Most advisers promise ongoing service at their initial meetings with clients. However, as Rob Keavney points out, a large number fail to deliver on that promise.
The clients of financial planners, like all consumers, are entitled to be given a clear-cut understanding of what they can expect to receive for their money.
Financial planners are generally quite explicit about this when providing initial advice. Some are far less explicit when it comes to the provision of ongoing service.
Clients are entitled to know what minimum levels, if any, of ongoing service they are guaranteed. That is, how many portfolio reports will they receive annually; how many face-to-face review meetings will there be; will these meetings be instigated by the adviser or is it left to the client; how many newsletters will they receive annually; and so on.
The most important of these, and the one where vagueness is most frequent, is the number of face-to-face meetings, that is, access to the adviser’s time. Where this is so, the ambiguity may be accidental or intentional.
Planners who actually do meet systematically with existing clients are usually explicit about this, as making clear their ongoing service is part of explaining their value proposition.
The situation is more complex for planners who do not systematically schedule ongoing review meetings with clients.
Advisers can generally take one of three different approaches to the provision of ongoing service. The first are those who systematically do provide ongoing meetings. These advisers meet with clients in a systematic way (quarterly, six monthly or annually). They will call the client to schedule these meetings in order to ensure they take place. Generally these advisers view these meetings as a benefit to both the client and themselves.
They are able to ensure that their advice remains under constant review and is updated to changing circumstances, which benefits the client. These advisers almost invariably earn a substantial proportion of their income from ongoing revenue and these meetings are a visible part of the service they provide to earn that income.
Secondly there are those who systematically do not provide ongoing face-to-face meetings with clients. They do not imply that such meetings will take place and view their service to the client as largely being completed with the implementation of the portfolio. Many, but not all, bank-employed advisers operate in this way.
Finally there are those advisers who sometimes do and sometimes don’t provide ongoing meetings. In practice, these advisers have relatively few meetings with existing clients. In the past twelve months, for example, these advisers would not have met with the majority of clients who invested with them two or more years ago – unless they have extra funds to invest, or if the client might be a good referral source. However, they may meet with clients if the client requests it.
These advisers may even view ongoing meetings as undesirable because they take up their time but are not material to preserving or increasing their income. It is this third group which, intentionally or otherwise, may be vague about their ongoing relationship with clients. Why would this be?
Few clients, particularly with large portfolios, would choose a planner who made the following explicit offer: “I will provide the best initial advice and service that I can in order to have you invest with me. You can be absolutely sure I will have recommended a portfolio I believe to be in your best interest. After that, I would prefer to not have much contact with you because it will take up my time and be less profitable than landing a new client.”
Consequently, most advisers find it is necessary, in securing the sale, to imply that there will be ongoing service. Yet not all deliver it.
As an example of an ambiguous offering of service I recently saw advice to a prospective client which stated: “It is important that your investment portfolio is reviewed on a regular basis to ensure it continues to meet your financial needs and objectives. One of the advantages of selecting [our service] is you benefit from our rebalance service.”
Is this planner promising ongoing face-to-face meetings or not? At what frequency? Is the client expected to remember to call and arrange these meetings? Does the client know this? Or will the client merely receive something in the mail?
If it is this planner’s firm intention to take the initiative in this respect, arranging meetings with the client, then he or she could more strongly state this value proposition.
If the planner is not undertaking to schedule future meetings, then it would be far more honest to make it clear that any further service will be solely at the client’s instigation, and the degree of the planner’s time availability.
Our industry has largely transformed itself from one which generated the bulk of its revenue from transactions to one which primarily generates ongoing income. This does not automatically mean, however, that it has moved to a fee-for-service industry.
While willingly acknowledging that a large proportion of planners are exceptions to this, some offer a “fee for as little service as possible” arrangement (this “fee” usually being trail commission).
Acquiring clients by implying a degree of ongoing service which it is not practice to actually provide may prove to be no more in the interest of the planner than it is for the client, in the long term.
I grant that there are many business models upon which planners can base their business. Certainly those who deal with relatively low net worth or low income earning clients can hardly offer high quality, and therefore relatively expensive, client service.
However, those who are operating at the more demanding end of the marketplace are following a risky business strategy to build a client base who will generally come to feel they have received less than they thought they were promised.
While markets are rising, neglect of service may be forgiven, because clients may believe their value for money is being delivered by way of investment return. In a period of flat or declining markets, client loyalty will be dependent upon other things.
Of course, it has been a decade since any investor materially lost any money in any asset class (apart from recent international share losses). As most advisers have less than ten years experience, preparing one’s business to cope with such a circumstance is not seen as a high priority for a portion of the financial planning industry today.
Those of us who saw the stock market crash of ’87 and the property collapse of ’90 know that, at times, client relationships need to be, and can be, sustained on a basis other than investment returns. The alternative basis is high quality service.
To achieve this, planners need to be explicit about what they are promising and to deliver it. We should not imply any ongoing service unless we are willing toquantifyit and tocontractto provide it. This avoids the lethal trap of over-promising and under-delivering, which impacts both client satisfaction or referrals. This can put at risk the sustainability of the recurrent earnings that so many planners have taken years to acquire.
Rob Keavney is the managing director of Investor Security Group (ISG).
