InFocus: Conducting client reviews in difficult times (Part 1)

COVID-19 is obviously causing financial advice clients a great deal of concern. Not only are they worried about what the resultant stockmarket volatility is doing to their investment portfolios, they are also concerned about their life insurance and possibly even their estate planning. Clients want to know if they are still on track to achieve their goals, and if not, how you can help them get back on track. 

This is where client reviews really come into their own. Client reviews provide the best, and perhaps only, opportunity to demonstrate that the value of your advice far outweighs the cost. 

New opt-in rules may soon also require you to obtain the client’s agreement to ongoing service every 12 months or lose fees, so client reviews become even more significant. 
How do you ensure that in the space of 60-90 minutes you communicate the right messages to your client and give them the confidence to opt-in for another year?

Value and efficiency

The additional compliance requirements resulting from the Future of Financial Advice (FOFA) and Banking Royal Commission measures, mean (unfortunately for many Australians) advisers will only be able to service a limited number of engaged, opt-in clients. 

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But the new requirements mean that to service even a reduced number of clients, advice practices will need to make their processes far more efficient. This is likely to mean using specialised software, for example, in-built compliance and client engagement technology, in addition to customer relationship management (CRM) tools. 

Once practices have become more efficient, practice owners will be able to calculate how many clients per adviser they can realistically service each year. They can then calculate the total operating cost for the practice, add in the required profit margin and create fee packages for each client segment.

What ASIC tells us

The Ongoing Service Agreements (OSAs) that advisers now have to provide to their clients must articulate a very clear service offering and what it will cost. If you can’t provide evidence that each element of the offering has been delivered, you face having to reimburse the fees. 

ASIC has taken the view that the main element is the client review, however they provide surprisingly little guidance regarding the conduct of a review. What is clear is that whenever advisers provide personal advice to clients, they must carry out the safe harbour steps to comply with the best interests duty (RG 175.261). In this respect, ASIC sees the client review as a repeat of the initial client meeting, both in terms of depth and breadth.

Time for a client re-set

While you may think it too time-consuming and unprofitable to go through this process for every review meeting, for a number of reasons, we think ASIC’s view is correct. 

The initial discovery process includes not just the client fact find information but also their goals and objectives. The review can identify any changes in these over time and should include a discussion about all aspects of the client’s circumstances. 

For those clients who have drifted into a review process that is narrow in scope, using outdated information and vague goals, the next review meeting is an opportunity to provide a real ‘state-of-position’ where each aspect of the client’s circumstances can be revisited and a new foundation set for the ongoing advice. 

Obviously, this also needs to be done as efficiently as possible.

Purpose of the review

Every adviser should have a clear understanding of the purpose of the client review for both themselves and their clients. This may include:

• Re-connecting with your client and deepening your relationship with them;
• Confirming or discussing changes to the client’s goals and objectives;
• Determining the impact since your last meeting of any changes in:  
  • Legislation
  • Market conditions
  • The client’s circumstances; 
• Determining if the client’s financial plan needs to be modified; 
• Understanding the evolving circumstances of your client’s lifecycles as they grow older;
• Reporting on any progress towards achieving existing goals;
• Discussing strategies to continue achieving goals and any new goals;
• Looking for opportunities to expand the relationship by including additional services;
• Confirming that the client’s expectations have been met (or exceeded) and that they will opt-in and remain a client; and
• Explaining your referral process to help grow your business.

Before the review

A review meeting should be a structured, formal process and as such requires advance preparation, including:

• An agenda;
• An update on the client fact find information, goals and objectives (preferably updated before the meeting);
• Any issues that the client has asked to be addressed;
• An investment markets update;
• Investment portfolio performance for all investments;
• A list of legislative changes (tax, super, pension, Centrelink) that may affect the client;
• A list of financial market changes (interest rates, currencies, market valuations) that may affect the client;
• A list of insurance products, mortgages, etc. that the client has with you; and
• Any other relevant information.

Being prepared is important to ensure the meeting runs smoothly and within your timeframe and also sends a message to your client that you consider them to be important and are not just running an ad-hoc meeting for the sake of it.

For the majority of your clients, the next 60 to 90 minutes represent the most important aspect of the perceived value they are receiving for their annual fees. How you conduct that meeting will be a critical factor in helping them decide whether to continue being your client or not. 

This is especially in times as difficult as these.

Read Part 2 here.

Hans Egger is managing director of astutewheel.com.au.