Why financial advisers must learn to speak their clients' language

Gloomy headlines have at least played a part in creating financial anxiety among Australian investors. Tim Browne explains why it’s important to use the facts in addressing the psychology of your clients.

Dramatic headlines such as “Fears of a fresh bubble”, “Egypt parliament in limbo”, and “Dollar strengthens but outlook gloomy” have been all too common since the global financial crisis (GFC).

But what does this really mean for your clients and how are these types of headlines affecting the confidence of the person on the street? 

The Boston Consulting Group ran a survey in April 2012 showing Australian shoppers are among the most worried and financially insecure in the developed world and plan further cutbacks in their discretionary spending.

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On the key question of financial security, nearly half of Australian respondents (47 per cent) said they felt in financial trouble or not financially secure.

This was on par with the US, which has almost double Australia’s unemployment rate, and greater than France, Germany and Spain.

While some Australians feel sheltered from the financial crisis overseas, for many others the regular reports on market volatility and economic uncertainty are leading to financial anxiety.

How are your clients responding?

Has the GFC and subsequent uncertainty in global markets impacted us?

Have clients become more frugal or have they adjusted?

And are they making sound financial decisions?

To get to the heart of client concerns, CommInsure conducted a Newspoll study last November 2011.

The results showed that affordability was the number one reason stated by clients as to why they were not taking out insurance.

Now this may be a reality for some Australians, or a reflection of their spending priorities, but headlines around global economic uncertainties have a role to play.

Do they help clients compute whether or not they can afford insurance, or do they create anxieties?

I believe that headlines such as the above do have an underlying impact on the financial anxieties of clients and the communities that we operate in.

The impact manifests in client’s mindsets, how they’re feeling about their financial hopes, goals and aspirations, and the decisions they’re able to make when it comes to the household budget.

Now more than ever, it’s important for advisers to have relevant conversations with clients about their personal finances and their concerns regarding expenditure.

It’s not about the impact of nickel prices on your client’s portfolio or how the social upheaval in the Arab Peninsula and political ramifications might somehow find its way into their particular stock portfolio. I believe that when it comes to addressing financial anxiety, there is much more relevant data and information for you to use with your clients; most of which is at your fingertips.

From an income point of view, we know from the latest Australian Bureau of Statistics* data that incomes in Australia in absolute terms over the past five years have actually gone up 27 per cent, and in NSW they’re up 21 per cent.

So if affordability is the number one issue, we need to understand this type of data to engage in a meaningful conversation with clients about their personal budget.

Tell them to bring in their group certificate and have important conversations that will help clients make smart financial decisions. 

The other side is expenses. So we’re talking about how much I am bringing home versus how much I am forking out. Recently, the Commonwealth Bank released an economic review for the decade 2000-2010, with in-depth analysis of consumer spending**.

In the first five years of that study, people were accumulating wealth through asset price appreciation, shares, property and the like.

But post 2007, and following the GFC, something changed – Australian households have been putting less focus on spending to accumulate, and far more impetus on saving.

This is something that looks set to continue.

And that conversation goes equally to, ‘can I afford to pay the advice fee’, ‘can I afford to put as much aside for savings, and ‘can I afford to pay my insurance premiums’.

In adapting to the Future of Financial Advice reforms, there is a huge opportunity for advisers. This opportunity lies in addressing the psychology of your clients.

It’s about making the data you use relevant to your client and the day-to-day reality of their personal finances.

Advisers have done an outstanding job over the past five years, providing comfort and some explanation to clients about their financial affairs.

Last year, the insurance industry paid out $3.5 billion to clients when they needed it most, and that is one of the best reflections of the advice that you can provide to your clients and to the community that I can think of.

That said, we all know that underinsurance remains a problem. It’s been estimated over the next decade, it’s going to cost the Government about $1 billion.

So while it’s a congratulations on our work done to date, we must roll up our sleeves and address the underinsurance problem and do it differently to how we’ve addressed it over the past two to three years.

Let’s challenge the way that we are currently operating and question whether the conversations that we’re having are going to the heart of what’s on clients’ minds. 

Tim Browne is general manager retail life at CommInsure.

* Average income figure is the earnings for a full time adult on ordinary time. (ABS – Feb 2012).
** Economics: Issues, Australia consumers – myths and issues (17 July 2012).