You need to know if you're going to buy to grow..

 by Tony Vidler.

A common topic of discussion these days is whether an adviser should buy another practice - or more commonly, whether they should just buy a book of business from another practice.

 

The typical reasons suggested for wanting to grow through acquisition are:

1.  Get new clients

2.  Increase business turnover

3.  Increased cost efficiency

4.  Diversify business lines

5.  Enhance market position

All of these are good reasons to consider purchasing another business, and we'll consider them in depth in a separate article.  Generally it seems that the majority of transactions in financial services are still done on some form of multiple of sustainable earnings.  This is most often a "rule of thumb" type approach, where a multiple is applied to the passive income stream that the target business promises.

The main problem with rule of thumb valuations (such as just paying 3 x renewal income for example) is that they do not recognize the ease of integration, and this a critical factor in determining the success of the acquisition for the new owners.

How well matched are the two businesses?  How easy are they to bring together, and how well do they complement each other?  

There are any number of areas to consider, and you might begin by considering:

• Is it just an asset purchase, or are you looking to buy an entire business (warts and all)?  If so, what contingent and latent liabilities are lurking about?
• Similarity of client profiles between the businesses
• Geographical spread of business
• Demographics & statistics - average ages, portfolio size, product penetration or fee agreements
• Advice philosophy & values - how do product & process & philosophy work in each business
• Business relationships - suppliers, research, IT, transferable centers of influence or marketing arrangements
• Data management and CRM systems
• Workflow and advice processes - are they similar, or is substantial change required somewhere?
• Staffing - duplication of roles & responsibilities; individual skill sets; desired skill sets?
• Are there any "turnkey" or proprietary solutions that you are purchasing from the target business which would or could enhance your own existing business?

The better they are matched, and the easier & better the integration, then higher the potential value should be.

This type of analysis is in reality just a starting point however in understanding how the two businesses may mesh.  Having done that one can reasonably being to assess the cost and the benefits of integrating the businesses.  Be aware that the majority of purchasers do seem to optimistically over-estimate the "synergies", or benefits from the acquisition - and often seriously underestimate (or do not understand) the actual costs in terms of lost productivity impact and additional marketing requirements for a prolonged period.

The single most important thing to my mind though is that relatively few prospective purchasers seem to have formed a clear view or understanding of what stage the target business is at in ITS business lifecycle.

There is nothing at all wrong with purchasing a business that is perhaps heading into decline - provided you understand that decline is the inevitable path unless you have a good strategy for how to re-invigorate it.  Even if the target business looks to have moved into some self-sustaining cash-cow mode and has little organic growth within it, there may still be solid rationale to pay a premium price for it.  If the business can seamlessly be added to your own business, with highly complementary systems and data management, and opens up the opportunity for your (superior?) advice proposition to unlock latent value....then it may well be worth it.

However, simply valuing a book of clients or an advisory business on an "accepted" industry multiple, without any understanding of how or where superior value from the purchase can be derived makes little sense.

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The good life or financial freedom?

 by Tony Vidler.

The Financial Services Council (FSC) has just issued issued a statement summarising some recommendations they were making regarding national retirement savings, following research it had conducted in New Zealand. The link to the full report is at the end of this article.

The report is extremely interesting, though missed the mark in a critical area. There is an inherent assumption that if the right product solution is created (as envisaged by the FSC), then that will address the issue. There is a lack of focus on the benefits of changing consumer behavior through good education and advice.

The focus of the report therefore is about a consumer attaining financial freedom in their golden years. What about the good life along the way?

The report makes a number of very interesting and useful observations, especially in the area of recognizing the extraordinary convergence of issues facing the under 40's. This included the some core retirement planning issues such as:

• They are likely to be living longer than previous generations;
• They are most likely to have less family financial support than prior generations; and;
• They face more uncertainty than prior generations when it comes to government support.

Some other very significant factors were not cited in the recommendations however. Without attempting to provide an exhaustive list, one should include other factors facing today's workforce when it comes to retirement planning.

• Less subsidization of health & education costs than previous generations; leading to greater strain on today's resources.
• Prior generations had access to "defined benefit" superannuation schemes which provided great certainty for retirees.
• Higher standard of living expectations from the children of today's under 40's - creating additional financial stress.

There is no doubt in my mind that this segment of society (the under 40's) is the "sandwich generation".

Firmly stuck in the middle of change - not deriving the full benefits that previous generations did of having guaranteed retirement, yet they are expected to fund it for those in retirement now. They are not deriving the full benefit of subsidized education and health, so are having to largely pay their own way - and also fully pay the way for their own children. One could go on, but I am sure you get the key point: they are funding the expected benefits for retiree's today, together with the wider benefits demanded by society today, together with their own needs today, and also having to make provision for the next generation on a user-pays basis.

The Sandwich Generation. They are the filling in the middle, that provides all the flavour and much of the nutrition in the meal.

Simply providing a retirement product solution to address the needs of these younger New Zealander's is not enough. Their needs are much more complex, and quite frankly they have half a century of working life to negotiate before they can realise the benefits of a well constructed retirement plan.

While it is important to make provision for the future, and ensure that the final 30 or so years of life are comfortable, dignified and independent (wherever possible), there is the remaining and somewhat important matter of trying to achieve exactly the same objectives in the first 60 years or so of life. Financial freedom (as an objective) has to be weighed up against having a good life along the way.

What will help these consumers do this better than anything else are getting 2 things:

1. Better financial education during their adult lives. They need the best possible information, tools, and understanding about how to manage their resources well, and to understand the impact of the choices they must make. It is an investment in efficiency after all - if they are assisted to make better choices, their resources will go further and it will be beneficial for society and themselves.

2. Professional and personalized advice. Their world IS complicated and they face many competing demands. Good advice will help navigate the competing demands, help them decide when and where (in their lives) products may or may not help, and help them get the best out of their resources along the way. During their working lives financial products are a relatively minor part of the overall financial picture. Advice addresses the bigger picture. Products do not.

Great products and great savings systems may well provide great retirement incomes.

Great advice can help them have a good life along the way as well though. And THAT is what most consumers actually want, and it is the item missing from an otherwise great piece of work by the FSC.

The full report from FSC can be found at:

Pensions for the Twenty First Century: Retirement Income Security for Younger New Zealanders

http://fsc.org.nz/site/fsc/files/reports//FSC_Pensions%20report%20%20FINAL%20Publication%2017%20June%202012%20copy.pdf

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More Bulls**t Jargon on its way?

by Tony Vidler.

Heaven help us...the financial services sector is apparently getting new jargon! Because we need it.

It can only be a matter of time before the new buzzworders suggest we also need new qualifications to qualify for the new buzzword, possibly with a recommendation for new acronyms to describe the new Jargon.

In the last 24 hours two interesting articles appeared on my radar screen suggesting that financial services - or more specifically, financial planning - has some new buzz words now because we need them.

Yeah, right.

In one story I read with interest that "Finology is the new buzzword in US Financial Planning circles". In the other, I read that "financial life planning" has arrived. Dammit....I think I'll have to call myself a Life Finology Planner. Actually, I thought the Financial Life Planning wave was rather late in being reported given it has actually been around for quite a few years now as a school of thought. Nevertheless, I am now reassured to learn that it has in fact arrived.

Finology though? More on that shortly....but it does sound rather like the scientific study of the back end of rockets doesn't it?

Let's begin with the tardy Financial Life Planning that took so long to arrive. Well this is the "core of a fast-growing American financial advice movement that is spreading across the world", and credited to George Kinder. According to one practitioner quoted in the story this discipline is about "connecting money with life rather than sitting down with people and telling them they need to buy a pension". The Financial Life Planner quoted contends that ordinary financial planning consists of planners attempting "to find an individuals secret sorrow".

This intrigued me, as I have never heard - from the hundreds of financial planners, or the many more hundreds of other types of financial advisers that I know who effectively do financial planning work - that the business is about finding someone's secret sorrow. Doing a little digging via Google around the financial planning world didn't reveal anyone focused upon uncovering sorrows or vast regrets for individuals either.

The focus of the Financial Life Planner is oddly enough precisely upon doing what your common garden-variety financial planners say they try to do: ask clients questions and get to know their aspirations, and then helping them to put together a plan that is most likely to help them achieve it.

So back to "Finology"...with full credit to my faithful assistant Google....it seems the founding Finologist is a chap called Richard Wagner, who claims credit for inventing this word. In an interesting article he says that the profession needs this new word because there is no word that describes the relationship between an individual and money in the English Language. What about "dependence" Richard?

Just as an aside; the word "relationship" itself is defined as "a connection, an involvement or an association". So conceivably the apparently missing word to describe a persons relationship with their money is "relationship"? Just sayin'...y'know?

Regardless, Wagner postulates that the profession's progress is limited by the absence of our own vocabulary to describe this link, and the term "Life Planning" is dismissed as being too broad a term to accurately describe what planners do. Ergo: Finology. Hurrah!

What a huge yawn....and that is just for those in the business. It will be an even bigger yawn for consumers.

The questions that arise whenever this sort of nonsense is mooted should be:

1. How will coining a new term to describe an existing professional competency help the profession or the consumers of its services?
2. Who is this term being developed for? (i.e. for whose benefit?)
3. If the new term is to be valid, how is it really differentiated from existing disciplines?

When reading of these latest hot pieces of jargon sweeping the world of financial planning, I could not work out an answer to the first question. Neither of these buzzwords describe methodology or systems or competencies that apparently differ from what good planners - indeed, from what good financial advisers - already do.

The terms appear to be feverishly capturing the imagination of the advisory community only. Or not maybe. But there is no discernible cry for these "different approaches" from consumers, or even necessarily the majority of the advisory community that I can find. It does seem more likely that the driver is advisers struggling to articulate their own value proposition to clients - or desperately wanting to distance themselves from the image of being seen to sell anything.

Hello? You're in business. You ARE selling something. Do you honestly think that a new piece of jargon will obscure that? Even if that jargon is meant to convey you don't "do product" or somesuch?

The broad claim of differentiation between conventional financial advisers or planners and the Finologists or Financial Life Planners seems to be a disassociation from product recommendations. The buzzworders appear to be driven by understanding the real issues that drive human behavior, in order to be able to help behavioral and circumstantial change.

But then not use manufactured products perhaps. (This is not actually entirely clear though).

Funnily enough, the process just described is what you get taught in financial planning. It is also what you get taught in other financial services specialist training. It is what most professional financial advisers do every day with their clients. But you also get taught and learn how to use products as tools. 

Products are merely a means to an end. A New Zealand consumer who wants a fantastic holiday in London may well choose to work with a professional travel consultant. That person will inevitably recommend a mode of transport because even our best triathletes would struggle with the 18,325 kilometer run/swim/cycle leg, and probably not enjoy the holiday part quite so much. So a product (e.g a plane ticket) is often a necessary component of the advice. The advice however is absolutely centered upon how to achieve the goal of the fantastic holiday, and ensuring that the details required to make it work as seamlessly as possible, and to be as enjoyable an experience as possible are thought of and covered.

It is absolutely true that in times gone by - when the industry was young and still thought it knew everything - products were the center of the process. As the profession has learned and improved though, products are secondary. Advice is the key value component.

Financial advice is no different in reality to the example of the travel agent, and it doesn't require new labels or buzzwords or jargon to highlight that. Professional financial advisers do try to know and understand the "soft" issues - the needs, the aspirations, the goals of the clients. Often they have to help the clients actually define those things as many consumers haven't really done it. In putting together plans to help the clients achieve those aspirations and goals, products get used. But the products are tools.

The advice and the coaching make the difference. No matter how you label it.

The story on Financial Life Planning that caught my attention:

http://www.telegraph.co.uk/finance/personalfinance/investing/9319327/A-new-kind-of-financial-adviser-or-a-waste-of-money.html

More on Finology by the very Finologist himself....
http://www.worthliving.com/2010/08/seeding-the-garden-of-knowledge/


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Good news: Regulators DO trust some advisers

by Tony Vidler.

Should Regulators trust some advisers to do the right thing? Or none of them?

This is the intriguing question which will be debated behind closed doors in NZ in the immediate future I am sure, following the latest round of financial services reform in Australia. The "Future of Financial Advice" (or FoFA as it has become known) has been a work in progress for three years, as Australian regulators do their latest bit to drive higher standards of client care and professional standards in their market.

Naturally there have been a number of contentious points there, and the usual mix of good intent mixed in with impractical rules, that have created debate and strong lobbying along the way.

One of the more contentious proposed rules from an advisory perspective has been the "opt-in" provisions. As is often the case, the rule-drafters have been driven to solve a genuine industry flaw (that of consumers paying ongoing costs for advice and/or service from within product fees or commissions, without necessarily being aware of it, or even receiving advice or service from those receiving the money). The method they chose to resolve the problem though was impractical, unfair and a logistical headache for adviser firms to implement - in the industry's view.

"Opt-in" requires the adviser to obtain periodic ongoing written consent from clients that they want the adviser to continue the relationship and receive agreed remuneration.

In principle that seems a fair thing. Though in practical terms everybody knows that consumers are just humans, subject to the same whims and emotions in general terms. The levels of client satisfaction and desire to stay the course with anything can be driven as much by the state of the economy or investment markets, whether we won the Rugby World Cup, or whether our boss is a complete twit, as much as whether the adviser is doing the job that they agreed to do in the way it was agreed to be done.

Logistically, the seemingly simple matter (in theory!) of getting the clients to confirm in writing once per year that they are happy to continue paying fees for ongoing advice, would be difficult. People are busy, and just forget to follow through on things. People go away, get sick, or just don't open their mail for weeks at a time. Clients - believe it or not - are often re-investing funds or sticking with the same product automatically year on year because they didn't bother to read a letter in time. And of course included within the "opt-in" provisions was a big stick for the adviser who did not obtain the written client consent within the required timeframe - meaning that it would become far too dangerous for an adviser to continue receiving fees or carrying on the relationship if that written consent was not obtained each year.

Logically one would have to expect that over time advisers would be having to disengage from otherwise happy professional relationships simply because they had not obtained the required consent at the right time in any given year. That cannot be a good outcome for consumers generally.

After much lobbying and debate, the opt-in provisions were amended to a 2 year period, instead of being an annual requirement. That change was an improvement to be sure, but all the flaws with this method of achieving client consent and aligning the professional obligations with consumer benefits remain.

In the last week though there has been an interesting twist. Interesting - and beneficial - for those advisers committed to working to the highest professional standards, and who are willing to pay the price to do so.

It should send a shiver down the spine of the many advisers who do not belong to a professional association, or who think they are fine just motoring along obeying the basic rules of the road that the FAA delivered.

Why? "Opt-in" passed, and has been included in the legislation in Australia. What happens there - particularly in terms of improving the immediate consumer experience in financial services - will influence regulators thinking here.

The really interesting point though: there is an exception to the opt-in provisions in Australia. The exception is that financial planners (in the widest sense) who are signed up to an approved professional code of conduct managed (with rigour) by a professional association are given a class exemption from obtaining the opt-in consents from individual clients.

In plain english: if you are an adviser who belongs to a genuine professional association, with high standards and the ability (and will) to enforce them, then you are trusted to do your job well and are relieved of some of the rules aimed at fixing the cowboy end of the market.

This is an excellent outcome for the many thousands of advisers who have invested in higher education, voluntarily operated at higher standards than the laws required for many years, have exposed themselves to the risks of getting it wrong in working to the highest standards - and who have demonstrated their commitment to doing their work as best they can.

This principle of applying tough rules across the market, yet providing class exemptions for segments of the market that have already demonstrated they have earned the right to self regulate to a degree, is sensible and practical. It is also the best possible method of ensuring that advisers who do operate on the fringes in terms of the business practices or standards become aware that there is actually real business benefit in voluntarily operating at higher standards than the minimums required by law.

We can only hope at this stage that this principle gets imported from Australia - that there are ways of raising standards generally, while recognising and trusting those who have already demonstrated their willingness to work at the highest standards. That would be good news for the local market.


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5 Marketing "places to be"

 by Tony Vidler.

Free marketing always appeals, and it is often said that "any publicity is good publicity"? That's an exaggeration of course as not all publicity is actually good - some can cripple a business or brand. However, any publicity (or marketing) that is free AND where you can control the content has to be good.

Talking with advisers about the topic inevitably leads to the question:
"which social media platforms should I use?".

The answer (as it often is), is "it depends". In order to work out the right answer you need to understand the evolving trends, the broad differences between the most popular platforms, and then match that with your own skillset and target market.

Social media has progressed well beyond just being a convenient way of seeing the latest photo's of your overseas relatives, and the explosive growth of business and end-consumer users is phenomenal. Twitter grew from 6,000,000 to over 250,000,000 in just 3 years. Facebook has over 800,000,000 users now. Little old Trademe in New Zealand has over 700,000 posts per month on its message boards.

That's a lot of traffic and users engaging in the social media world. It's where you are most likely to find, and engage, likely future prospects for your business in a non-threatening and collaborative way.

The greatest benefit though for the business owner is the ability to grow your personal and professional network and reputation - which is valuable over the medium to long term. The connections you make, and the conversations you have with them, will provide good marketing opportunities. You will have an opportunity to engage with, and get to be known and trusted by, people you would not otherwise come into contact with.

Social media as a method of marketing is not totally free of cost of course - though it doesn't cost hard cash generally. It does however take some time and commitment from you. There are an array of really useful platforms and tools to help you manage multiple social media marketing efforts fairly rapidly and efficiently however - and many of them even have good free versions (e.g. Hootsuite), meaning you can manage the time commitments pretty well on a day to day basis.

For New Zealand businesses the 5 social media channels well worth considering are:

1. LinkedIn. For business to business connectivity this platform is without peer. If you want to be talking to business owners or executives/management then you need to be here. It is professional in its approach, there are interest groups for any market niche it seems, and there is a wealth of intelligence to gather. Linkedin appears to have the highest success rate of the social media platforms for generating new business.

2. Facebook. More than 2,000,000 users in NZ alone, it is without doubt the largest and best known social media channel. Particularly useful for engaging with consumers (as opposed to other businesses), and with an ability to provide quite a variety of content (images, links, video's, blog's). There is an abundance of evidence that consumers who engage with your business (or "like" you) on Facebook are far more likely to purchase from you.

3. Twitter. Still a little "wild west" in social media terms, as there is very little content control, and everything is short and sharp. It is essentially the internet in 140 characters or less...that is, there is an abundance of useful and interesting content on virtually any topic you can think of. It is extremely useful as a resource - communications, content sourcing, becoming a thought leader - or following thought leaders. An often under-estimated element is that it is often humorous and a little light-hearted, which is in itself excellent for a social channel.

4. TradeMe. Often under-estimated by NZ businesses as a marketing platform, beyond the obvious use as a place to sell the old office furniture. It truly is the social channel that Kiwi's flock to, and apart from the core auction-focus, there are advertisements, message/bulletin boards & market intelligence in abundance. Distinctly useful for any business aiming at retail consumers - they are here in their thousands by the minute.

5. You Tube. This ones surprises business owners when you talk about it, but it is the second most popular search engine in the world (after Google). This is a place where consumers go looking for things, so if you are looking for consumers.....here they are. Interestingly there is strong evidence indicating that businesses that use video in their marketing (via website, YouTube, etc) have far greater consumer engagement and dramatically increase the chances of obtaining new business. Most consumers seem to prefer watching a video rather than reading a detailed article.

Whatever social media platform appeals to you in your marketing, it is important to look at it as an element of the overall marketing strategy for your business. The more marketing tactics that are interwoven, the more effective the overall marketing strategy will be. It is smart business to create content for your own website, and then share it via social media channels (plural!) and extend the reach of your message. The social media platforms can extend the reach and knowledge of your brand beyond the passive "billboard" that many business websites are.

So; 2 big tips for being effective in your use of social media:

* Be Relevant. It is social - so remember to engage with people, communicate, inject fresh ideas into the mix, and above all - be interesting.

* Don't blatantly (and boringly) self-promote. Nobody wants to be bombarded with advertising, and people will switch off to your brand entirely if their only experience is being directly marketed to constantly. By all means let people know what you do - but no more than a third of the time in your communications. Make the rest interesting, engaging, entertaining, informative and so on. It has to be worth their while to continue following you.

Final thought: don't expect overnight dividends. It may take many months of actively engaging with the market before you have established the credibility and authority for your target market to decide you are worth hiring. But hang in there, with relevant and useful content being delivered to your target market via multiple mediums, you will become a trusted expert, and logical person to turn to for their business needs.


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Single, and loving it.

 by Tony Vidler.

I'd best let you down gently right at the beginning - this is not a gleeful little tale of a single persons interesting life. It is about the possibility of one type of "singledom" for an industry, that can result in more people loving it.

With all the change and raising of standards in financial services in recent years there is a mood that finally financial advice is becoming a profession in NZ. When you drill down into the reasons why people think that is so it becomes obvious that there is a wide range of views on precisely what a profession is.  It seems to be a bit like the Yeti....no-one has actually seen it, and everyone has a slightly different mental picture of what it might look like, yet everyone agrees that they'll know it when they see it.

This begs the question:  How will we know when financial advice has become a profession?

The answer is "when consumers believe it to be".  That may be many years after a profession has actually been created though - attaining market acceptance and associated prestige only happens after the high standards have been adopted and demonstrated continually and unfailingly.

We should acknowledge (and to a degree be pleased with) the fact that in the last 10 years the industry has evolved incredibly swiftly.  In the last 3 years the rate of change and elevation of advice quality, ethical behaviors and fiduciary standards has been remarkable.  Big ticks to everyone involved for that. It is premature for us to claim professional status on an industry wide basis however.   While full professional status has not been achieved yet, the shape and form of the profession IS becoming clearly visible.  That in itself is progress.  But is it yet enough?

Of the many definitions of a profession that one can find, I quite like this:

"A profession is a vocation founded on specialized educational training, the purpose of which is to provide disinterested counsel and service to others, for a direct and definite compensation, wholly apart from expectation of other business gain. This definition implies that, for a profession to be recognized as a profession, it first must be organized within a professional body".

This comes from a paper entitled "The Professions in Society", by Clare Bellis (a senior lecturer in actuarial studies).

If this is correct as I believe it to be, then clearly the industry still has further evolution to work through. Consider the key points, and then assess them against our world today.

Specialized educational training.  Well, to be a profession clearly this area cannot be something which is voluntary.  It is a "ticket to the game".  Everyone has to be at the same standard to be allowed entry to the profession.  We aren't there yet in NZ.

Disinterested counsel. Let's not even go here yet....but as an industry we remain some distance away from universally providing disinterested counsel to all comers.  In time, many issues surrounding potential conflicts, contrasting remuneration models, blatantly vested self-interest - all have to be addressed, and removed or resolved.

Direct & Definite Compensation.  Hhhhm....another one we maybe shouldn't go near yet.  Definitely cannot tick this box as an industry though.  Too closely tied to the "disinterested counsel" issue I'm afraid.

Organized within a professional body.  Aaaah, one of my soap box issues!  How can any profession have a multitude of "professional body's"?  Surely if it is truly a professional body then it exists for the entire profession.  The same standards of behavior, ethical standards, practice standards, educational expectations and so on would apply equally if it is genuinely a "profession".  Once again, in NZ we cannot tick this box at this time.

Yet this last item is the one box that the industry could tick if it chose to.  It is within the control of the industry itself.  Of the 4 core elements to becoming a profession there is one clear path forward - organizing a single professional body.  Any adviser who cares about their professional standing, aspires to have a valuable business in years to come, and wants to contribute to creating better results for consumers generally should be working within their own spheres of influence to bring this cohesion to the industry. 

It makes no sense to leave your own professional standing and brand entirely in the hands of other people.

It makes enormous sense though to work towards "singledom" as an industry.  There is not one adviser out there who wouldn't love it if they were held in full professional regard by the community - even those consumers who had never met the adviser, but respected them simply because of their profession.  Get the industry single, and (folks) loving it.


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WOMBAT is the word!

 by Tony Vidler.

A couple of recent conversations reminded me that there is one single thing that is continually forgotten, or under-utilized, in the marketing efforts of professional advisers - TESTIMONIALS!

You may well ask what this has to do with a Wombat - you may even wonder what the heck a Wombat is.  Humor me for a few moments though, and all will become clear I hope.

In literal terms a Wombat is a native Australian animal, renowned for its tough, resilient, plodding approach to life.  Even their metabolism is remarkably slow - some 8-14 days to digest their food.  Slow and steady is their way.  In colloquial terms the acronym WOMBAT is often used to describe a human that is rather useless really - a Waste Of Money Breath And Time. 

That observation has nothing to do with anything really, but is perhaps a useful or amusing piece of nonsense - you may know a wombat or two, and now have a useful label for them that is not openly offensive. I know some wombats for sure.

From a sales and marketing perspective though WOMBAT stands for Word Of Mouth Beats Any Thing.

Word of mouth advertising is the best there is.  Referrals and endorsement from happy customers, who advocate for you to other potential customers, produce the best new customers.  Cost of acquisition for the new client is generally one of the lowest of any marketing methods.  Ease of business in terms of gaining rapport and establishing trust is superb.  Your expertise and value is largely accepted by the potential customer before you even meet.

Everyone knows this of course, but few generate enough referrals to be able to rely upon them as the primary constant source of new business.   There are a number of reasons why that is the case, not least of which is the reluctance for professionals to beg their clients for the names of others.  That is something which nobody feels good about - especially your customers.  The extremely basic concept often touted is to ASK!  Ask and all shall be delivered!  Well...it IS true that if you ask often enough, you'll get something from enough people, so that it is sort of effective I suppose.  Truth be told this method usually results in obtaining little more than a list of the client's B-list acquaintances, and they are barely qualified at this point (if at all).  The result is effectively a new list of cold-calling candidates for you, and a nervous new client wondering what the heck they have just done. Brilliant.

Let's face it, it is poor form and a bad look (especially early in a business relationship) to put somebody on the spot and bluntly ask them for a bunch of names.  Do you really expect that someone who is still only beginning to trust you will deliver your next wave of super clients?  Just because you asked the magic question do not expect your new client to open his contacts list and electronically transport his entire social network to your I-phone, with the ringing endorsement that everyone they know should place their faith in you. The chances of that are nearly as good as playing Lotto.  You'll perhaps win plenty of small prizes if you play this game often enough, but you'll still be losing money overall and missing out on the big money.

Word of mouth though is where it is at.  Constant streams of referrals from satisfied customers ARE possible.  However, like the wombat you have to be prepared to plod along, and understand the slow metabolism at work here.  

You do have to be referrable to begin with of course.  That is, be someone professionally who is easy to trust, and easy to recommend because of your expertise, enjoyable manner of doing business and interacting with customers, and because there is a bit of a WOW factor in the customer's mind.  You do things that exceed their expectations, and impress them enough that they are confident to share their positive stories with others.  And people actually like telling others about their good experiences, so give them the chance to do so by being a good experience.

Clients also have to know that you actually want new clients.  Now that sounds really basic, but it is amazing how many customers believe you are successful, and busy - too busy in fact to take on anyone new.  Incorporate the message into your entire marketing and client engagement process that your business depends upon doing such a good job that clients introduce new clients.  And you have to keep reminding people that this is still the case.  It should be part of your marketing process that you are continually conveying this message.

There is a huge difference too between asking for referrals, and asking to be recommended.  The first is usually an uneasy process, the second is usually a comfortable process for the clients.  Asking to be recommended might not generate new leads immediately, it is a bit more passive than that.  It is however the road to repeated referrals from satisfied clients.  It is where clients become advocates for you and your business.

One of the simplest methods of all for generating awareness is to actually ask a question that invites criticism.  Of course you have to comfortable enough and confident enough in your relationship with the client that you are prepared to take that risk, because the last thing you can afford to do when asking the question is defend a position.  Whatever the clients answer is, is valid to them. Their perception is the reality of the relationship.

The little chat, and key question, that is often very effective in opening the recommendation discussion and positioning for it is:

"You know that we enjoy working with you and you are exactly the type of client we are focused upon helping, but I am a little worried that we might not be quite up to the mark in your view.  You see, clients that are really happy with us and think we are doing a good job generally refer others to us - that's actually how our business grows; through word of mouth from satisfied clients.  I am not aware of us being recommended by you to others, which makes me think we haven't got it quite right.  Can I ask what we need to do that would make you happy to recommend others to us?"

The objective here is to actually find out what you need to do in order to become referable.  then you have to be prepared to act upon that feedback - if it is reasonable & fair.  If it isn't reasonable, you were probably having the talk with the wrong sort of client to begin with, and probably don't want more clients like that. You do only want to ask those who can refer you to the right sort of clients for your firm.

Ideally what you also want from this chat is endorsement from the client.  That may come in a number of forms - perhaps they are comfortable with you being allowed to refer to them as one of the clients of your firm.  No details of their business with you of course, but a simple acknowledgement that you provide advice to them and they are comfortable with others knowing that.  In itself, that is powerful to other prospective clients, particularly if the endorsements are from well known people or businesses.   

Testimonials are gold.  Brief and to the point (50 words or less are best) - about why they think you are excellent, and hopefully why you WOW'd them.  Put the testimonials on your website, your brochures, and any marketing material you can.  Put them everywhere it makes sense, and where other potential customers can find them.  If you find yourself in a situation where you have a delighted customer for some reason, definitely ask them for a testimonial while they are delighted.

These days many potential customers will check you out before even meeting you.  Give them something positive and powerful to check.  Google rules!  So feed Google....Customers gain confidence from realizing others have positive experiences with you.  It takes away some of the risk for them in deciding to engage you.

Naturally I follow my own advice in this respect, and gather testimonials from happy clients and business colleagues.  You would not believe how many people refer to the Testimonials page when they meet with me.  Seriously - more than half refer to it at first meeting.  They have not necessarily read everything, in fact mostly they are looking at the names of the people who provided the testimonials and forming a view on that basis alone.

The key to a successful and perpetual stream of the right sort of new clients is to be referable, ensure people know that you rely upon it, exceed client's basic expectations, and seek their testimonials.  It is about generating Word Of Mouth.  It really does Beat Anything Else.

http://www.strictlybiz.co.nz/testimonials


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Anchors away! How to work out who to drop...

 by Tony Vidler.

Let's begin the new year by challenging the number 1 Myth pervading professional service firms - Big is good.  Big is NOT necessarily good when it comes to an ideal sized client base.  A big client base can simply be an anchor.

Most professional service firms seem to feel that there is strength and better profitability in achieving a bigger size.  More clients equal more success.  Continually adding new clients adds more profitability.  Well that wasn't my own experience, and nor is it the experience of many others I work with.

Yet the myth persists, that getting more clients fixes everything.  What's wrong with the ones you have?

Maybe there is nothing wrong with your existing clients.  But then again maybe there is something wrong with some (many?) of them.  There might not be anything "wrong" with the people themselves - it is just that they are not the right fit for you and your business.  One of things we never speak about in polite business society is "not all clients are good clients".  There are some clients you just shouldn't have. 

A respected adviser once said to me when he was reviewing his business model, "I decided to go through my 400 clients and only keep the ones who trusted me, actually followed my advice,  and would never sue me".  He kept 8 of them, and sold the rest of the business.

That is too difficult a move for most advisers, however it graphically illustrates the point that not all clients are ones you should be working with.  If you know who is the right sort of client, and focus your attention on those ones, then not only do you build a better business over time, but you have a far more fulfilling and enjoyable life I'd suggest.  That same adviser had rebuilt his business over a 3 year period to about 170 clients, serviced by himself & 2 other advisers, and with an unbelievably high turnover (we are talking many millions in revenue in that business).

Clearly the business referred to is an exceptional one, operating in a particular niche and providing the very highest possible range of personalised service and expertise.  It is not a typical advice business in other words.  But it did start out as a fairly normal type of advice business.

Small can be very good.  Big can be very good too of course - but it should not be thought of as an automatic path to business security.  While it is true that many fixed costs inside a professional service firm are reasonably static, or not proportionately related to number of clients one has, there is usually some sneaky overhead-creep that goes along with increasing the size of the client base being serviced.  The variable costs directly related to marketing & servicing naturally go up with increasing client base size.

One of the more interesting and worthwhile things an adviser business can ever do is to spend some serious effort analyzing the business they have.  Work out what your servicing costs per client are each year for example.  Work out what the overheads per client are.  Understand what your clients cost you - and not just in hard cash, but in support personnel time and in adviser time.  If you go through the exercise I would venture that you will be quietly amazed at what you are spending on average per client.  And we haven't discussed the lost opportunity costs....

A quick example to make the point.  Let's say you send a greeting card 1 x p.a, a couple of newsletters p.a., review letters and reports mailed 1 x p.a., disclosure 2 x p.a., maybe a seminar 1 x p.a. for clients, and perhaps one invitation to a function each year.  These things are pretty typical and can easily add up to a cost per client of $150-200 in direct servicing costs.  Apportion out your fixed costs amongst the clients....often another $150/head fairly easily.  Staff time dealing with a couple of calls and emails a year?  Another $50-75.  Adviser time?  Another 2 hours a year - call that a minimum $300.

So, the client is costing you perhaps $800 a year to keep.  (Can you AFFORD to bring on more?)

The really interesting part though is when you begin the process of segmenting your client base and working out what each segment brings in revenue each year.  Your very top end clients, that follow your advice, and think about their affairs will be presenting you with average revenue of $1,200-$2,000 p.a. on a reasonably consistent basis.  Every 2-3 years there will be a big bit of work done with them that provides a lot more.  And they will, if the relationship is nurtured well, provide you with more clients of that type.  The lifetime value of these clients can be immense.

Clearly a good investment.  Get more of them.

However, at the other end of the scale I regularly witness advisers holding on to smaller clients.  Perhaps they purchased something from the firm 9 years ago, or sought some advice and paid for their plan 4 years ago, or were handled as a bit of a pro-bono exercise.  When you drill down and look at the ongoing value these "clients" present the numbers are startling.  It is not uncommon to see an average revenue per client below $100 p.a. at this end of the client base.

Yet advisers think that those clients should receive the same "basic service" (albeit without the function invite) as every other client.  Result?  They cost you many hundreds of dollars a year to keep.

The primary rationale for keeping these types of clients is flawed.  It is usually "I don't have to spend money marketing for new clients - these are my new business opportunities for years to come".  Sorry, you've already had them for years and haven't been able to make inroads yet, so what are the chances that will change in the next couple?  Really?

Some advisers take it further and actually go out looking to buy client bases of this sort - so you get to pay a lump sum in today's dollars that represents some multiple of anticipated future earnings for people that cost you money to keep right away.  I may not be a great businessperson, but that one doesn't look like a good deal.

The reason for outlining this is to simply challenge the accepted wisdom that "big is good" when it comes to running a professional services firm.  Big MIGHT be good, but it might not either.  A big revenue base is certainly good.  A big fistful of profit each year is good too.  A big reputation is good.  But a big "client base" that is predominantly low-value transactional customers is not a good client base at all.  It is a prospect bank perhaps.  In reality, it is rarely even that.  Such customers who do not value advice, or the adviser, or place any significant store on the service they receive are not worth keeping.  They are an anchor preventing, or slowing down, your ability to sail for new worlds.

If you do nothing else in your professional service firm this year about your back office, do this one thing.  Analyse your client base.  Segment it, and decide logically what each segment represents in terms of current and future value to your business.  Understand what each segment costs you to maintain.  Understand the risks of continuing to be seen as the possible professional adviser to apportion responsibility to, for people who do not actually value the advice or the adviser, and who are a drain on the firms resources.

It may be that providing different service or support offerings for different classes of customers is the way forward.  Perhaps some simply need to be culled.  Some will undoubtedly benefit from your increased attention and move up the value chain...but not everyone.

Working out who to drop is often the best way forward.  It is not a quick process, but it will be one of the most beneficial things you can do for your firms future. Drop the anchors, and get going.


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Regulators Report card: "Should do better"

 by Tony Vidler.

What should we expect a regulator to regulate? 

We (advisers and other industry stakeholders) presume that the regulators role logically is to administer the law (and regulations relating to the implementation of the law that the regulators themselves write) that they have been tasked to manage. 

It would seem to follow therefore that they must know that law and their regulations. 


You'd think they should have a clear idea as to how they intend to apply, or interpret, the rules and regulations on the sector they regulate.

So why isn't that quite happening?

At the outset and for the record, this is a not an anti-regulator rant.  In the main I have felt that the various departments and government bodies involved in implementing new regulation in the New Zealand financial services sector have done a difficult task pretty well thus far as I have dealt with them.  I don't have any particular issues with how the FMA, or the Companies Office, or Ministry of Consumer Affairs (etc, etc) have gone about their jobs.  Quite the opposite generally.  My involvement with each of these groups at different times have been polite, business-like, engaging and friendly.  They are generally staffed by very able people that take their roles seriously, and who are trying to do the best they can from what I have seen.  The report card (from my perspective) is generally positive.

Despite that, there is a really awkward and dissatisfying element to regulation work thus far causing disproportionate frustration.  The lack of "market guidance" is beginning to look like the most significant "cost of compliance" for industry, and is a source of teeth-gnashing that could so easily be avoided.

Most industry participants understand and accept that strict interpretation of new laws will largely come about as a result of future court actions providing case law.  That is not a regulators job to pre-empt, as it is the domain of the courts to strictly interpret the meaning of law when that meaning is contested.  Taking it a step further back from that, we generally accept also that a regulator may not wish to pre-empt the outcome of their own market complaints or disciplinary functions by advising the market of expected behaviors or business methodology.  Perhaps an arguable point there to many, but one I am personally willing to give regulators the benefit of the doubt upon, as their position makes sense from the perspective of maintaining judicial independence in the event of complaints that they must manage.

One area where most industry participants DO expect clear regulatory guidance though is on the basic "ticket to the game" elements of the industry structure that they govern.  The rules of entry and participation as financial services providers, and as RFA's or AFA's for example.

There should be no doubt at all for instance on the part of the FSP Registrar regarding what any business or individual must do to register as a Financial Services Provider legally.  It is ludicrous that the very people in charge of administering the process and accepting registration on the part of applicants cannot themselves tell applicants what needs to be done in order to satisfy the Registrars requirements.

It is decidedly unhelpful, and a direct cost imposition on business, to respond to such questions by suggesting that external legal advice should best be sought by the person being regulated.  Imagine if we actually replied to such suggestions as we truly felt:

"Pardon?  You want me to go and pay a lawyer to guess what your thinking might be in the future when you clearly cannot work out what your own thinking is at the moment?  And you are supposed to be in charge of understanding what the rules are?  Do you seriously want me to go and pay for an  opinion from someone who probably understands it all less than I do, and who is at best only going to be trying to guess what decision you'll come to?  Why can't YOU just tell me what your thinking is - you're supposed to be in charge anyway?"

I have had similar experiences with several departments now as we have tried to get to the bottom of how to successfully apply new rules, or understand what is expected of industry participants.  Suggestions that market participants head off and get opinions that provide no certainty whatsoever merely puts up a barrier and a cost to business, and achieves precisely zero.  It doesn't positively contribute to what could be a healthy partnership on the part of professional market participants and regulatory authorities.  I'm reminded of the old school reports that I seemed to continually receive for years, which could be summarised as "smart, and doing ok.  But really should do better".  That's about where the regulatory report card sits currently I suspect.

What the industry needs, and what the authorities must do if they wish to create an efficient and professional market place here is to make their own rules regarding participation in the industry clearly understood by everyone.  Greater clarity via market guidance will promote confidence in the authorities, it will promote confidence in advisers, and that will flow through to greater confidence in the industry by consumers.  That of course was supposed to be the objective of all the reform wasn't it?


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The challenge of Kiwi DIY for Advisers

 by Tony Vidler.

Some telling research was done by Dr Claire Matthews of Massey University that highlighted the Kiwi DIY (Do It Yourself) mindset, and the challenges that poses for financial advisers. 

The research was specifically on "KiwiSaver and Retirement Savings", and explored some of the issues and attitudes of Kiwi's. 

While the research was KiwiSaver focused, it raised issues pertaining to financial advice in the wider context.

Retirement savings are clearly a major issue for the nation given the current projected population changes will have 1 in 5 New Zealander's over the age of 65 by the year 2031.  In 20 years then a fifth of the population will be retired, or contemplating imminent retirement.  So what was revealed?

In brief, what came through strongly was the "reluctance to make use of financial advisers, with the advice of family and friends often preferred".  A mere 4% of those surveyed indicated they had joined KiwiSaver on the basis of a financial advisers recommendation.  Interestingly though, some 11% indicated that their choice of KiwiSaver provider was recommended by their financial adviser.  Clearly a proportion are joining KiwiSaver before seeking advice it would seem.  But more are joining and still not using financial advice.

Perhaps the adviser is unnecessary?  High proportions claimed alternative investments of some significance, with nearly 28% claiming to hold investment property, and over 45% were holding cash and/or term deposits.  A further third had workplace super schemes already.  Presumably mostly all done without financial advice also.

Undoubtedly the big motivator for the DIY investors as far as KiwiSaver is concerned are the scheme incentives.  Some 28% cited "getting the government incentives" as their primary reason for joining KiwiSaver in the first place.  The features of KiwiSaver then rated as important by the consumers had nearly 90% claiming the $1,000 kick-start as an important element, followed by about 85% or so saying the ongoing contribution tax credits were important.  A little further back some 80% claimed the employer contributions as important, and a long way behind that the first homeowners subsidy was deemed important by about 30% of members.

 

This is all interesting perhaps, but the big question is what does it mean as far as the role of the financial adviser is concerned?

KiwiSaver has critical mass, and it is here to stay.  Retirement funding is a looming societal issue, that will not disappear anytime soon.  The Kiwi DIY attitude is a significant factor already, which further challenges the issue of advisers being able to charge directly for their expertise. Add to that, pressure to lower costs, commission and charges of any form within KiwiSaver schemes will only increase in the short to medium term.  So there are undoubtedly issues for financial advisers to work with and resolve.

The truly significant challenge presented to advisers however is that largely they are not even considered a primary source of information on financial matters.  Note I didn't say "source of advice", but a source of information...

As the main source of information advisers are rated number 1 by about 19% of the surveyed population.  Nearly the same as was "books, newspapers and/or magazine articles".  Well done us - we are more informative than the local rag to the public on financial matters!  Just.

Some 27% are sourcing most of their financial information from friends & family, and a further 17% sourcing it directly from the internet.  I'd suggest that as content marketing increases, the internet's proportion as a primary source will rise - probably at the expense of both advisers and newspapers.

There are clearly a number of challenges for financial advisers, not least of which is how to make money (if at all) from advising upon KiwiSaver.  Most importantly, the big challenge presented by the Kiwi DIY approach shown within KiwiSaver so graphically is that we first have to establish ourselves as the primary reliable and credible source of financial information to our prospective and existing customers.

Before we can attempt to work out how to provide KiwiSaver advice in a commercially viable manner, or even before we try to convince the market on the "value of the advice component", we actually have a credibility issue.  The hard yards have to be put in to establish the financial adviser as the primary information source.  Then, and only then, will there be sufficient people willing to consider the value of your advice.  Then there might be a chance of putting together a viable business proposition around advice on KiwiSaver.


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