If things are not going right at the moment, perhaps it’s time for all of us to reflect on what we as financial advisers are offering. Perhaps it all comes down to asking why is the client dealing with you? And why will the client stay with you?
Is it because you have promised the best investment return or you can provide them with a combination of overall, valued services?
If we are to only talk about investments with our clients, it’s understandable that they would judge us solely by our investment performance. But if we attempt to offer our clientsrobust strategies that will satisfy their lifestyles, education, discipline to get things done, and an excellent level of ongoing service, then clients may tend to judge us on a broader base of fundamentals, rather than merely investment performance.
I’d like to share with you an approach that has worked for us, which has been developed and continues to evolve from our learning and experience. We spend a lot of time explaining to clients what we do.
We are financial planners — we do not sell investments, we are not stock pickers or market timers — although we have been all of those in the past as we went through the financial services education process.
We focus on getting the client’s strategic plan developed first and then using investment solutions to bring the plan together. Investments are a function of the plan. Our business aims to make available more than investment solutions for our clients.
Along the way, we combine this with as many value-added services as are appropriate to our client. Our strategic funnel focus includes a wide variety of holistic financial planning services such as superannuation, estate planning, insurance, asset protection, investment planning, and some basic concierge services.
All provided under a (value for money) fee for service arrangement.
We spend a lot of time on the interaction of these issues even before we start to discuss portfolio planning. But perhaps more so, we try to surprise our client with assistance in other value-added areas that come to light throughout the evolving planning process.
What we have found is that our clients may tend to remember us more for these added services, than for our investment services.
For example, we integrate a client’s tax and accounting affairs by offering an in-house accounting facility, or coordinate this with a client’s existing accountant. We arrange for the purchase, installation and training of a home computer. We assist clients with dealing with real estate valuations and auction sales. We get involved with the purchase of a client’s new vehicle, and financing decisions. We assist with career counselling.
Basically, we are a sounding board to our clients, and then assist them through introductions to other specialist providers.
We believe that this approach works no matter how small your business may be. It’s not whether you deliver these services personally, or if someone else does it, the important element is that the client gets them in a coordinated manner.
Although your business may offer more than investment services, investments are still a very important element to your overall offering. So you need to be careful in how your business positions investment advice expectations and how you go about delivering it.
Just about every day our advisers get asked where’s the market going next? We say to our clients while we could give you a well researched and fundamentally sound forecast, we honestly don’t know with any great certainty. The reality is that no-one knows.
But we say to our clients that you can have a successful investment experience by accessing the capital markets rate of returns, if you have a clear strategy, discipline and take a long term perspective.
As soon as you give an opinion for an expected short or medium-term investment return, you set an expectation in the client’s mind.
The risk of getting your call right is getting your call wrong. Clients are more sensitive to you getting your call wrong than they are grateful for you getting it right.
What we would rather do is to build a stress tested portfolio, so that whatever happens we don’t destroy the integrity of the plan, and deliver it in a cost and tax-effective manner. In short, clients are surprised if you get it wrong, and expect you to get it right.
As an example, did Kerr Neilson really surprise everyone with his returns from Platinum International last year? Perhaps not — because people may have grown accustomed to this performance. But I’m sure he would have surprised his clients if he included a $15 bottle of a sensational red wine with his annual distribution statements. Now that would really make the client smile.
We don’t promise something that we have no control over.
But there is a flip side, you will be judged on everything else that is within your domain, so you better do that well! In terms of expectations, we also tell our clients straight. We will in future have conversations about negative returns. As a worst case, expect it to be the very first year.
We put them on the rollercoaster of historic returns and ask them: “Are you comfortable?”
We believe that we can only reliably offer to our clients the investment returns provided by the capital markets. We try to get the bad news on the table up front, and then focus on the issues that we can influence.
Now if you have offered your client the right offering, and you have provided the right expectations, how can we go about delivering the investment experience consistent with the expectations we have set?
Choose an appropriate asset allocation for the client and unless this needs to be changed because of a change in their strategic fundamentals, don’t change it. If you move once because of your hunch, you set the expectation that you will always be moving the client’s portfolio.
Can you get it right every time, or even more often than not? We do not tactically asset allocate. We embrace US research that has shown that your asset allocation is the real driver of performance over time, and will yield around 94 per cent of your investment returns over the long term.
We try to provide diversification, diversification and diversification. We provide what we provide on a fee-for-service arrangement. In this way our investment solutions don’t have to be linked to the way we charge.
We talk to clients as often as we can. Panicking and being concerned about these troubled times is normal. Calling us is normal. We see our role as getting our clients to do what they should do, not what they irrationally want to do.
Finally, we maintain regular client interaction.
Our internal objective is to interact with our clients at least 10 times a year (this includes mail, calls and reviews). When we came in after September 11, we contacted most of our clients and said two things. Firstly we told them that we were as horrified as they were with this tragedy and, secondly, this historical event will affect markets, but our belief is unchanged, and our advice is to plough through the uncertain weather ahead.
Our calls offered no great news, and were hard to make, but the feedback given to us was tremendous. Our clients appreciated the call.
In summary, we have found four important elements work for us. Offer more than investment solutions (position your business). Manage your client expectations by continuous education and promise only what is in your hands to control. Choose an appropriate asset allocation and investment approach for the client, and stick with it. And finally, keep talking, phoning, meeting and writing.
It all adds up to the client knowing that you are working for them and care about them in these difficult times.
And don’t just do this in these difficult times … make it part of your everyday business culture.
Harvey Bate is a partner ofGuest McLeod.
