Building lasting client relationships

A recent study has shown that advisers see their client relationship as the primary foundation of their value proposition. Fiona Mackenzie describes the importance of a good client relationship manager.

Much has been said about change within the financial planning industry of late, particularly in relation to the changes proposed in the Future of Financial Advice (FOFA) reforms.

Advice has come under the spotlight, with the reforms aiming to improve the quality and accessibility of financial advice in Australia.

Clearly any professional adviser would support the concept of these aims, but what will these changes in the industry mean for advisers in practice?

What sort of impact will these reforms have on their businesses? Perhaps most importantly, how will they manage the proposed changes?

For the third consecutive year, articulation of value to clients was seen as the number one attribute of good practice management among those who took part in the Macquarie Practice Consulting 2011 Financial Planning Practices Benchmarking Study (carried out in March 2011).

Further to that, relationships are seen as the primary foundation of their client value proposition. Advisers believe a good relationship counts for around half of the value they provide to their clients.

Technical specialisation and investment selection are ranked second and third respectively, with price a distant fourth. This is particularly interesting given the current industry focus on pricing and fees.

What this clearly indicates is that when it comes to value for money, it is the quality of advice which counts.

While the client is paying for financial advice, what they are really paying for, and where they find the greatest return on their investment, is in the strength of the relationship they have with their adviser.

Advisers therefore need to ask themselves, what are they doing to get to know their clients, their needs and their long-term goals?

It is an understanding of these needs, and knowing how to respond to them, that makes an adviser an effective client relationship manager.

Advice and value are both intangible – what some clients deem as good advice and good value will be completely different to the measures another client uses – but what all clients want to know is that they are at the centre of the advice being provided.

The strength of client relationships will no doubt have kept many businesses afloat during the global financial crisis and will continue to offer the most potential for further growth as businesses plan ahead for the future.

Adding value to clients can be achieved through a variety of ways, for example, by advisers taking a more active management of their client base and re-connecting with their clients by offering more diverse wealth management and investment solutions.

Looking at the client base of most firms, more than half are 55 or older, so these clients are in, or approaching, the drawdown phase of their financial planning strategy.

This highlights the need for advisers and their broader practices to have the skills set needed to advise on estate planning, aged care and intergenerational wealth transfers.

A good place to start is by talking to older clients about their changing needs and discussing aged care and estate planning with these clients.

Asking to be introduced to the adult children of older clients and educating them on how their parents’ needs will change and how to prepare can also be a worthwhile conversation.

At the same time, it is important to focus on growing other client segments in the accumulation and retirement planning phases to offset the impact of an aging client base.

If they are focused on growth, practice owners need to be asking themselves what strategies they can develop to attract younger clients.

Expanding advice services into areas such as insurance, mortgages and cash flow management are all options that more and more practices are offering to diversify their revenue sources.

It’s not only relationships with clients that offer potential for growth; it is also relationships with third parties, such as referral sources.

Most client referrals come from existing clients and accountants. Use of accountants as a referral source increased to eight out of every 10 practices in this year’s study.

This relationship with accountants may also become more significant due to an increased focus on self-managed super fund investments. 

Industry peers can be invaluable in terms of opening up new networks of prospects, so it is important for practices to manage these relationships effectively and ensure they can add real value to the clients that are being passed to them.

What is clear is that the financial planning industry and adviser business models are evolving to keep up with these changes.

The fallout from the global financial crisis has changed client expectations, led to more reviews of the regulatory framework surrounding the industry and ultimately led advisers to focus more on what they need to do to achieve success.

More than ever before, relationships are the key; knowing your client, building a sense of trust and ensuring that through the advice offered, clients feel they are getting value for money.

It is through greater communication and understanding between clients and their advisers that the industry can add real value.