What's in a name?

by Tony Vidler.

...that which we call a rose by any other name would smell as sweet.

Shakespeare raises an interesting line of thought with that quote:  something is called a particular name only because that is what the majority of humans agreed to call it.  A rose could just as easily have been called a "hippo" couldn't it?

What triggered this line of thought on the matter of naming things, or labeling, was an interesting little article about some research done by a firm called Cerulli in the States.  The key finding of this piece of research was:

59%of Advisors perceive themselves as Financial Planners, but only 30% truly offer planning services.

I have no idea of the size of the research group, or whether it checked beyond American borders or anything else, however my guess is that this finding would be largely accurate here too.

In essence, the research asked advisers to classify themselves and their practices on their own perception of the services they offer the market.  The researchers then reviewed those answers against what the adviser practices actually were, and the work that had actually been done with their clients.

Several interesting conclusions arose.  Most advisers seemed to offer some of the elements of financial planning, but then focused nearly all of their efforts on asset accumulation and/or wealth management work.

Also, it is strongly implied that many advisers aspire to provide in-depth or comprehensive planning services, but the majority of their retail clients are not necessarily in need of such services.

Thirdly, it highlights the ongoing confusion amongst clients AND advisers over the industry terminology and titles.

Certainly there is nothing inherently wrong or unethical about calling oneself a financial planner (for example), if one is qualified to use that label and is offering financial planning services to consumers.  That is not at issue at all.  It is irrelevant whether the consumers use the full range of such expertise or not really, if the adviser has the expertise and is offering it.

I do wonder though whether an adviser is giving them-self the best chance of capitalizing on their core value proposition in the consumer minds?  That is, in their branding are advisers linking their expertise and value to what the consumer thinks they want or need?

The essence of appropriate labeling, or naming of anything, is surely to convey an image which is immediately understandable to the target audience.  We continue to call a rose a rose simply because that is accepted, understood by the majority, and instantly conveys an image to the person we are communicating with.

In other words, it works as a form of communication.

So professional advisers might need to re-consider how they label - or brand - themselves.

Despite the many years of work that may have gone into earning the right to be called a Financial Planner (or any one of a number of other suitable professional qualifications), and how much distinction there might be within the industry in using such titles or qualifications, it may actually be largely meaningless to the target market.

It is all well and good to comprehensively explain to an audience that this pretty thing with a nice aroma is a typical example of the Rosaceae family.  It is completely accurate, clearly imparts that you have some specific knowledge of the subject, and sounds very clever.  

But do people get it?  More importantly, will they want one?


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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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The myth of the Independent Research defence

by Tony Vidler.

 Financial advisers safely relying upon third party (independent) research to defend product recommendations is a myth.  Many currently believe that through the simple act of out-sourcing product research, and then relying upon the research houses rating of a product, is in itself a recommendation of suitability for clients.

Product research houses themselves go to great pains to point out to advisers that suitability is not usually assessed.  Product structure and relative merits compared to its peers are assessed though. 

There is a side issue of course as to whether even that is credible research given the conflicted fee-charging methodology of many research houses.  However, let's put that aside for the moment and assume that all research conducted on financial products is unbiased, utterly independent, and thoroughly academic.  (yeah, right).

So the financial adviser pays his monthly subscription to the research house, checks the product rating/recommendation status, then proceeds to recommend it to clients. In the event of product non-performance, or claims of negligent advice in the future, the adviser points to the research claiming "but I got it checked out by experts, and they said...."

And there is the myth.

Total reliance on third party research to support product recommendations is dangerous ground.  Factoring in that research in product assessment is absolutely worthwhile, and adds to the defense of suitability.  So it is extremely useful as ONE aspect of product selection suitability, but you cannot fully "outsource" product recommendation responsibility safely. 

There have been a couple of cases in Australia that are very pertinent for NZ advisers.  Google and read up on them: "Delmenico v Brannelly & Anor" is one.  The Financial Ombudsman Service's Determination 18959 is another (with a link to the full finding below).   FOS 18959 is particularly revealing over a number of advice issues.  

The key paragraph (for this discussion) is para 148 on page 40 - "The adviser must go beyond this to demonstrate care and detailed understanding of the product before he can assume it suitable for a particular client".  The background in brief is the adviser defended the product selected on the basis that it was suitable as it was on his business' approved product list, and that products going on that list had been independently researched.

The conclusion that was reached by the Ombudsman was that this reasoning alone did not satisfy obligations to a particular client. The adviser had to go beyond this to demonstrate care and a detailed understanding of the product before he could assume it suitable.

Conclusion: a favourable rating on a product from a research house (while good) is not enough to rely on as an advisers defence  for client suitability.  Total reliance upon that rating or research is a myth.

To read the full FOS 18959 ruling click here

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Why your "FREE" service is a barrier to business

by Tony Vidler.

Most advisers at some point offer initial meetings, or consultations with clients, for "free".

The fundamental reason this just doesn't cut it with consumers is that they don't believe the advertiser.  It simply isn't true, and that will stop business coming your way.

Even at the institutional end of town we find businesses advertising their services as "free" to prospective customers, and most advisory practices fall into the trap at some point.

The first rule of professional marketing should surely be "tell the truth", in which case we should be advertising the initial-no-obligation-meeting as being "at my cost".

Nothing we do in business is free, and consumers do not believe for a moment that they are getting anything from us for nothing.  If it doesn't have an obvious price then there will be a hidden one, right?  If that is the case then the very first thing you have created with your advertising is distrust on the part of the potential customer - and that is a barrier to doing business.

It makes no sense to put a trust barrier up to begin with, and particularly not one that is so patently transparent.  All the initial effort by the adviser in any customer relationship is focussed on establishing rapport, trust and credibility.  Yet advertising yourself as free undermines the entire process.

Be honest in your marketing.  While being honest lay the foundations for a truly professional relationship that is based upon trust from the outset, and which clearly values your expertise.  There is a harsh conclusion for the advisers sold on hiding behind "free" - if the adviser cannot place value upon their expertise right up front, why should a consumer?

So instead of telling the world that your expertise of services are "free" at the outset tell it how it really is.  As a professional adviser you provide no-obligation (on either party) initial meetings "at my cost".  It isn't free.  Using my office, is at my cost.  If I come to you, that is at my cost.  Sending you the pre-meeting material and disclosure information?  That is at my cost too.

It is not at "no cost".

Offering information and providing the time and resources to potential customers at the outset is a marketing expense to the advisers business.   Why try to hide that?

Give yourself the right professional positioning at the beginning of a potential engagement.  It makes perfect sense to offer an introductory meeting at no cost to the potential customer.  A no-obligation meeting to begin with makes as much sense for the adviser as the consumer.  There are some consumers you just cannot, or don't want to, help.

There are very few potential customers who will ever truly value you and your expertise if the business relationship cannot begin with you valuing yourself.  Advertising yourself for free will prevent the type of business you want coming your way.



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