Keeping the client relationship strong

If you had walked into a seminar or workshop some time in the past ten years, you would have heard that the keys to success in financial planning included knowing your ideal client and the problems you want to solve for them, understanding the value you create for that client, and being clear on your vision, mission, goals and objectives. 

We’re in the thick of the most material regulatory reform to hit our industry in over a decade, and have recently faced one of the toughest economic environments in living memory. These external developments have not changed any of the basic business fundamentals in our industry, but they have helped us focus on one thing: the critical importance of trust in the advice relationship.

Regulatory change, a lack of confidence in the broader economic outlook and an increase in active consumerism represents a shift in the customer equation. Customers are demanding more from their professional relationships, and expect increased accountability in those relationships. In short, customers are holding advisers to an ever higher standard, and those advisers who can build and sustain trust in their relationships are the ones who will succeed on this new playing field.

We hear the word ‘trust’ all the time – to the point that some might say it is losing its meaning. When it comes to financial advice, however, it is critical that we don’t lose sight of the vital importance of trust in our client relationships. In his book ‘The Speed of Trust’, Stephen R Covey outlines two key aspects of trust: capability and character.

When it comes to capability, many advisers are limited by their belief that capability is a function of a good client relationship; in reality, this is only part of the battle. For example, if you were about to undergo an emergency operation, your good rapport with the doctor would ‘pale into insignificance’ when compared with your faith in the qualifications, experience and capability of the person who would soon hold your life in their hands. 

It is no different in financial planning. While positive client engagement is a plus, it is only part of the puzzle. As the recent economic environment has shown, the most convivial of relationships can be tested when returns aren’t strong. And it is the credibility of your offer, as reflected in the depth of experience, qualifications and expertise available to your clients, that will provide the most solid foundation of trust on which to base a long-term relationship.

The wider challenge faced by our industry is how we collectively demonstrate our trustworthiness. It is difficult for the average consumer to make an educated assessment of the capability of their financial adviser as there are few external cues to help them make an informed judgement, beyond a glowing referral from a trusted friend or colleague. 

At the moment, the average consumer finds our industry confusing and struggles to trust that value will be delivered through an advice relationship.

Reforms such as the Future of Financial Advice (FOFA) which tackle this trust gap should be encouraged. It’s also worth noting that many other professions align firmly behind industry associations charged with shaping industry credibility. 

While individual lawyers may not love the Law Society, and likewise accountants with their various accounting bodies, it’s unheard of for those professionals to completely opt-out of industry association in some form. Throwing support behind our industry associations will be critical to a whole-of-industry focus on building trust.

Once you’ve put in place the platform for building trust by demonstrating capability, character becomes important. The way advice gets delivered is, of course, critical to building a strong adviser-client relationship. After all, you might be concerned about the skills and capability of your doctor when you’re being operated on, but a good bedside manner will make the recovery process a lot easier. 

In order to develop trust, clients will be seeking consistency and continuity from their advisers. Clients will want to be reassured that their adviser is on their side, acting in their best interests. FOFA is an opportunity to reinforce these messages with clients, with its focus on transparency of fees, removal of hidden incentives and, of course, introduction of a statutory best interest duty. 

I am aware of many advisers who have moved on all of these measures well in advance of regulatory reform and who see the stronger client relationships that have developed as a source of competitive advantage. 

Therefore, to the list of fundamental keys to success in financial planning, we now must add the following questions: 

• How are you positioning your business to best compete for your ideal customer?

• Are you doing whatever you can to make the process, and your service offer, easy for your client to understand and buy into?

• Are you able to clearly articulate the elements of your background and experience that mark you as a credible, capable adviser? 

• Are you investing in the people who will build your firm’s capability? 

• Is trust a fundamental part of your culture?

It’s tempting to let frustration, and focus on administration, overshadow the bigger opportunity coming out of these changes. This opportunity can be best characterised as the chance to ’reset‘ our industry for the fundamental benefit of our clients.

The basic expectation that clients will receive the advice they need – delivered in a way that suits them and without a question mark over the incentives paid to advisers – will become the baseline for an adviser looking to compete. To move beyond this, an adviser will need to deliver an experience which facilitates an ongoing relationship of trust.

As an industry, we need to hold ourselves accountable to deliver on this objective, and recognise the critical role both capability and character play in getting us there.

Tom Reddacliff is general manager of MLC Advice Solutions.