Why create a service proposition that depends on what you can’t control – the performance of money?
There has been a recurring theme in my conversations with advisers over the past few months. When I ask the simple question, “what’s your most worrying challenge right now?” I am getting the same answer: that fee discussions with clients are starting to hurt.
Just before Christmas, I heard from an adviser I have immense admiration for. Out of the blue, he asked if I would have half a day with him. “Of course,” I said. “Love to. For a fee, of course.”
John (not his real name) and his firm had been doing really well. I knew this. I’d seen his award-winning firm often mentioned in the press. But there was a problem. John’s firm was starting to lose clients to other advisers.
John was one of the first certified and chartered financial planners. In the early days, he made much of this; it became a differentiator. And it worked – at first. But it is no longer a unique selling proposition. Clients expect you to be well-qualified. It is not a benefit.
John and his firm were also one of the first to move to a passive investing approach. Again, they used this to maximum effect.
They found showing clients how they could cut down the cost of investing was another major USP. They found it easy to sell their “service”, to gather assets and, in the process, easily build in their 1 per cent per annum fee. Charging fees and still saving clients money was an easy sell. It worked – at first. But it is no longer a USP.
John and his firm are now struggling. Markets are down and they are losing clients to other advisers happy to undercut them.
Or they are having to reduce their fees themselves. They are on a slippery slope.
And they are not alone. Many others have made the same mistake and ended up going down this dead-end route. They have created a money-focused service.
Worse, because they were desperate to find a value proposition they could hang their hat on, they got carried away with their investment philosophy. It has become the focus of their “service”.
Yes, they have done a good job in reducing investment costs for clients, but now many advisers are finding their 1 per cent a year fees are sticking out like a sore thumb. And with markets as they are, plus the Mifid II disclosures starting to bite, you can see why John, for one, is beginning to get uncomfortable.
It is understandable why this has come about. Investments have been the nucleus of most advice businesses since inception.
This money-focused realm was founded by investment manufacturers whose chief aim was to distribute their products. Over the past 20 years, the investment business has been re-engineered to include advice and planning processes, but the focus has stayed firmly on the money, for one simple reason: the sale and distribution of financial products and investments.
For years, it has been pretty easy for advisers to get away with a money-focused service proposition, particularly if clients did not fully realise how – or how much – they were paying for advice.
But many advisers are now feeling the crunch. They are starting to realise that, since RDR, they have been getting away with an investment-focused service proposition for one simple reason: because markets have been mainly going up. But for how much longer?
I have been saying this for years and I will say it again. Why create a service proposition that depends on the one thing you cannot control – the performance of the money? It is suicidal.
Aside from being unsustainable, the approach does not sound like much fun. I’ve had hundreds of advisers tell me they feel trapped. That their processes feel redundant – like watching themselves in the movie Groundhog Day, experiencing the same scenario over and over, and not being able to stop it.
Well, there is a way to stop it. But it requires you to develop a service proposition that does not depend on the sale or distribution of financial products. One where these things are just tools in your bag.
My advice is to never charge fees for the tools in your bag, for “managing money” or providing investment advice. If you do, you will always be under pressure. Price pressure and performance pressure.
And somebody – or some robo – somewhere will always promise to do that better, cheaper or faster than you can.
Many advisers have seen the good sense in taking their main focus off the money and getting it back to where it belongs: on their clients’ lives. They are creating a service proposition dedicated to helping clients get a better return on life, not just investments.
They are focused on charging fees for helping clients get the best life possible with the money they have, by helping them to make wise financial decisions.
We need to break the shackles of the industry and focus on clients’ lives more than we do their money; on the person, not their purse.
This is the only way we will ever build a trusted profession.
Paul Armson is the creator of the Inspiring Advisers Lifestyle Financial Planning Online Coaching Programme and co-founder of Life Centered Planners