However, as “FPA chief executive Mark Rantall said those within the industry relying on the coalition assuming power or blocking FOFA were operating a high-risk strategy”, it is one thing for FOFA to have its difficulties, another for it to be killed off entirely.

Firstly, let’s look at the claim that should the Coalition return to power, it will abolish the FOFA reforms. The fact is, and always has been, that once legislation has been put in place, it is very difficult to backtrack, and often takes years, if not decades, to be changed once again. Take for example Kim Beazley’s 2001 election promise to rollback GST. Ten years later, and we have already accepted GST as part and parcel of everyday life. To roll it back now would require political will and rationale that few Governments (regardless of persuasion) have ever had.

The second thrust of the anti-FOFA brigade is the expectation that the Coalition or one of the independents can be swayed sufficiently enough to block the FOFA legislation. While the Coalition has clearly put its position forward, by itself, it cannot block the passing of the legislation. And in the Senate, with the Greens holding the balance of power, the Senate is not expected to be hostile to FOFA.

As for the independents, all the reports to date would indicate that while the lobbying by financial planners, the AFA, and FPA have caught their ears, it would appear to be the case that the biggest source of contention is still the Opt-In provision.

Ironically, as we have stated before, within the whole FOFA legislation, Opt-In really only represents a small fraction of the entire impact when we compare it to the banning of commissions, volume payments and the such. And given political expediency, it wouldn’t be much of a stretch to expect that provision to be dropped in order to remove the independents concerns and get the FOFA legislation passed.

This all brings us back to still the outstanding issue which seems to be driving the biggest consternation of all – Opt-In. In my opinion, I still find it strange that the main objection seems to still be on Opt-In, when even the banning of commissions on risk within super represents, in some cases, a bigger impact than Opt-In.

And playing into the Government’s hands in favour of Opt-In are three main factors which are important for us to consider:

Firstly, it is already clear from the April FOFA update that the operational requirements of Opt-In aren’t actually that difficult to fulfil (for more information, view our discussion piece on Opt-In)

Secondly, Fee-For-Service, which forms the core of the FOFA reforms, will naturally result in the need for explicit client agreements where a regular renewal is required anyways. For example, if you have an advice package for $2,750 per annum, you would naturally need to renew every year anyways, since the fee is only for one year, and next year you might also need to increase it to say $2,900 to cover for inflation, rising costs, etc.

Third, with advisers calling for platform providers to support them with Opt-In, this removes one of the primary arguments underpinning the pushback against Opt-In – that it is costly to administer.

This leaves only the last argument in place, that the Government has no right to enforce conditions such as Opt-In on the client / planner relationship, and while from a commercial sense I can understand the sentiment, we need to remember that this would not be the first example of where a government has stepped in to create “exceptions to the rule” where it feels there is a need to do so.

Unfortunately, some of the complaints of whether it is constitutionally valid seem to forget that in our system of government we have Legislative, Executive, and Judicial branches of government for that reason – one to create new legislation, one to enact it, and one to administer the law – keeping in mind that “The Australian courts cannot give advisory opinions on the constitutionality of laws.”

While FOFA’s final state may not look the same as we have seen to date, it would definitely be naive to think that FOFA is dead in the water. Given the many industry players that have already been involved to date, it’s very unlikely to go away anytime soon.

Until next time,

Lap-Tin

Financial planners typically follow more of the July-June financial year calendar, and so, as the financial year comes to a close, profits are locked in, and bonuses are calculated, we can also start to expect the annual migration of planners again over the next several weeks as people use the opportunity to cash out and take stock of their careers.

This is all well and good, and we should always be encouraging people to take an active approach to their career, however, in such a people-intensive industry such as financial planning, and with the average practice consisting of just 4-5 people, the loss of even one person can have a major impact on the ability of your business to operate and service your customers properly.

Of course, the most common response to such staff movements usually consists of, “Well, it just happens. Nothing we can do about.”

But let’s be honest and frank here. I know this. You know this. Anyone who has ever been an employee knows this. Of course we put on a congenial face when, as an employee, we part ways with a company. Even people who have gone through a forced redundancy will, on their parting day, find some nice words to say. We are civilised people after all. And only pyromaniacs like to burn bridges.

But we’d be lying to ourselves if we 1) took it at face value, and 2) told ourselves that there’s no way to prevent or improve the situation. A copout that means we are constantly losing vital skills and talent and in-built organisational knowledge every time an employee walks out the door. (Of course, if you want them to leave, that’s a different story.)

Let’s look at it a different way. If you think through all the possible reasons that someone ‘moves on’ from a role, they all come back to two fundamental themes:

Circumstance

• “I’m moving to a different country.”
• “I won the lotto.”
• “I want to try something different.”

Or, Dissatisfaction

• “I’m not earning enough / I need to earn more.”
• “I don’t agree with where the company is heading.”
• “I don’t feel that I make a difference / that my opinion is being heard”

When it reasons of circumstance, like a career change or a planner looking to start their own practice, of course, stopping it is near impossible. But that doesn’t mean you can’t 1) be forewarned about it, and 2) slow or ease the transition and minimise the impact to your practice.

Because, shy of sudden ill health or unexpected accidents and the lucky lotto scenario, most circumstantial reasons build up over a period of time. Meaning that, if you are a good manager that active listens to your staff, and is someone whom they trust, you should be able to pick up on hints early on that will allow you to manage the relationship beneficially for both parties.

The important thing is that the intent isn’t in itself to stop it from happening. If a planner does indeed want to start their own practice one day, putting roadblocks in their way is about as likely to engender goodwill as running over your next door neighbour’s dog is going to get you invited to the Christmas bbq.

But by paying attention and knowing your staff’s plans beforehand, you can plan accordingly, and even support them in their development, and in doing so, probably find that they will be much more accommodating later on when it comes time for them to ‘give back’ the assistance you gave them. This could mean them putting their plans aside an extra three months to help train up a replacement or similar, which, when you are a small business, every little bit helps.

Of course, when it comes to reasons of dissatisfaction, that’s a topic for another day, suffice to say that 1) you will rarely get the real reason voluntarily given to you, and 2) you can actually do something about it, whether it be through reward and recognition, greater say and input, work flexibility, etc.

So with that in mind, enjoy our last newsletter for this financial year, and look forward to our next one in the new year.

Until next time,

Lap-Tin

But are those really the true causes behind an increase in advice fees under a fee-for-service regime?

On face value they seem to hold some logical weight – increase the effort required and you increase prices. But as we have discussed previously, the (FOFA) Opt-In process doesn’t necessarily have to be overly onerous and expensive, and if collecting fees from clients was such a difficult and expensive process, then every business from print shops to groceries stores would be having trouble just covering their administration costs.

The reality is that Fee-For-Service has a very minimal effect on the cost of advice to clients, and I’ll explain why.

First, we need to consider where the source of the costs to clients comes from, and the primary bulk is from the delivery of the advice that they clients require.

So let’s use superannuation advice as an example. If you already have a process of providing quality superannuation advice that gives clients independent and objective advice that helps them to achieve their goals, then irrespective of whether you are running a fee-for-service or commissions-based business, how you provide that advice remains exactly the same.

(Of course, if the quality of the advice is not up to scratch, that’s a different matter but that has no relation to fee-for-service.)

Therefore, the fundamental cost of the service delivery is unchanged even in a fee-for-service setup. And whilst fee-for-service does have an impact on some of the other ancillary processes, such as payments collection, engagement process, etc., when compared against the core service delivery, which makes up the bulk of the 10-15 hours that normally goes into providing superannuation advice, the effect that fee-for-service has on the overall cost is negligible, in the order of $25-50 on a $2,500 service.

A more accurate way for us to assess the reasons for an increase in the cost of advice in fee-for-service versus commissions is to look at how clients have historically been “charged” in a commissions-world.

Firstly, in the legacy world we have always had the issue of the 80/20 rule – which based on our experience with practices, is closer to 70/30 – that is the top 30% of clients provide 70% of the practice’s income, with the remaining 70% provide the remaining 30% of the practice’s income.

Not surprisingly, the top 30% also happen to represent the typical practice’s “active” client base.

And here’s the rub. Under a commissions-setup, the reality is that it is the top 30% of clients who are having their advice fees being subsidised by the inactive 70% who pay commissions without being provided with any services.

And to address the expected comments that I will no doubt receive from some planners, there is of course the occasional inactive or low-value client that receives “subsidised” advice, but this will always pale in comparison to the active 30% that a planner will be actively engaging. It’s like winning the lotto – yes, you can win, but the odds are so low that it’s not worth consideration.

So, if we assume that a practice wishes to retain the same level of income in fee-for-service as they did in commissions, then realistically speaking, they would need to add an additional 30% (which was subsidised by the inactive clients) to the advice fee in order to ensure that the financial equation remained the same.

And it is this effect that explains much more the movement of advice fees under fee-for-service – not that the actual costs have increased, but that clients are now seeing the TRUE COST of the advice that they are receiving, costs which were previously being subsidised by the inactive segment of the client base.

So with that in mind, as a practice transitioning to fee-for-service, how do you position a perceived increase in fees to your clients? And the answer is, as honestly as possible. For some planners to claim that it is due to the Government or fee-for-service is disingenuous. In a user-pays world, it is about representing to clients the true cost of their services to them.

The other option is to take the opportunity to improve and redesign your service delivery to be better, faster, and more efficient, and in doing so, pass those savings onto your clients.

Either way, as professionals, we have a duty to be upfront with clients and not misrepresent what is happening.

Until next time,

Lap-Tin

Of course, on paper, the business reasons that drive these deals are usually pretty obvious – size and scale – but are they really the bee’s knees, and should every practice be looking to grow larger in size to compete with the majors?

Size is a relative matter, and so it may appear a bit strange to compare the AMP / AXA merger (combined 4,200 planners) to the Shadforth / Snowball merger (188 advisers), however, in both cases it is clear that both deals are looking for scale and efficiency from a back-office / platform perspective, as well as size and reach from a distribution / adviser perspective. And in that regard, it is hard to fault either deal.

However, if we take a closer look, there are some clear challenges that both deals face.

AMP has recently released its product and platforms plans as part of the merger, and reading in-between the lines, there are obvious product and platform overlaps between the AMP and AXA entities which will require a costly rationalisation and transition exercise (when is it ever cheap?)

While this would probably have already been known to both parties prior to the merger, that doesn’t make the rationalisation process any easier. And given AMP’s patchy history at integrations (or for that matter, many organisations), the real question is not so much “Do the scale and efficiency benefits justify the cost?” but rather “Will the integration and the expected benefits ever be successfully realised?”

On the flip side of the coin, the other overriding driver for such deals is to increase the size of the adviser group and increase distribution and reach. And it would be most certain that the increased size and geographical reach hasn’t slipped the mind of both the AMP / AXA and Shadforth / Snowball boards.

However, with an increased distribution size, also comes with it an increased need to control the quality and consistency of the service delivery – which is something that is easy when you are talking about 5 planners in the one office, but much harder when we start talking about hundreds of planners spread out over a large range of locations.

Firstly, without even looking at the differences between individual planners, there exists already for both deals, the issue of trying to create a common experience between both AMP & AXA, and Shadforth & Snowball. That in itself is an issue that will easily occupy both groups for the years to come.

The second of course is actually trying to build and maintain a consistent experience across their upsized networks, which leads us to the natural outcome – standardisation.

Now, standardisation of processes is not a bad thing per se. Actually, all good businesses should be looking to try and standardise their processes to create more consistent outcomes and efficient processing for their clients. Ask a business coach one of the keys to business success, and they’ll tell you that standardisation is a critical step in the growth and maturation of any business.

However, one of the flipsides of standardisation, especially on a large scale (such as that of the AMP / AXA entity), is that in an attempt to cater to as many of their constituents as possible, the end result often panders not to the highest principles of “best practice” but rather to the lowest common denominator.

This in itself is fine for an AMP / AXA, which, by AMP’s own admission caters to the “Mums and Dads of Australia”, however, for a group like Shadforth which bills itself as high net worth specialists, presents a bit of a dilemma, as “stock standard” and “high net worth” don’t typically go hand in hand. Ever heard of a HNW person that just wants “what everyone else has”?

And while it is a somewhat broad generalisation, we know empirically that HNW clients generally do want something a bit different, a little bit different, something tailored to them, and they are willing to pay extra for it. However, when trying to manage and maintain consistency and quality across a large group of planners, it can be very difficulty to do that if every client wants their own special treatment or special service.

In many ways, that’s why some HNWs avoid the majors and go to boutiques where they expect to receive a more personalised and tailored service.

How it will ultimately play out for AMP / AXA and Shadforth / Snowball in the long run is unclear, but there will certainly be some challenges that they will have to face in the near future if they want to reap the full benefits of their mergers.

So while size definitely has its advantages, before you dive into a merger or acquisition, in order to make it work for you, you need to make sure that you know what to expect, that it fits your business model, and that you have the expertise and resources to see it through to the very end – and not just rubber stamping the deal.

Until next time,

Lap-Tin

Please leave your comments and feedback for the video.

Sneaking in post-Easter on the 28^th of April, the latest FoFA update addressed a smorgasbord of outstanding items, some expected, and one or two more left field than most. And when summed up as a whole, it is very clear that the future of financial planning rests very much with fee-for-service.

So let’s take a quick look at the key aspects of the new elements of the reform:

1. Prospective ban on commissions from insurance within superannuation
2. Opt-in renew every two years
3. Prospective ban on volume rebates and similar payments
4. Prospective ban on soft dollar benefits above $300
5. Introduction of a new form of limited advice called scaled advice

Prospective ban on commissions from insurance within super from 1 July 2013

While having spoken to some planners that believe that this will spell the end of the industry, it’s interesting to note the following Financial Standard article that states that commissions within super represents “only 15% of total estimated life insurance commission revenue”.

The bigger question (and the bigger potential impact), in my opinion, is whether this is just the first step before the inclusion of insurance outside of super. And, if all indications are right, and depending on how the industry copes in the meantime, there is a high probability that insurance outside of super will be next up in a few years’ time.

The other question to ask is whether this will result in some planner shifting clients from insurance within super to outside of super in order to receive commissions. This could well be one of the unintended consequences which, ironically, might only speed up the timeframe for extending the ban to insurance outside of super.

Opt-in renew every two years

Given the very vocal opposition to the Opt-In provisions when they were first announced, the latest update on the provisions leave the doomsayers looking frankly lacking in credibility and quite silly for their disproportionate cries over what is, in the detail, quite a benign piece of reform.

Now with a two year renew period, instead of the original year, planners have more breathing space.

Secondly, in reading the detail, the Government’s requirement is actually quite straightforward. A renew form which is sent out 30 days before the renewal date, with an additional 30 days grace period after the renewal date.

Understandably, some commentators will still say that it’s not the right of the Government to legislate such things, but from a business perspective – why wouldn’t you be doing this anyways as a matter of good customer service?

Prospective ban on volume rebates

The ban on volume rebates, although not unexpected, will be the one that will, aside from the ban on commissions, be the biggest impact on financial planners. Based on our experience, we estimate that, for the practices that do accept volume rebates, 15-20% of their revenue comes from this source of income.

While 15-20% isn’t necessarily a business-breaker, it will undoubtedly hurt the top-line of those practices that have built themselves on that premise. For those practices, getting their fee-for-service model right becomes even more crucial in ensuring the on-going profitability of the business.

Prospective ban on soft dollar benefits above $300

Bye bye holidays, cruises, and trips paid for by fund managers or dealer groups. Sure, not getting to go on that paid-for holiday is a bit of a bummer, but then again, how many other industries can afford to pay their professionals for exotic holidays?

Whether this will apply to things such as marketing and other business-related activities is unclear, but those are things that practices should already be starting to come to grips with themselves anyways, as part of becoming better and more effective businesses.

Introduction of a new form of limited advice called scaled advice

The most left-field of all the updates to FoFA.

Interestingly enough, the concept of scaled advice is something that I’ve spoken about for a few years already. It’s a very natural outcome of the two ends of the spectrum of limited and holistic advice, and in my opinion, it is a very welcome thing to see the Government actually taking a serious look at this space.

Of course, it’s still early days, so we’ll reserve our judgment for later on, but it’s still a positive sign nevertheless.

So there you go, in a nutshell. With this new round of updates, we can very much surmise that the last bastion of commissions (or any other form of payment not directly from the client) is insurance outside of super. And it won’t take much for that last bastion to fall. A new financial crisis or another financial scandal is all it takes.

It’s time for all financial planners to step-up and be proactive. Fee-for-service is definitely on its way.

Until next time,

Lap-Tin

Some of course will argue that not much has changed, and in a broad sense, there is probably some truth to that statement, but if we look closer we can see some obvious developments occurring – with a key one being the development of, or greater emphasis on, new services that straddle the gap between limited and holistic advice.

I like to refer to these services as specific advice – services that are not (in most cases) tied to a specific product and/or cover a greater area than RG200 intra-fund advice but, conversely, target a more specific area of a client’s life than what holistic advice would be expected to cover.

With the Fee-For-Service/FOFA changes driving planners to take a good, hard look at what they are really offering to their clients and how to create valuable and profitable services that clients are willing to pay for, we have seen several new areas of specific advice gaining ground over the last twelve months…

One of the more prominent ones is estate planning, which has been promoted heavily by estplan and which the Financial Planning Association has also backed. Another trend, has been the rise of services targeted at helping clients to save and budget (clearly austerity is ‘in’ again), with providers such as Lifestyle Planner and others rising to the occasion with a variety of offerings.

Both have the distinction of being completely independent of product; offer tangible outcomes and benefits to clients when delivered correctly, and; if structured properly, can create a consistent stream of quality income for the practices that offer them.

One of the interesting observations of the propagation of these specific services is an underlying theme that I have discussed in this blog before and of which I am a big proponent of – the creation of services that meet the specific needs of certain client segments.

Indeed, this is where I still feel that as an industry, planners are still missing the opportunity in not creating more segment-specific services. Many are still relying on the holistic approach, and while I don’t subscribe to the pessimistic view that “there is no such thing as holistic advice”, I do firmly believe that in order to get clients into the holistic space, we need to be able to offer them easy-to-understand and easy to take up ‘blocks’ of advice, and then gradually step them up into the holistic space as their sense of comfort and confidence grows.

The critical point to remember is that, although Fee-For-Service itself creates an onus on the planner to articulate and demonstrate value, by taking a market-driven, customer needs-based approach, there are actually numerous opportunities which are untapped, just waiting for a clever and savvy planner to create the right solution.

For example, the following article from the Sydney Morning Herald discusses Gen Y start-up entrepreneurs. Based on the article, surely there is an opportunity for an entrepreneurial planner to create a service to help such young entrepreneurs to obtain a loan, write-up a business plan, build a cashflow/savings plan, set up insurance cover in case of accidents, etc. Putting aside for the moment how such a service would be delivered, it’s a straightforward example of another opportunity of a service for a segment that is relatively untapped and waiting for the right person to come along and give it the attention it deserves.

Fee-For-Service is about the customer, and it’s time that we broaden financial planning’s range of services to reflect customers varied and changing needs and make planners more relevant to a greater number of people.

Until next time,

Lap-Tin

I believe this is an excellent step for the industry, and is the right action to take in order to improve the professional standing of financial planners in the eyes of the community. However, that’s not to say that strategic advice is entirely without its own set of risks and dangers.

In the more youthful days of my early career in the investment banks, I learnt what would appear to be a pretty obvious rule – that the longer the investment time period, the greater the level of risk, as there is a greater opportunity for a shock to occur during the period the investment is held.

How does this relate to strategic advice? Well, when we are talking about strategic advice we are, in most cases, also talking about a long term relationship with the client. And with that longer term relationship also comes the increased opportunity of something going wrong during that period of time.

What are the risks of strategic advice?

The most obvious risk is of some shock in the investment markets, which over the course of a 20-30 year period is highly likely. But from a business perspective, if you are a fee-for-service practice and are not using an asset-based fee, that this in itself would have minimal impact on you.

No, the biggest risk and challenge you have when it comes to strategic advice, is not actually the investment markets, but something far simpler but more unpredictable and uncontrollable – keeping your client on track to their plans for that entire period of time.

Consider that if there was an investment shock. As a provider of strategic advice, you would already assume that you will encounter one every so often. However, the problem is not so much you, but when your client opens up their statements, sees themselves 20% down and as a knee-jerk reaction out of fear, wants to take everything out and protect their position…

Or the client that hears about some new investment that’s going gangbusters and wants to go all in…

Or the client that buys a house and completely changes their financial position without telling you…

And guess what? Over a 10-20 year timeline, you can bet that for 99% of your clients that it’ll happen at some point.

So what can be done about it?

Well, when you think about it, the big question we’re really trying to resolve here is, “How do I get my clients to stick with the plan?” Because, 1) if they don’t, they probably won’t reach their objectives, and 2) if you let your clients make rash, compulsive decisions, you only risk diminishing your own credibility and authority in their eyes. After all, “if you let me do it once, why not do it again?”

This is where an additional service above and beyond the strategic advice, such as financial coaching or education, can help you build a stronger relationship where you have a greater influence over your clients’ decision-making.

It also provides an opportunity to engage with your clients more regularly, instead of just during the annual review – and this is where you have the opportunity to catch and address your clients concerns before they become an issue.

Of course, it also doesn’t hurt that, if done correctly, such services can also create an additional source of income that is completely independent of investment or product performance.

As an industry that is trying to demonstrate that it can step up its game into the professional arena, it’s important for us to look for new ways to create additional value for clients. Strategic advice gives us an excellent foundation, and it’s up to us to build upon it from there.

Until next time,

Lap-Tin

This is quite an ironic development, considering how the Opt-In provisions form just a small part of the entire FOFA reforms. Indeed, it is the smallest part of the reforms that is causing the most headaches and concerns at this point in time.

But let’s take the emotion and highly stigmatised debate out of the equation for a moment and have a look at Opt-In from an objective point of view and at what the pros and cons could mean for your business.

Opt-In from a Client Perspective

In all honesty, the call to arms to get clients involved in calling for the removal of the Opt-In provisions are as likely to succeed as my chances of dating Adriana Lima.

Firstly, it is highly unlikely that a typical client is that passionate about their financial planner that they would take the time to formally raise it with their local MP.

Secondly, from a client’s point of view, there is no downside for them, only upside. If they are already on, or wish to be part of an on-going service arrangement, then signing a form that says that they want to continue with the service during their annual review is an inconsequential factor for them. In their minds, they have already made a choice. The form is just a formality.

On the other end of the spectrum, if a client has doubts about the service that their financial planner is offering them, then the Opt-In provisions provide them with the perfect opportunity to voice their doubts – by not opting in.

Clearly we won’t be seeing any mass protests calling for the Government’s resignation over the Opt-In provisions any time soon.

Opt-In from a Planner Perspective

So while Opt-In is good from a client’s point of view, how does it stack up from a planner’s point of view?

A recent article quoted officials from the Treasury estimating that Opt-In will “cost around $100 per person”. Of course, without knowing the exact source of this information, it’s hard to say the exact situation it would apply, but logically speaking, it would make sense that, for an existing client that is inactive and who would need to be contacted in order to Opt-In, it would cost roughly around $100 to contact the customer, provide the necessary forms, collect and process accordingly.

However, when it comes to active clients, would that still be the case? And that is the key question. If a client is actively engaging you for your services, would it really cost $100 to effectively get them to sign a form confirming that they wish to continue engaging your services? If signing a form costs $100, then there are more significant problems at hand than just Opt-In.

And this clearly lays out where the differentiator for Opt-In lies. For practices that have disengaged, inactive, or dissatisfied clients, Opt-In exposes their vulnerabilities and presents a clear and obvious threat to their business.

On the other hand, if you are a practice that is already actively engaged with your clients, then Opt-In becomes a mere formality that, barring logistical and timing issues, becomes a non-issue.

In many ways, Opt-In is very similar to those hotel or shopping club memberships. You pay to sign-up for a year, and in the next year, they’ll send you a form to renew again. At that point, you can choose whether or not to sign-up again. The onus is then on the business to provide enough value to entice you to sign-up again.

So is Opt-In the end of the world? Clearly not if you have a business with satisfied and engaged clients. If your business is built on transactional services, then it doesn’t matter also. The only practices that will really feel the pinch are the ones that have let their clients fall by the wayside and who are now exposed.

And this is where Fee-For-Service and Opt-In complement each other. By having a compelling and attractive Fee-For-Service offering, you also provide the necessary “incentive” for clients to Opt-In. So get that right, and Opt-In naturally follows.

Until next time,

Lap-Tin

According to a recent Money Management article, “[f]inancial planners are not doing a good enough job communicating the value of their advice to clients”, and less than 7% of the respondents said that they expected to pay $2,000 to $3,000 for financial advice.

With fee-for-service on the horizon, the need to demonstrate value is of paramount importance in successfully getting clients to take up financial planning services.

However, the challenge of conveying the value of financial planning to clients is made up of two key parts – not just communicating the value, but also defining it in the first place.

This brings us back to the question that was posed at the start of the article. While marketing and promotion can undoubtedly have an influence on how people perceive their purchases, at the end of the day, there is clearly a stronger correlation between how clients perceive the value of their purchase with the utility that they get out of it.

That is, while marketing and promotion can help in bringing clients in and engaging with the business, at the end of the day, when the client is about to hand over their hard-earned money for a purchase, they will always consider what they will be getting out of the purchase and judging whether it is, in the whole, a positive outcome for them.

This presents a challenge to financial planners in defining the value of their service offerings, as this means that simply adding extra components (for example offering client seminars) may seem like a value-adding exercise, but they may actually not be considered of value if clients do not see any use or utility in it for them. This means, for some planners, that they need to seriously reconsider whether that yearly golfing event or birthday card is truly going to be a value-add for their clients, especially if none of them can play golf.

The answer, therefore, in attempting to define the value of advice to clients, means first understanding what the client wants and values, whether it be tangible factors such as seminars or newsletters, or intangibles such as understanding or planner availability, and building that explicitly into the service offering and pricing correspondingly.

By doing so, the value is not only built-in into the service, but more importantly, it is directly relevant to the client – because there is nothing that flattens out value more than having costly extras that a client does not care about, value or want.

With this approach, communicating the value of advice to clients becomes a much simpler affair. And when the current gap between how much clients are willing to pay versus the fees that planners want to charge is so great, then we should do everything possible to help bridge the gap for clients and planners alike.

Until next week,

Lap-Tin