enable them to live the life they want.
It involves helping clients accept the choices and trade-offs they may need to make. They can typically have anything in life they want, but they can’t have everything. Life is a series of trade-offs.
From there, it is about the adviser making sensible, evidence-based recommendations to enhance each client’s position.
Step 3: Product recommendation
Only once the strategy indicates the client may need a particular type of financial product or investment, would you need to even touch on product. The important point is this is based on client need, not on what you have to sell. In many cases, you may not need to recommend a product.
Right now, in many cases, advisers charge for what they should be giving away from free and give away for free what they should be charging for.
From money to meaning, and from product to people – real conversations
Often, as they become more experienced and technically qualified, advisers can tend to get too focused on the technical requirements of their role and concentrate less on the soft people skills. Instead, they should aim to ask meaningful questions and then shut up and listen to the answers.
A life-first planning approach involves asking questions like:
· What’s important about money to you?
· What gives your life meaning and purpose?
· What goals and aspirations do you have 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 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?
Or three great super deep questions from George Kinder of the Kinder Institute:-
Question 1: - I want you to imagine that you are financially secure, that you have enough money to take care of your needs, now and in the future. The question is, how would you live your life? What would you do with the money? Would you change anything? Let yourself go. Don’t hold back your dreams. Describe a life that is complete, that is richly yours.
Question 2: - This time, you visit your doctor who tells you that you have five to ten years left to live. The good part is that you won’t ever feel sick. The bad news is that you will have no notice of the moment of your death. What will you do in the time you have remaining to live? Will you change your life, and how will you do it?
Question 3: - This time, your doctor shocks you with the news that you have only one day left to live. Notice what feelings arise as you confront your very real mortality. Ask yourself: What dreams will be left unfulfilled? What do I wish I had finished or had been? What do I wish I had done? What did I miss?
And the biggest question of all - how much is enough for you? How much do you need to enable you to live the life you want, without fear of running out of money? What’s that number?
Of course, there are many more questions that can be asked. This is just touching on a few.
The point is financial products are just tools at your avail, to perhaps be used if indeed 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. To help them lead their best possible life.
Now think about your value proposition and its impact. Your clients’ lives have meaning and purpose, as does yours. You will have changed your clients’ lives for the better; you now feel genuinely good about the impact of the work you do and experience a real sense of purpose; your proposition is differentiated from most other advisers; and as you add more value, you can charge more, meaning you will need less clients.
Lifelong cash-flow modelling
This approach is best achieved be centring all conversations around use of life-first or lifelong cash-flow modelling software.
Used properly and with appropriate assumptions, this critical tool enables you to demonstrate to clients in an interactive, engaging and thought-provoking way what their future might look like under varying scenarios.
You may be able to demonstrate that they really can afford to take that round the world holiday, buy a holiday home, or finish up work. Or perhaps, it’s helping their favourite charity, or helping with the grandkids school fees, or for a deposit for a home to get a leg into the property market. Or maybe it’s none of these. Maybe its bad news, but an early warning sign nevertheless, that they need to pull their head in.
By showing clients they may never run out of money based on reasonable assumptions, can also help them avoid taking unnecessary investment risks, and of course increase their peace of mind.
Real financial advice. Life-first advice. The focus on helping them live their best possible life, not just ‘below the line’ product advice. And as a result clients will comfortably make decisions for sound evidence based reasons.
It is worth noting that a small but increasing number of advisers are only providing steps 1 and 2 outlined above, and completely outsourcing any product based advice (step 3) to remain actual or perceived conflict free. PwC in Australia would be an example of that.
Clients win. Advisers win.
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 master life-first financial planning, the ‘money stuff’ becomes less important, which is why we talk about moving from product to people, and from money to meaning. There will no longer be any need to crystal ball gaze, pick the best stock or fund, or throw the dart at the dart board.
All you need to do is align well-researched, evidence-based solutions that deliver the return to which the client is entitled for the risk they undertake, allowing them to keep their seat and to stay the course.
The traditional way in which advisers spent copious left brain hours boring clients with noise about investment and quarterly past performance, may have worked when clients didn’t have transparency and know how much they were paying for your service, but not anymore.
Instead, your ‘review’ meetings disappear, and you implement forward looking ‘progress’ meetings, 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 with them.
The fact is legacy product based ‘financial advice’ is dead.
Over the next few years, increasing numbers of clients will continue to abandon their advisers and seek to take care of their own finances. DIY options are becoming more available. Robo, phono, and other disrupters are here now. Clients that do stick with their advisers will put them under increasing margin pressure.
Against this grim but real background, the alternative of life-first 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’.
My 27 years learnings tells me that clients will never understand real financial planning until they experience it. But there is the opportunity.