More than five million Australians are at or approaching retirement, according to Treasury. In the coming decade, millions more will joins those ranks. Yet, there are now less than 16,000 financial advisers left in this country.
By any stretch of the imagination, that points to massive imbalance between supply and potential demand, particularly when you consider growing levels of financial stress in the community and the ever increasing complexity of tax and superannuation.
The recent Quality of Advice Review and the federal government’s proposed legislative response focused overwhelmingly on the supply issue, mainly in regard to the accessibility and affordability of advice.
But little work has been done on the demand side. We know that for some price is an issue, but we also know that price is really only an impediment in the absence of value. And we certainly can point to the cost of no advice, or at least bad advice, in the growing number of scams that are robbing Australians of their hard-won savings.
So then the question becomes how you can demonstrate value as a financial adviser. If Australians are happy to spend tens of thousands of dollars on a second car or an overseas holiday, what is stopping them from making an investment in advice?
What Do Clients Value?
The answer to these questions can be found in the annual surveys that Dimensional conducts globally with the clients of advice firms we work with. These surveys, of around 20,000 people, ask end clients what they value most from the service their adviser provides and what might prompt them to refer their advisers to others.
Year-after-year, the most prized value from advice that people cite is a sense of security and peace of mind, followed by the knowledge that somebody understands them, their values, goals and financial circumstances.
While investment returns are important, they come well down the list of priorities. Ranked more highly is a feeling among respondents that they have a sense of control over their financial lives and that their goals are achievable.
Also frequently cited by people in our survey is a feeling that their advisers are responsive and accessible when their circumstances change. It is not set and forget, but an ongoing relationship built on strong foundations.
Focus on ‘Why’ Not ‘How’
This suggests to me that the very first step advice firms need to take to be successful is to form a clear idea of their value proposition. And the focus in forming this definition should be ‘why’ they do what they do, not ‘how’ they do it.
The tools of advice in areas such as risk profiling, asset allocation, cashflow modelling and estate planning, for instance, are just tools. They are not what people are buying.
Think about when you take your car to be serviced. Are you buying wheel balancing kits and brake diagnostics? No, you’re investing in your family’s safety and the knowledge that you can all get to work, school and other destinations reliably and efficiently.
The ‘how’ you do what do is important, of course. Without the right tools, it’s unlikely you will be able to deliver what the client is seeking from advice. But the tools should not be at the centre of the value proposition, which is how what you provide makes people feel.
Once that ‘why’ question is answered, you can get down to thinking about the tools – like a sound investment philosophy, robust investment solutions, efficient processes, strong talent management, an effective delivery mechanism and excellent client service.
Communication is Key
Of the thousands of advice firms we work with globally, the most successful take a systematic approach to the three broad areas of investments, client communication and practice management. But perhaps the key of these three is the communication aspect.
Unless you can demonstrate the value you bring, help your clients identify and articulate the real problems they are trying to solve, and show them where they are on the path to solving them, it is unlikely that even the slickest tools in the world will help.
After 60 years of portfolio theory, we know what drives long-term returns. And we know how to secure those returns efficiently in real-world, highly diversified portfolios. Those of the tools of our business as an investment manager.
But advice is a relationships business. And we know that people are infinitely variable in their risk appetites, preferences, values, circumstances and goals.
The material challenges that clients face are often complex and formidable. A successful adviser will need not only all the requisite technical skills, but a huge reservoir of empathy, and a flair for communication.
With the right toolkit, great advice becomes not only accessible, but essential.
For more on the value of advice and how to demonstrate it to clients and prospects, listen to Paul Turner’s podcast interview on Ensombl.
You can also find additional resources and learn more about how Dimensional can help you, and your business, here.
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