Providing sustainable long-term advice

A recent study commissioned by IOOF found that greater activity by financial advisers does not necessarily translate into a greater perception of value from clients, writes Renato Mota.

In recent times, the search to provide value to clients has become a priority, with those advice businesses engaged in ongoing advice relationships continually challenging their client value propositions and method of advice delivery.  

Mainstream media coverage of financial services issues has created a perception that ongoing fee from financial advice are generally too high. In fact, 82 per cent of advisers feel their ongoing fees are either currently under pressure or are expected to be under pressure within the next three years - a view confirmed by research from the Financial Services Council. Unfortunately this has been at the expense of the value of financial advice, which is often overlooked as people underestimate the complexities involved.    

In order to demonstrate value add, more and more advisers choose to focus on increasing the number of client contact points, enhancing client access to business websites, offering additional products or services and spending more time on the investment management function. However, greater activity does not necessarily translate into a greater perception of value. 

Defining a successful ongoing financial planning experience  

• IOOF together with training consulting and mentoring business, Effortless Engagement recently surveyed 192 advisers across 58 practices and over 312 ongoing fee paying financial planning clients across a range of demographics and regions, to determine the answer.   
• The research concluded that the clients’ expectations have not changed despite industry efforts to enhance client value propositions and illustrate the value of advice.  The core measure of whether the ongoing financial planning experience is successful remains the achievement of lifestyle goals and objectives. 
• Additionally, the research uncovered that whilst most advisers are comfortable with explaining the value from an initial meeting, it is harder to articulate the value the client receives from an ongoing relationship.  Whilst this presents challenges for financial planners, we believe that this is very good news.  This is because the opportunity to more closely align the client’s desired outcome and the ongoing proposition of advice businesses exists today and presents more opportunities for advisers than ever before. 

Interesting findings from the research: 

• 76 per cent of clients agree that a successful ongoing financial planning experience is measured by their ability to achieve what’s most important to them - their core lifestyle goals and objectives. 
• 60 per cent of clients did not know or were unable to answer if they were on track to meet their defined goals.  Almost half of all advisers surveyed (48 per cent) said they did not know and/or lacked either the system or information to make a determination if their clients were on track to meet their own defined goals.  
• There was a relatively high level of satisfaction with regards to investor’s investment experience regardless of the way the investment portfolio was implemented. This supports the current trend of advisers increasingly embracing investment solutions that allow them to outsource their investment management function to become more efficient - such as fund based model portfolio solutions. 

These statistics should cause advisers to evaluate their own business practices.  If the majority of clients and almost half of advisers are unable to determine whether or not a client has had a successful ongoing financial planning experience (or is on track to do so), then the probability of discontent amongst clients is likely to be high. 

Consider this. Clients who feel that they are on track: 

• are more than twice as likely to feel as though they are receiving value for money (89 versus 42 per cent),  
• six times less likely to consider seeking alternative advice within the next three years (5.3 versus 0.9 per cent) and almost three times more likely to refer within the next 12 months (7.2 versus 2.6 per cent) as compared with clients who were either unsure or felt they were not on track. 
• With the core measure of success in the eyes of clients being the achievement of their lifestyle goals and objectives, clearly altering the perception of clients away from price, product and performance measures towards the activity consistent with their desired outcome is essential. 

The delivery of ongoing wealth advice 

Traditionally, providing regular investment and superannuation advice has been at the heart of ongoing client/adviser relationships.  It has often been a significant component of an advice business’ ongoing revenue and what the majority of clients felt that their ongoing fees was paying for. 

The philosophy and methodology used to provide and execute ongoing investment advice in the form of portfolio construction has continued to evolve within the advice community. In some part to deliver more robust and reliable outcomes, in other parts to continually provide a perception of value to the end client. Of clients surveyed, the method of investment portfolio implementation (for their core investment/superannuation wealth) varied. 

Clients were asked to consider their recent investment experience over the previous 12 - 24 months and rate their overall level of satisfaction, which is outlined in the graph below. Interestingly, regardless of the method of portfolio implementation, there was a relatively high level of satisfaction.  In other words, it was not a concern to the investor whether the adviser recommended direct investments, a carefully constructed model portfolio, a multimanager/fund of funds or a combination of methods. 

The relatively strong and positive level of satisfaction amongst clients may be attributable to the quality of advice provided however it is also important to note that satisfaction levels may be high due to the positive returns produced by investment markets during the period leading into the research period. 

These satisfaction levels appear to suggest that this area of ongoing advice is well received by clients. It is of course what clients essentially feel they are paying for with their ongoing fees as detailed earlier. 

With the core measure of success for clients being their ability to achieve their goals and objectives, clients were asked if they understood (or knew) the investment return required to meet their financial planning objectives. 

Almost two thirds of respondents suggested they either didn’t know or weren’t sure. On that basis, how are clients and their advisers measuring a successful investment experience? If ongoing investment advice is not centred around specific investment objectives consistent with the client’s planning needs, then the measurement of success is likely to be built around traditional performance measures, including performance against investment indices, markets and/or performance versus peers. This will continue to place pressure on advice fees. 

Rather than undertaking time-consuming portfolio implementation and complicated investment approaches, ensuring clients understand their core investment objective and then linking the investment solution towards the achievement of the desired outcome will assist in focusing the mind of clients (and advisers) on what is most important. The measure of success then rests not only with investment performance, but with the achievement of the client’s desired outcome. 

What does the premium ongoing offer of the future look like? 

In accordance with the research and methodology we believe that the premium ongoing advice offer of the future will be a value driven model and therefore be dependent on a coaching relationship linked to a desired end outcome. A premium ongoing advice offer may include specialisation within specific market segments, continual coaching towards the client’s desired objective and will have advisers positioned as coaches rather than technicians.   

We also believe that businesses will evolve to embrace an objective method of assessing whether clients are progressing towards their desired objectives. Systems will be designed to provide both clients and advisers with continual access to information, enabling the evaluation of critical advice areas, including the client’s cash flow strategy, wealth strategy and contingency strategy.    

This will enable the provision of quality advice that meets the needs of the client and is linked to a desired outcome.  Ongoing evaluation of the client’s progress against that original objective and using an effective and efficient method of portfolio implementation and execution are crucial to building a sustainable financial planning practice. 

Renato Mota is General Manager, Distribution, at IOOF.