The New Generation of Advisers Need to be Client-Centric

May 15, 2019

Riaan Le Roux, SFP SA

Globally, i have seen the financial planning and wealth management industry is under enormous pressure – from regulators, disrupters, and clients. ‘Advice’ scandals, fraud and just plain poor financial advice and lazy planning have placed the financial advisory industry directly under the spotlight and a radical change in its structure is now inevitable.

Despite the many government inquiries and initiatives announced over recent years, the vast majority of advisers are still aligned to a system that relies on subsidies from product or platform sales. This is an economic reality of a vertically integrated system. In South Africa for example, around 70-80 % of advisers are either aligned to, or owned by financial institutions keen to promote their own products and/or platforms, leading to an inherent or perceived conflict of interest as they may not be the most appropriate for the clients’ needs or aspirations. This % decreased dramatically with the introduction of independent Financial planners, brokers and advisers not tied to a specific company or product.

Consumers – especially the high net worth – are waking up to this fact and they will be the major force in demanding change in the structure of the industry. 

The new generation of financial advisors & financial firms

It is unclear how any Government or Regulator can be the ultimate agent of change. Even though in South Africa there has been massive change and impact with new legislation and laws but It is an empowered consumer who will demand change. This shift will be evident in the birth and subsequent growth of a new generation of advisory firms. I believe future leading firms will be independent of the vested interests of the financial institutions – both in ownership structure, product range offered, and vertical integration.

It will be a professional services partnership where revenue is derived solely from fees paid for by clients. As in most professional services firms – such as legal and accounting partnerships – all professionals will benefit in the overall success of the entire business. This model can finally break the nexus between product and advice, as there is no need for revenue to be generated by products sales for the business to be successful.

The business will pride itself on its independence, allowing advisers to offer advice without conflict to their clients, whose best interests are always put first – not behind those of the firm and its ultimate owner.

The clients will be given a completely transparent pricing structure in writing, with details of how they will be charged and for what services, the standard of services to be provided, and importantly, value to be added via the relationship. 

Client-centricity 

Clients may or may not need product – but most people need quality advice. They need a life-first discovery process, and life-first strategic advice, all before any product solution is discussed. This means a focus on clients, their current situation, goals, dreams and aspirations. Clients want advisers to get to know them and their families, understand and help ease their concerns, and keep things simple.

The new way will focus ‘above the line’ on goals and aspirations, not just ‘below the line’ on investments. They will understand ‘below the line’ is how we do it, and ‘above the line’ is why we do it!

The new way will create strategies for clients’ specific aspirations, and holistic advice for all of the family if required. It will focus on the entire client picture, including their need for inter-generational solutions, philanthropic aspirations, and structuring needs. It will always be about clients’ needs.

The future Financial Advisor is now here, and the new model will come to be the new global benchmark for the financial advice market, despite some majors continuing to invest heavily in their vertically integrated models. Refer to the diagram below. The focus will move from the (current) left hand side product manufacturing focus, to the right hand side client centric life based focus.

The very best advisers and advice businesses will be genuinely client-centric. This approach is all about implementing best practice processes for achieving what clients need.

It sounds simple. But it’s a lot more than just two words. It’s a whole end-to-end way of delivering a value proposition that is right for each client. Advisers need to systemise the process, and customize the advice.

 As every client is unique, I am not talking about a ‘cookie cutter’ approach here. What I am saying is that we need to build process efficiency around repeatable client events.

An old saying is ‘build it and they will come’. Add both tangible and intangible value to the client and articulate and demonstrate it so they understand. Unfortunately, globally, I just don’t see this message being delivered all that often. But where it is, advisers and advice businesses are excelling.

Typically, in an initial ‘fact finding’ meeting, a prospective client would articulate or endeavor to articulate their future goals and aspirations over the short, medium and long term. From there, unfortunately, many advisers would suggest ‘That’s great – let me invest your portfolio for you’.

But we must build models beyond funds under advice. What does it matter if a client gets say a 6%, 8% or 10% pa return? Sure 12% is better than 8%, especially compound, but we can’t control that outcome. Are they on track or not to achieving their goals and aspirations? This is what they came in to talk about in the first instance. Are there early warning signs that plans might not be fulfilled? Do clients need to pull some levers, or make some sacrifices? After all, life is a series of trade-offs. What strategies will help improve their situation? How can an adviser determine this without a lifelong cash flow modelling tool? 

All of these conversations (and holistic lifelong cash flow future planning) needs to be had with the client (not for the client), to empower them. There is simply nothing an adviser can do that is more powerful than holistic honest advice with face to face lifelong scenario planning and cash flow modelling.

Cost versus Value 

Clients might imply that they are cost conscious, but my experience tells me they are value conscious - A key difference. Using a ‘Client Centric Approach’ will help to demonstrate and articulate value to prospects, clients and centers of influence.

Importantly, the discerning client will be asking about value. How will the financial planner of the future demonstrate and articulate its value? After all, cost is only an issue in the absence of value, and clients will only be prepared to pay for value. 

"My prediction is;there is only a true future for the financial advisor that can be truly independent with a true honest moral compass to place the clients needs first and provide them with real holistic tailor designed advice, services & experience."