Simply irresistible

In a recent report on the future of the advisory industry prepared for Pershing Advisor Solutions, US consulting firm Moss Adams LLP stated: “Whether clients know it or not, they are in the driver’s seat for determining the kinds of relationships they have with their financial advisers.

“However, most clients do not presently understand the full extent of their influence and bargaining power. This is partly due to consumer uncertainty about the services offered by various providers and about the distinctions between such industry terms as investment advice, financial planning and wealth management.

“In addition, many clients do not yet appreciate how many providers are competing for the privilege of servicing them and the intensity of this competition.”

This situation is poised for radical change.

It is not only the increasing demand for advice over the next few years that will shape the business model that will dominate the advice industry of the future (at Advice Centre Consulting we call this the Dominator Model), but the realisation by clients of the power they have over the design and delivery of the advice and service offer.

Clients are beginning to realise that they do not have to accept an offer from an advice business that clearly does not address their specific needs.

Up to now, many business models in the advice industry have been allowed to flourish due primarily to the low level of awareness by clients of what advice they really need.

The advice and service offer traditionally made by businesses to attract new clients has been mainly influenced by advice business’ capabilities, rather than the priority advice needs of clients, and what the business sees as an opportunity to sell more product and services.

This is because most businesses in the advice industry are business centric rather than client centric.

Allow me to explain the difference; a client centric business understands the advice needs of their target market(s) and ensures it has the capabilities to deliver to those needs.

For example, if the target market, or one of the target segments, is medical specialists who operate their own practice, a priority advice need for this market is funding or leasing expensive medical equipment. The client centric business understands this and develops internally, recruits or partners externally with an advice specialist who can deliver to this need.

On the other hand, a business centric business sees an opportunity to increase its revenue/sales by introducing a business lending and leasing division. It then goes into the marketplace looking for potential clients to whom they can sell this service.

It will be the client centric business that will succeed in attracting new clients in numbers they never before imagined as clients begin to realise they do not have to accept an advice offer that does not clearly demonstrate that their needs are to be addressed.

The advice business structured on the Dominator Model will understand the advice needs of clients better than the clients themselves. This will enable them to design an offering that is irresistible to their target market(s).

The future demands of clients

As clients become more aware of their power in shaping the advice offer of the future, they will successfully make a number of demands from the advice business seeking to service them. They will demand:

> guidance in understanding what their advice needs are;

> clarity around the role of the advice business;

> they are given ‘a good listening to’;

> their advice is explained in language they understand;

> their advice is delivered in the order that is a priority to them — not the order that is a priority to the advice business;

> someone is accountable for looking after their best interests and co-ordinating the appropriate specialist to deliver the component of advice that is the priority at that point in time — they want ‘one throat to choke’;

> they are kept informed — they will need to know their progress in achieving what is important to them;

> to know the value of the advice and clearly see the relativity between this value and the price they pay;

> advice that includes guidance on the only two things they can do with money — spend it or give it away!; and

> a relationship with the advice business that is built on trust.

Designing the irresistible offer

There are three broad steps in designing the irresistible offer. These are:

> determine the target market(s);

> understand what is important to the target market; and

> design an offer that addresses the specific issues contained in these questions.

Determine the target market

The Dominator Business Model will have clearly identified markets, as the advice needs of different market segments vary greatly.

There are three strong reasons for having a clearly defined target market.

Firstly, the advice business is able to gain an in-depth understanding of the advice needs — not just the wants — of this group. For example, medical specialists operating their own business will have different advice needs to senior executives of publicly-listed companies. Medical specialists will have a priority advice need around funding the acquisition of or leasing expensive medical equipment, while senior executives will have a need for advice on the tax effective exercising of stock options.

Having a clearly-defined target market allows the business to understand the clients better than the clients understand themselves.

Secondly, the business is able to locate the members of this market to whom they can promote their offer. They can easily find where they work, what they read, what they watch, where they relax, where they congregate and what functions, both social and business, they attend. The business is then in a position to ensure members of this market are aware of the offer of the business and how this offer satisfies their advice needs.

And thirdly, the business will be able to identify the skills and competencies required in the business to be able to deliver the advice that will satisfy the target market’s needs. If the target market includes senior executives, the business will have to have a capability to provide advice around executive option plans for example, but having the skills to advise on small business growth strategies may not be necessary.

Businesses will not necessarily have to have these advice capabilities residing within the business. Some businesses may form alliances or ‘advice partnerships’ with other professionals to enable this client advice need to be satisfied. The experience will be identical to the client, as this component of advice will be delivered as if the specialist adviser was an employee of the business controlling the client relationship — whether they are a part of this business or not.

Examples of specific target markets may include:

> senior executives of publicly-listed companies;

> small business franchisees;

> medical specialists operating their own practice;

> scientists with the CSIRO;

> elite sportspeople; and

> education professionals.

Public servants in the senior executive corp

Those businesses that remain in the ‘everybody market’ are unable to design an offer that will attract ‘everybody’ to their business — because advice needs are as different for different client groups as they often are for the life phase the individual is in.

Businesses with everybody as a target can only have a broad, generic advice offer (see Sample 2), as the objective of this offer is to be attractive to everybody.

The result is often an offer detailing what the business does, not how the client will be better off from what the business does. This is a key differentiator between the client and business centric businesses. The business centric business believes it is what the business does that is valued by the client, whereas the client centric business understands it is not what the business does but how the client is better off from what the business does that is the value.

Examples of broad generic markets may include:

> retirees;

> wealth accumulators;

> homeowners;

> high-net-worth individuals; and

> baby boomers.

Understand what is important to the target market

To understand what is important to a target market, we only have to identify the questions asked by members of this market in the discussions they have with their adviser. As mentioned above, the ‘traditional’ advice business designed and promoted their offer to potential clients around what the business does, rather than the advice needs of clients.

Therefore, a common offer was: ‘Come to us for all your financial planning, superannuation, insurance and investment needs.’ Hardly an irresistible offer to someone looking for answers to such questions as:

> ‘When should I retire?’

> ‘When should I exercise my options?’

> ‘Should I take my super benefit as a lump sum, a pension or both?’

> ‘How should I best invest any lump sum retirement benefit?’

> ‘What is my tax liability on retirement?’

> ‘How can I best structure ownership of my assets?’

> ‘Should I distribute some of my wealth to my children now or should this be done later?’

> ‘How can I ensure my children’s partners are not able to access my wealth?’

> ‘What should I do with my two investment properties?’

> ‘What impact on my retirement status will joining a board have?’

> ‘What do I need to do to ensure that charities of my choice benefit from my estate?’;

> ‘How can I be assured the funding of care in later years is taken into account for my wife and I?’

These are some of the questions senior executives may ask in their discussions. If they are asking these questions, the issues must be important to them. And if these are the issues they need advice on, the offer to this group should demonstrate that these questions would be addressed if there is a relationship with the business.

Design the irresistible offer

It is important to clarify my use of the term ‘advice offer’. The offer is made to attract prospective clients to the business. The advice that is actually delivered to the client will be dependent on their personal and specific needs and circumstances at the point in their life that they form a relationship with the business.

This is not saying that the offer bears no resemblance to the advice that is delivered.

If the business really understands the needs of the target market, the offer and what is delivered will be normally the same.

But what is delivered does depend on the personal and priority needs of the individual client.

So, what does an advice offer look like that answers these questions? An example is an offer from one business to senior executives:

Sample 1: Advice offer for senior executives

Our advice to senior executives includes:

> Personal transition to retirement plan, including:

* tax effective salary packaging;

* implications of retirement within defined timeframes;

* maximising the value of stock options in the most tax effective way;

* strategy for accessing retirement benefit while minimising tax liability.

> Asset ownership and protection plan:

• structure asset ownership for desired protection, tax effective ownership and ownership succession.

> Personal investment plan:

* personal investment plan for all current and future assets.

* income and asset protection plan.

* protection of your income generation capability, assets and family’s security and comfort.

> Philanthropy strategy and plan:

* charitable gifting plan structured to your personal desire.

> Senior lifestyle strategy and plan:

* aged care-funding strategy for you and your spouse.

This advice offer to a specific target market is quite different to the traditional advice business offer, which simply lists all the ‘things’ the business does and/or the product range in which it deals, for example:

Sample 2: Broad generic advice offer

> Insurance;

> Superannuation;

> Investments;

> Managed funds;

> Estate planning;

> Self-managed super;

> Gearing;

> Stock broking;

> Retirement planning;

> Wealth accumulation;

> Savings; and

> Budgeting.

Tremendous market opportunities await those businesses that design and promote an advice offer that clearly demonstrates they understand the needs of the market(s) in which they are dealing. Like the offer of an ice cold drink in the desert. It will be irresistible.

David Fox is the principal of Advice Centre Consulting, a consulting and support service business servicing established and growth focused financial advice businesses.