Why financial planners must invest in long-term relationships

Financial planning is about more than selling investment products, says Ray Griffin. It is about establishing long-lasting client relationships.

A few months ago my good friend Peter resigned from many years of working as a planner with an institutional licensee.

He said he “just got sick of the sales pressure they kept heaping on us”.

Shortly before resigning, he was visited by the latest business development manager head office had sent to motivate him and his fellow advisers — this time around — to sell risk products. It was the final straw in a private cultural war that Peter had waged with the organisation for years.

His resignation was in effect a final concession of defeat — an acknowledgement that he could never win the war on his own.

He now works for a boutique licensee and seems to have finally found a home where his professional values and attributes are genuinely sought after.

In losing Peter, the institutional licensee has lost a very good adviser — someone who had formed very strong professional relationships with many very loyal clients over more than a decade.

I had always thought he was the proverbial ‘square peg in a round hole’, because as a financial planner he is motivated by the ways in which he can assist existing clients — not by the next sale of investment products to a new customer.

While he is under no illusions — he knows his new employer wants him to build a new band of loyal long-term clients — Peter has been given the opportunity to do so without constant pressure from head office-imposed sales targets.

This is very sound commercial planning by the boutique licensee, because it knows that over time Peter will acquire new clients who will pay ongoing fees in return for ongoing service. It’s a very simple and successful commercial proposition.

Compare that approach with the almost ‘swinging door’ atmosphere of institutional planners who are required to meet sales targets or be moved on.

A welcome move

The recent announcement by three very large life insurance company-based licensees that they are bringing forward their respective requirements for their planners to be operating on fees to July this year is a very welcome, yet long awaited, announcement.

It will be one step toward rebuilding the ‘financial planner’ brand in this country.

There can be no argument that much of the brand damage inflicted upon financial planning (which should by now be seen by the community as a most honourable profession) can be placed on sales pressures from head offices all over the country.

These sales pressures, underpinned by commissions and myriad other incentives, have always prompted questions about the appropriateness of investment recommendations.

With the Financial Planning Association's 1 July 2012 deadline for members to be operating on fees — along with the Government’s announcement of its intentions to ban commissions on investments from the same date — at least one of those pressures will be removed.

Yet, in isolation, banning commissions is not the entire answer to restoring confidence in the brand of financial planning in this country.

Such an outcome requires a whole-of-business approach to assisting planners to build strong long-term professional relationships with clients.

More specifically, restoring confidence in financial planning hinges on the need for a cultural makeover for many businesses — and it is important to recognise that the cultural tone of any business can only ever be inculcated from the top of an organisation.

It is the board and senior executives that set the overall culture of the way in which a business conducts itself — both internally and externally.

With sales managers and chief executive officers all reporting their funds under management (FUM) key performance indicators up the hierarchical business ladder, is it any wonder that downward pressure on front-line planners has for decades been centred on flogging product?

But that has to change if for no other reason than a fees-for-service environment empowers consumers with the power to control the remuneration to the planning firm — and a lack of service will see planners get sacked by clients.

Consumers who pay fees for financial planning are well placed to make assessments about whether or not they are receiving value for money, and many planning firms will undoubtedly need to lift their overall services standards in order to retain clients.

Business leaders — boards and senior management — are going to have to alter the way in which they measure their planners’ contribution to a firm’s success.

In a fee-for-service environment, practices of rewarding and recognising planners who ‘write’ the most product — placing them on a proverbial pedestal at annual conferences and having them afforded reverence by junior planners as so-called ‘big hitters’ — will need to be jettisoned to the dark past.

Planning firms will need to rethink what they want their planners to deliver to clients.

Their ‘ideal’ planner will need to be much more than just a flogger of investments.

He or she will need to be committed to the ideal of providing genuine ongoing service that clients value and are prepared to continue to pay for.

It will mean adopting a business-wide belief that existing clients receive priority over new clients; after all, it’s the existing clients who will be keeping the doors open and paying the wages. It will also mean ceasing the overarching emphasis on the never-ending search for new investors so that existing clients can be cared for.

Boards of directors of large planning firms need to think beyond the next one, two and three financial years in setting the cultural tone of their businesses in a fee-for-service environment.

It’s highly likely that their level of new FUM will weaken over the first few years simply due to the changing emphasis in the business: ongoing services over sales.

However, the receipt of strong, and relatively stable, ongoing fees will in time strengthen what they will lose in new ‘sales’ of FUM.

In a fee-for-service environment, boards and senior management will have much greater insight into the likely financial outcomes for the business, based on recurring fees which are mostly known versus the unknown of trying to accurately forecast ‘sales’ of investment products.

For consumers, a gradual realisation that financial planners provide genuine ongoing service to existing clients — that they do not earn commissions from selling investments — will be the true beginning of a community-wide acceptance of financial planners and of their value and importance to society and the economy.

Leading change

That aspiration notwithstanding, the leaders of commission-based financial planning businesses, large and small, have it all to do.

They must lead change from the top with vision and courage so that they contribute not only to the success of their own businesses, but also to the recognition of the worth and value of financial planning within the community.

Those that do so will find that the ‘new’ world of fees is better for all stakeholders. They really will wonder why they waited so long to make the change.

I suspect there are hundreds of people like Peter across Australian financial planning.

People who have been full of promise and potential success as financial planners only to become disillusioned when they found that their employers valued sales much more highly than ‘after sales’ service.

Peter stuck at it much longer than I thought he would. For his lone defiant stand to last as long as it did, stands as testimony to the character of the man.

It would have been so much easier, so much less stressful, to move on years ago. The institution’s loss is the boutique licensee’s clients’ gain.

Hopefully, the institutions will finally ‘get it’ that financial planning is not about selling investments — and in doing so reshape the culture of their front-line operations by employing people like Peter and empower them to genuinely deliver ongoing care and service for clients.

Ray Griffin is the head of ConsultGriffin and is a veteran financial planning industry observer.