Are you a financial adviser, an investment adviser or a financial planner?
Ultimately, does it really matter what you call yourself? Instead, why not frame that question around your client’s needs and what you can do to satisfy them.
True client-centricity is a novel concept for many advisers, who still tend to assess their roles in terms of selling (or ‘distributing’) investment product, often unconnected to any actual client need.
In fact, we continue to see this back-to-front philosophy in the shape of restricted ‘approved product’ lists, volume-related sales bonuses, shelf space fees and subsidised licensing fees.
This paraphernalia is a sign of an outdated culture and a vestige of the tied agency days, prolonged over the past 20 years or so by ‘vertical integration’ and product manufacturing. It certainly doesn’t suggest a profession that is wholly committed to the client.
For many years, this self-perpetuating reverse hierarchy (with the client at the bottom of the chain) has allowed some people in the industry to survive undisrupted and in relative comfort. But change is coming, and fast.
Product Vs Real Advice
Vanguard, the global passive funds giant, recently announced it will offer its funds direct to investors for an annual administration charge of 15 basis points, capped at $250,000. Above that sum, there is no charge.
In other words, Vanguard is moving into the adviser space. And it’s hiring 3000 advisers with a minimum CFP designation to give clients phone-based advice for 30bps.
So if your business is transaction-based or purely investment-focused, you may want to think deeply about your service model.
The fact is if you want to stay in business you will have to articulate and deliver real value. People are no longer wowed by ‘below-the-line’ investment and product-related advice, technical or compliance talk, or promises of outperformance that you can’t ever deliver with any reliability.
What clients really need is ‘above-the-line’ advice that helps them meet their life goals. In some cases they won’t know what their goals really are. In most cases, they’ll have no sense as to whether they are on track to achieve those goals. And things change. Work, relationships, family, health, the economy & markets. What may be important once, may not be at a later point. And that’s where your true value lies. As a consequence, it’s also how you can justify charging fees above those of commoditised services and why you will keep getting paid.
Three Roles of the Life-First Adviser
This isn’t a particularly radical concept, but few do it. The aim is to focus on your clients and on their desired outcomes, not on their money, and you can demonstrate this by articulating three specific roles you fulfil:
Role 1: ‘Life-First’ Discovery
People are more interested in the why, or their desired outcome, than the what and how. This is financial planning with an end in mind – helping to see where they want to be to achieve their desired lifestyle.
So the first role is to deeply understand the client – who they are, and where they want to get to. It means helping them see what they need to live the life they want, and maintain that, no matter what happens.
After the discovery comes the strategy. How are we going to achieve that, and is it achievable at all?
Role 2: ‘Life-First’ Strategy
This involves taking into account all the financial resources available to the client today and into the future, as well as the additional resources they’ll need to live the life they want. It also involves helping clients accept the choices and trade-offs they may need to make.
Life is a series of trade-offs – typically clients can have anything they want, but they can’t have everything.
Role 3: Product Recommendation
From there, it is about the adviser making sensible, evidence based recommendations to enhance each client’s position.
Only once the strategy indicates the client may need a certain financial product or investment, do you need to put the third hat on, and make an appropriate recommendation. But the important point is this is based on client need, not on what you have to sell.
As advisers become more qualified technically, they can have a tendency to get too focused on the technical requirements of their role and less on the ‘soft skills’. Instead, they should aim to ask meaningful questions, and then zip up and listen to the answers.
A ‘life-first’ approach involves asking questions like:
What’s important about money to you?
What do you want to achieve between now and the day you die?
What would need to happen for you to stop doing what you no longer enjoy?
What would need to happen for you to start doing more of the things you love?
What gives your life meaning and purpose?
What do you need to make from selling your business if you are to the life you want without fear of ever running out of money?
What needs to happen to secure your family’s future so they never have to worry about running out of money?
And the biggest question…how much is enough for you? How much do you need to enable you to live the life you want without fear of running out of money?
This approach means pressing clients when they give vague responses like ‘One day, I’d like to…’. Ask them what they mean by ‘one day’. Remind them that time is slipping away and that their life is not a dress rehearsal for their next life. This will help you engage with clients in a completely different way – and deeply connect with them.
Financial products are just tools, to be used when or if required. But the real value is in the ‘life-first’ process.
Once you’ve helped clients understand their ‘required number’, your role is to help them accumulate it, manage it, protect it, and most importantly, enjoy it. And as stated earlier, things can and do change.
Think about your new value proposition and its impact (on all stakeholders):
You are changing clients’ lives
You’ve changed your own life as an adviser, having a great impact and purpose
You’ve changed your current and future employees lives and purpose
You have hugely differentiated yourself from other advisers (who focus only on ‘distributing’ products)
You have less clients, but they are happy to pay you more (remember cost is only an issue in the absence of value)
Lifelong Cash Flow Modelling
Much of this approach can be achieved through effective use of client-focused financial forecasting or lifelong cash flow modelling software.
Used properly and with prudent assumptions, this software enables you to show clients in an engaging and thought-provoking way, what their future may look like under varying assumptions.
You can show them that they really can afford to take that holiday, buy that caravan or finish work in a year or so. Pre-retired clients can be reassured that they can afford to retire now and spend time together while they are still young and fit enough to enjoy it. Retired clients can be shown that they can easily afford to go out for dinner more regularly, or buy their kids a nice present occasionally, or perhaps even help out on a deposit for a home.
By (perhaps) showing clients they are never going to run out of money, you can help them avoid taking unnecessary investment risk and help them sleep better at night.
You hugely differentiate yourself by taking the focus off product and investment, and putting it on the clients’ lives and lifestyle. From product to people – from money to meaning.
Using the three-step process as outlined above, lifelong cash flow modelling software demonstrates your second role as a ‘life-first’ strategic adviser. Trust me, clients will have an epiphany, grasp it right away, and immediately see the value you bring to the table. All this can be achieved without you trying to or needing to sell a ‘product’. The new product is advice.
A happy byproduct of this is that you will build trust more quickly, and more referrals will be sent your way.
Because your service no longer needs to revolve around investment performance, you can keep the implementation piece as simple, as low risk and as painless as possible.
If you acquire mastery in life-first financial planning, the below the line product and money stuff becomes way less important.
There’s no longer any need to try to pull out your crystal ball, forecast news and events (and returns), and try to pick next year’s best active manager or hedge fund, putting you and your team under unnecessary stress with a non-controllable value proposition; all by promising the expectation of higher returns you are unlikely to be in a position to deliver.
All you need to do is to align well-researched, evidence-based solutions that deliver prudent returns in line with conservative planning assumptions and that allow your clients to stay the course. The clients’ financial plan (based on prudent cash flow modelling) becomes the focus and the only important benchmark.
In the old model, advisers spent hours boring clients with conversations about product and investments, ‘reviewing’ what has happened in the recent past. Your ‘review meetings’ will become ‘regular progress meetings’, towards their goals and aspirations. Historical performance may have worked when clients didn’t know how much they were paying for your service, but not now in a transparent world. The new proposition is driving, looking through the windscreen, not in the rear vision mirror.
Your regular progress meetings become forward-looking, focusing on what is changing in clients’ lives, how their needs and goals are evolving and how external events play into the plan you have created together, for them.
Putting it All Together
The fact is, conventional financial advice is dead.
In the recent past, now, and over the next few years, increasing numbers of clients will depart their advisers and seek to take care of their own finances on the internet. DIY options have and will increasingly become more available. Fintech, robo advisers and other disrupters have arrived. Those clients that do stick with their advisers for conventional advice will put them under increasing pressure to reduce their fees.
Against this grim background, the alternative of Life-First planning makes much more sense. The focus will move from cost to value. It will deliver clients what they need, it will free advisers from selling commoditised services, and it will allow them to focus on high value-add areas that are controllable and ‘above the line’.
My experience is that clients don’t understand proper financial planning until they experience it. But when they do, they love it. Here is your opportunity.