5 steps to playing it safe

By Tony Vidler

 

How does an adviser play it safe when it comes to proving that they have acted in the best interests of the client?

There are 5 key things that the adviser must do - and be able to evidence afterwards - to show that they have worked for the benefit of the client, and not acted out of self-interest.

It comes down to being able to show that you "know your client".

Knowing your client (as a principle of regulatory testing) is about understanding the clients situation and needs in order to provide suitable advice that is most likely to help them achieve their objectives.

The 5 things an adviser must do in order to play it safe, and be able to show they have been working in the clients interests, consist of 3 process steps and 2 ethical considerations.  They are:

1.  Identify the objectives and needs of the client, together with showing they know the clients financial situation

2.  There must be clear instructions regarding what advice is being sought, or offered.

3.  The relevant client circumstances need to be understood and documented.

Gathering the right information and having clear understanding with the client, as outlined in these three steps, will go a long way towards satisfying future critics.  However, to ensure that you are REALLY working in the client's best interest, two further tests can be applied.

4.  Did the adviser to attempt to find out more information regarding the client's circumstances if it could be considered "reasonably apparent" that the information provided by the client was inaccurate or incomplete?

5.  Does  the adviser have the competency and expertise to provide the advice required?  This is effectively a self-assessment on the advisers' part - but hey, we know whether we know enough to do the job properly really don't we?   

In reality, the ethical tests are never applied - unless the regulator comes knocking for an audit, or a customer expresses dissatisfaction.  Both of those circumstances can happen at any time, so you do have to apply these tests.  If you find yourself as an adviser thinking "I don't think I have the knowledge to do that really well"....then you really should decline to try and provide the advice.  Otherwise you are inviting future dissatisfaction and problems.

One of the key things that is often misunderstood by financial advisers is that you will rarely be playing in terribly unsafe territory because of product non-performance (e.g. problem insurance claims, investment market losses) - IF your process is sound.  The adviser will be judged primarily on the basis of the processes they can prove to have used, and the extent to which they have demonstrated the principle of "the clients interest first".

To play it safe as an adviser therefore there are 2 big things to do:

* have a process showing you understand your client, their circumstances, and objectives

* conduct yourself honestly - especially in assessing your own competency

further reading:

Best Practice: ASIC doesn't expect perfection

http://www.professionalplanner.com.au/regulators/best-practice-asic-doesn’t-expect-perfection/

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Should we care about the public interest?

by Tony Vidler

Should financial advisers care about the public at large?  The people who are NOT our clients?  Those who don't pay us anything?

Absolutely.

When one considers "professionalism", and the attributes that define a professional, you quickly come to the conclusion that a unique characteristic of the genuine professional is a commitment to the public interest.

If you are a financial adviser who is committed to being a professional, you have a social responsibility that extends beyond just those clients who can afford your services.  In plain terms, you have a responsibility to make available your professional expertise to members of the public who have genuine need of your knowledge, but who cannot necessarily afford to access it, in order to improve the standing of the profession itself whilst rendering service to society.

It is a principle of professionalism....one of the hallmarks that define a professional.  It is referred to as pro bono, or more correctly:

"Pro bono publico (English: for the public good; usually shortened to pro bono) is a Latin phrase generally used to describe professional work undertaken voluntarily and without payment or at a reduced fee as a public service. 

It is common in the legal profession and is increasingly seen in marketing, technology, and strategy consulting firms. Pro bono service, unlike traditional volunteerism, uses the specific skills of professionals to provide services to those who are unable to afford them."

(source:  http://en.wikipedia.org/wiki/Pro_bono )

One would like to think that all good citizens care about the public interest, and will do something to benefit wider society generally with the donation of their own time and expertise.  A huge part of our society does exactly that - contributing their time and effort to coach sports teams, raise funds for disadvantaged members of the community, work together to build facilities for the common good and so on. 

Undoubtedly our society would be a far more difficult environment, and less pleasant to live in, if it wasn't for the good citizens who donate their time and effort to making their part of society a better place by looking beyond their own immediate needs and pleasures.

Many financial advisers have contributed to their society in the same way over many years - they too coach the kids, fund raise, provide foster homes, mentor troubled youth and everything else that solid members of society do.

We have the ability to provide practical help however that not all other caring members of society can do however.  By sharing our knowledge and skills with those who might never be able to access good financial advice, we can create inter-generational change.

Helping a family with poor financial literacy to learn how to create assets and self-sufficiency, or escape crippling high cost debt, or understand how to create a dignified retirement for themselves....these are things which not only change the lives of those you help, but also the lives of those who they in turn influence and are responsible for.

Sharing our skill and knowledge in this manner is very rarely done by the financial advisory industry - and for many good reasons.  It does cost the adviser personally to provide such service - even if that is only in an "opportunity" cost.  There is the potential for public cynicism and cheap accusations of the adviser engaging in such programmes as a "marketing exercise".  The adviser potentially incurs the regulatory risk despite the absolute not-for-profit nature of the work being provided.

However, the potential benefits to financial advisers collectively of creating - or enhancing - public confidence through providing pro bono assistance to those in need are worth these risks. 

The elevation of the professional standing of those who commit to the public good over and above their own commercial objectives is satisfying and personally fulfilling at the very least.  The difference you can make in people's lives though - and ultimately in the lives of their dependents - is incalculable.

A word of caution though:  the same duty of care and professional diligence obligations must be taken when providing pro bono advice.

Apart from the very obvious need to minimize the business risk to the adviser, there is a higher level of public scrutiny placed upon the actions of the professional when engaged in providing such service.

Demonstrating your professional expertise and professional conduct while working in the public interest is what actually defines the Professional in the eyes of the public.

Financial advisers should grasp such opportunities to work together on pro-bono projects.  It's what separates the really good advisers from the rest.

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P.S.  Here is a blatant plug for a campaign being run by the Commissioner for Financial Literacy and Retirement Income here in New Zealand, that a number of professionals have agreed to assist with by providing pro-bono advice to members of the public during Money Week 2012.  

(Disclosure of interest: I have volunteered, and I would dearly love to see a thousand advisers participating!)

 

 http://moneyweek.org.nz/

For Consumers:  If you want to talk to a professional adviser for free during Money Week you can call the IFA on 0800 404 422 or go to 

 http://ifa.org.nz/professionals/events/eventdetail.php?eid=564

What are your clients REALLY worth to you?

by Tony Vidler.

How much do you really think a good customer is worth to you?

Most financial advisers will easily (I hope!) work through the basic formula of the average fee/sale per customer multiplied by the number of transactions they have with you each year, and then multiplied by the number of years you expect to work with them (see graph below).

That is all simple enough - if you know these averages and key business metrics for your firm.

But is that the total measure of what a good customer is worth to your business?

How many referrals to other great customers could you get from a really happy customer over the expected lifetime of the relationship?  What extra value can be attached to your brand, or business value, from having great advocates in your clientele?

How about a working example for a typical adviser who looks after their clients well and provides great value....

Let's assume that your client pays monitoring and service fees of $500 in fees each year (not all that much really) to you, and on average your customers require (significant) new advice every 3 years or so at about $2,400 per time.  So that's another $800 p.a. on average - meaning that the average annual revenue is about $1,300 p.a. for a happy client valuing your advice.

If you provide good service and advice they will be working with you for the rest of your working life - call that another 15 years for this example.  

So far this happy client that paid $2,400 in initial planning fees and provides ongoing revenue of $500 p.a. has an apparent lifetime value to your business of $19,500 - which in itself is pretty impressive.

However if that happy client refers other good clients to your business then their value to your business exponentially increases.  It is not as simplistic as using the same formula above for each additional referral, because over time (if your expected business time frame remains the same) then each new client in subsequent years has a lower incremental value, and it would be wildly inaccurate to attribute every new customers own "lifetime value" to the referring client .  But the acquisition cost per referral will be lower than most other forms of marketing, so that saving can in fairness be attributed to the lifetime value of the original referring client.

A typical advisory firm might spend (say) $250 in marketing for each new client it brings in each year.  so using the client example from above, there is another $7,500 in "value" in that client providing the referrals.

Not bad really....that $2,400 initial client is now looking like they have a lifetime value of $27,000 to your business over the next 15 years.

But the REALLY big value is within the impact these advocate customers have on your overall business valuation.  To illustrate the point let's continue with some further really simple assumptions.

If an adviser business had 500 clients, averaging $1,300 p.a in revenue (as above), it has a nice little turnover of $650,000 p.a. gross.  Depending on what valuation methodology is used, and what market conditions are prevailing, that business valuation might typically be (say) $975,000.  However, premium value is attached to those businesses where there is strong loyalty, constant referrals, and turnkey business operations.  The valuation on such a business (in comparison to one with little referral business and strong client loyalty) could be expected to be closer to $1,600,000 - a difference of $625,000 in this example.

That can be the difference for a retiring advice firm business owner between having a great boat to play on in their good retirement, or just having a retirement.

The concept of "lifetime customer value" is not just a simple one of how much revenue they generate for your business.  You should also be thinking about how much those engaged and happy customers can SAVE your business.  Get it right though, and it really becomes a matter of how much more your business is worth because you have happy and engaged clients that love dealing with your firm. 

That's where the real value is.

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Some customers you don't want...

by Tony Vidler.

Understanding the needs of different types of customers is essential in order to get your value proposition, service offering and process as RIGHT as you can to attract the right types of customers for your business.

Broadly speaking there are two groups of potential customers; 

1. Transactional focus

2.  Relationship based

The engagement, or "sales", process is quite different for each group.

Traditionally most advisers have been trained to deal with the transactional customer - which is hardly surprising.  Most of today's advisers were trained by product manufacturers in the past whose sole concern really was selling products. Today's professional adviser sells their expertise and time, and while there are often product solutions involved in the process they are not at the center of the advisers' value to the customer.

The customers with a transactional focus are pretty much focused on short term decision making.  They are essentially driven by price, or immediately perceived value for the price they have to pay.  In the absence of exceptional value in relation to other potential suppliers of advice or product solutions, they will focus on price alone.

Their greatest concern is paying more than they think they should right now.  As such, they will compare potential suppliers, or advisers.  They will haggle and express dissatisfaction at ANY price in a bid to get the best price-value they can.  They will question every recommendation, conduct their own research, ignore the commercial value supplied to them in time and effort by advisers, and be swift to complain of any perceived shortcomings.

Why would you deal with them if you are a professional adviser?  The very thing that differentiates you and adds value lies within your expertise and skills.  The core adviser value is not in the products you happen to suggest at any given time - and it is certainly not in the price of those products (which you cannot control much of the time in reality anyway).

The customer with a relationship focus may not articulate their needs in this way - they don't look for an adviser they can have a relationship with as such.  They do however understand that today's advice or product solution is simply a step in a much longer or larger process for them.  That is, they anticipate needing ongoing advice, service or solutions.  As such, their greatest fear is making a wrong choice.  That is quite a different motivator - and therefore underlying need that must be addressed and resolved - than the transactional customer.

The entire emphasis of your process is fundamentally different with each type of customer.

Traditionally trained advisers that retain an emphasis upon product as their core offering will naturally attract transactional customers - with all the haggling, stress and tyre-kicking that comes with that.  Advisers do so because the focus of their marketing and advice process is on that non-consumer-friendly process of "selling & closing". 

If you shift the focus of your marketing and positioning to one of engagement and building trust with customers you will attract those who value your ability to help them avoid making wrong choices, and with whom you will have much longer and valuable relationship with.

In the group of customers that seek relationship-based advice, there is significant lifetime customer value (which is a separate article in itself) for the the adviser business.  Those who seek transactional solutions focused on price are not really the clients for individual advisers of the future.  They will be the customers of the institutions that specialise in providing mass-market, not overly personalised, product solutions at the cheapest price they can get away with.

The business future for the professional adviser of tomorrow is in letting the transactional customers go to the institutions, and focusing on those who are more concerned with making wrong choices.  THEY are the ones who will value expertise and advice.

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Hustle while you wait!

by Tony Vidler.

One of the constant themes that comes up in coaching advisers to greater business performance, is the little matter of "hustling".

I'm not referring to getting out and pulling fast cons and sharp card tricks on unsuspecting folk of course...but the really simple and somewhat unpalatable fact that a seriously large part of any business persons success can simply be attributed to their ability to hustle while they wait.

It's about a work ethic.

As a general rule, very few advisers can afford to simply wait for the right, well qualified, potential customer to come walking through the office door announcing "I am ready to engage in a comprehensive financial review process - who wants to serve me?"

The unpalatable fact is that in the financial services business, advisers are usually as busy as they want to be.  There is a definite correlation between getting stuck in with a strong work ethic, and getting good business results.

As the diagram above shows, you have to be willing to make a good effort on the basic activities that generate results in your business, AND you do have to get stuck into it as quickly as possible IF you want to put the odds of success in your favor.

Make a little bit of an effort....eventually....and you cannot really expect great results can you?   You will probably get some results if you make a massive effort eventually....or perhaps put in just enough effort right now to get by.

Fantastic results come from getting into doing what you have to do as soon as possible, and putting maximum effort into it at that point.  

Not every week in business goes according to the grand plan...in fact, usually no week actually works out the way we imagined it would (or should).  That elusive customer who is going to walk in demanding your services at a premium price may well be coming, but in the meantime you have to get busy if you want to prosper.

Good things come to those who hustle while they wait.


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It's not about you...it's about the value.

by Tony Vidler.

Financial advisers often struggle to create a value proposition that accurately expresses how they work differently, or what makes them special compared to others.

It isn't that they don't have points of difference, or that they struggle to put ideas into words...generally they are very good at both. Each adviser has a unique way of interacting with customers, and maintains relationships a little differently, and has slightly different views of how and where product solutions fit in, and what the relative strengths and weaknesses of different strategies are.

Despite that, a room full of advisers when working through the process of trying to articulate their value proposition, almost always come up with the same line of thought (and often use the exact same words) to try and describe themselves and their businesses.  

It ends up sounding something like this:

"you should do business with me because I am honest, trustworthy and a nice person. I care about people and am very good at my job. I am clever and have qualifications and you will have peace of mind if you work with me"

This is the very simple summary of the typical statement advisers first come up with - as a customer might hear it.

So what's wrong with it? Well, pretty much everything....So let's pull it apart.

1. Honest, trustworthy, etc...these personal attributes are simply expected. There is no value-add here - customers expect this as a minimum standard of integrity.

2. Nice person...of course you are. If you weren't you would have no customers, in fact, you'd have no business if you had no ability to relate well to others and be a decent human.

3. I care....well, once again, you are expected to aren't you? If you did not actually care about others you would not be in a profession of trust where an essential component is the ability to think of the other persons objectives and be willing to work with them to get them the results they want.

4. I'm clever & have qualifications, etc....of course you do. Otherwise you shouldn't be in the business of advising people about money.

5. You will have peace of mind. NOW....the big problem with this is no customer actually believes it, and not very many advisers can actually deliver it.

So let's recap....5 parts to the typical value proposition statement designed by most advisers and 4 of them are "hygiene factors", and one is frankly unbelievable in the minds of the customers.  By "hygiene factor" I mean it is a given in the customers mind...as in any hospital will be hygenic.  It is not in itself a point of difference for hospitals.

In a previous post I outlined the formula, or the questions that must be addressed, to come up with a genuine point of difference that really means something to a customer.  

( http://tonyvidler.blogspot.co.nz/2012/05/3-questions-you-must-answer-to-define.html )

Basically when trying to create an articulate value proposition it falls down in 2 key parts:

• The adviser doesn't think of how different they are to other advisers. They think of how different they are to the customers. So the proposition ends up sounding the same as all other advisers' value propositions...hardly a unique point of difference...and simply highlights the distance between the customer and the adviser. 
• Secondly, the value proposition doesn't really capture what benefits the adviser actually delivers to the customer.

And that is the core objective of it:  articulate the benefit to the client that cannot be obtained from someone else.

Here are some general areas where you might be exceptional and doing unique things, and are able to do what customers value:

• Customisation:  using the masses of data and information in a highly personalised manner, or perhaps providing service or advice that is tailored to highly specific customers.
• Risk Handling:  taking away risks for customers; transferring responsibilities; removing the need to consider specific risks - making their world less risky than it was.
• Convenience:  being able to combine things in a way others can't; getting access to what customers need and value faster, easier, and so on; being there - instead of them having to initiate action, etc.

This is just a short collection of concepts to highlight that creating a value proposition is not about you.  It is about the end result for the customer - the thing they value.  When you get that, and are able to express it succinctly, then they will get you and the value you bring.


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