The value proposition

Advisers must seize the opportunity to show their worth to clients

In a low-return environment, investors are fast becoming sensitised to the issues of fees and value for money. Among policymakers, the debate about value for money is in full flow too, with the FCA determined to flush out uncompetitive practices in the funds industry through its Asset Management Market Study.

Financial advisers can be sure that their clients are following this debate closely and are reassessing what value for money might mean in the context of financial advice. The ball is now firmly in the court of advisers, who have a unique opportunity to showcase their talents and demonstrate their worth.

The value game
This is not the same as saying advisers need to become better at their jobs. Many have well-established and successful practices and processes that serve clients well. No, it is more about showing their clients how well these processes work and how much value they add to their clients’ wealth and wellbeing.

Thorough fund research, judicious portfolio management and efficient client platforms are critical to this. But value is only truly communicated on those rare days when advisers actually meet the client face to face. On those days, a smile, a comfortable chair and a hot drink go a long way. But there’s a lot more to it than that.

The listening project
The annual meeting is a one in 365 opportunity (it may be more frequent, of course). That infrequent opportunity is wasted if most of the meeting is spent updating personal details or going through every line entry of the client’s portfolio. Do clients really value you for producing that pie chart showing their large-cap vs small-cap allocations or that graph comparing Sharpe ratios? Even if you think the answer is yes, that can all be done by email or online.

So time must be used wisely. Asking simple, broad questions that encourage the client to relax, open up and offer information may provide the adviser with potentially valuable insights into real needs or problems. A simple and inoffensive question such as: what are your kids up to these days? could generate genuinely useful information. Perhaps one or more of their children have chosen to live in another country; maybe grandchildren are reaching school age; it’s possible a child has a major financial or health problem.

After asking a question, it is usually best to keep quiet and take notes. Probe gently if clients evince particular passion for a subject, but there is no need to push – it is always possible to return to the subject later.

So called “informal” chats tend to be more valuable than formal conversations: the information gleaned may be gold dust if stored and used intelligently over time.

Using the information at your disposal
Of course, filing information away and forgetting about it helps no-one. Advisers’ strongest client retention suit is what they know about their clients. Competitors may have access to the same portfolio modelling tools, their offices may be as congenial, their coffee as tasty and their smiles as wide. What they don’t have is key information about your clients.

Armed with this information you are better able to:

  • Create a financial plan that balances current spending needs against deferred spending and retirement needs
  • Create a financial plan that takes care of loved ones
  • Carry out tax planning based on what you know of both the client’s fiscal position and their spouse’s
  • Write a will that reflects a client’s true wishes

Remembering they have children abroad, for example, you might prompt the client to start saving now for a second home abroad, to think about tax planning if they plan to move abroad later and join their children, or to draft wills that have legal force in more than one jurisdiction.

Go on a road-trip
To engage clients further, some advisers like to develop a one-page roadmap setting out how to accomplish chosen goals, and present this at the meeting. The roadmap is a concise and easily-digestible document which allows the adviser to go beyond financial guru into the realm of a solutions provider for life’s problems and desires.

This highly-personalised document never fails to capture the attention of clients and leaves a much deeper impression on them than portfolio breakdowns and market projections.

At each meeting, the adviser can update the roadmap, reminding clients what was agreed last time, taking credit for the actions that have panned out well, and telling them what to expect at the next meeting. Not only does this demonstrate the value you have added to their portfolios and their lives, but it sets both parties on a journey that becomes a shared road-trip.

When trust matters
This feeling of a shared destiny or journey is key to trust, which in turn is central to retention of clients.

Trust does not seem terribly important when everything is on track but, in times of stress (market or personal), trust suddenly becomes the only thing that matters. Let’s consider what happens during investment cycles. Investment cycles are repeated again and again, in roughly five year timeframes – although a cycle can be as short as a couple of years or as long as a quarter of a century, in the case of the Great Depression.

Investment ids emotion, not logic

The Consumers’ Wall

MSCI world index 3 year infographic
MSCI world index 3 year Rolling Return

Source: MSCI, 2015

However, many investors don’t understand that the economy moves in cycles. So when markets fall, investor emotions get progressively out of control, moving from fear, to depression and finally to panic. When markets rise, investors get excited, even thrilled and tend to take decisions rooted in euphoria rather than common sense. We call this “the cycle of emotions”.

Wherever clients are in the cycle of emotions, mistakes can be made which eventually erode the client’s confidence in an adviser. Ongoing nurturing of trust – developed via the shared journey – enables advisers to have sensible and productive conversations with clients, which can help avoid poor decisions.

A measure of success
Of course, there is no single metric for assessing how much value an adviser adds. Investment outcomes represent one metric, although a simple percentage gain or l0ss may be less helpful than appears at first sight.