Financial advisors need to adjust their sails towards value

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As businessman and entertainer Jimmy Dean once said:

I can't change the direction of the wind, but I can adjust my sails.

Shifting winds

The world of financial advice has changed over the past five years. While some of the trends that have been driving the industry forward over the past five years are still relevant today and will be for the immediate future, there is still a significant shift towards lifestyle planning and goal-based advice. With this, there is an increased focus on outcomes-based implementation, that is both impactful and meaningful.

Clients today want different things, and individualisation is having a massive impact on the industry.

Added to this, there is regulatory pressure and Retail Distribution Review is forcing advisors to reassess their fee models, helping the industry develop a new compensation model for the advice offered. As commissions on risk products will reduce and be banished on investments altogether, advisers will need to increase the advice fees they charge their clients significantly.

The challenge for most advisors then becomes how do I sit in front of my clients in future and tell them that I will need to potentially double the fee that I am charging. I need to come to terms with the fact that the client is going to ask…are you worth it?

Now, more than ever, financial advisors need to be focused on highlighting and delivering on their value proposition. It’s a fair question. Is financial advice necessary? And are you worth my investment? So how do we help clients understand that the answer is yes?

Adding value

Firstly, we need to understand the differences in perceived value between clients and advisors. What advisors regarded as value and what consumers regarded as value, were completely different things.

So, advisors need to make adjustments in order to make the most of this opportunity. They need to offer an exemplary advice experience. In the coming years, advisors will need to provide an experience that is worth paying for, also using tools accordingly. The use of technology and client touchpoints will be vital to achieving this.

Added to this is big data - which will play a massive role in identifying meaningful trends and priorities, specific needs of consumers and help advisers to keep advice relevant. While there is an obvious need to integrate big data into advice delivery and product development, there needs to be a balance in how this data is integrated. Interpretation and consultation with clients combined with a deeper understanding of the data that is being integrated into the product is crucial.

If advisors want to be successful in the future, they need to give their clients the best possible chance of living the most meaningful life possible. What this means from client to client will differ and require a financial advisor’s guidance seeing as big data wouldn’t solve this on its own.

Discussions

We were all overcome with joy, pride and emotion when the Springboks won the Rugby World Cup last year. Much of their success was the talent that the team had, but a larger part of that success was that they had an exemplary coach to help them envision a goal, develop a strategy to achieve that goal, and then finally implement actions.

Therefore, advisors should take the role of a wealth coach seriously and should be having ongoing discussions with clients. The most fundamental of these is the important discussion around financial goals, keeping in mind that this initial conversation may shift over time. What is important to a client today might not be important to a client in five years.

Take heart

Advisors need to go back to the foundations of financial advice. A changing environment can be a bit intimidating, however, prosperity in this environment is not impossible. It is not only about the products that you sell or the qualifications and experience that will get you in the door. Rather, the most important assets center around listening to your client, empathising with them, helping them make informed decisions, walking with them on their journey towards prosperity and managing their expectations.

In a nutshell, it is remembering the humanity in everything that they do while enabling them to fill their sails with the most wind.