Changes to the structure and segmentation of the financial planning industry over the next 10 years has been heralded from all corners of the industry.
However, one of the most fundamental structural changes to occur is a shift in the way the market is segmented, moving beyond the historical target market distinctions of retirees and high-net-worth clients.
According to Strategic Consulting and Training (SCAT) general manager Jim Stackpool, an important way for planning businesses to survive over the next five to 10 years is to take a more segmented approach to clients and service a targeted group in the market.
“The adviser will need to identify their client segment, build the services for their ‘A’ class market and continue to look at what services can be added,” he says.
Research conducted by Stackpool’s research business, the Dashboard Group, in August 2001, revealed niche businesses were 14 per cent more profitable than those without a specific target market.
More significant says Stackpool, is the difference of service from a niche group that made 1.3 appointments per active client per year, as opposed to just 0.5 for the non-niche groups.
“The data shows the niche groups are more intensive on a smaller client base but have enough wallet share to make profit,” he says.
This research reinforces the findings of US-based firm Undiscovered Managers, which hit the nail on the head in its September 2000 research report, The Future of theFinancial Advisory BusinessPart II: Strategies for SmallBusinesses.
The report proposed niche marketing as a way for smaller businesses to prosper in an increasingly expanding financial planning industry.
“Successful niche advisory businesses must formulate a combination of expertise, services, operating efficiency, brand, client acquisition capabilities and market share, so that they have a sustainable advantage over competitors,” the report says.
While creating niche markets is the strategy, the emphasis on service in the client relationship is becoming more widely recognised as planners continue to redefine where they add value.
“Niche advisory businesses must identify the specific expertise necessary to solve their target client base’s most complex problems,” the report says.
The changing face of the Australian financial planning industry also became a well-discussed topic last year with the release of Credit Suisse Asset Management’s research paper, Hypercompetition—The Dynamic Future of Financial Planning in Australia.
Its authors, Credit Suisse head of retail Brian Thomas and business development manager Clayton Coplestone, are now preparingHypercompetition 2—Survivor: Outwit OutplayOutlast. It will reveal the consumer perspective of Australia’s financial planning industry, including the segmentation of financial advice for consumers.
The second report is in its early stages, with independent research recently commissioned, and data from the Australian Consumers Association on the way.
The survey findings and report are expected to be completed in several months.
Coplestone says one of the key messages expected to emerge from the consumer perspective survey is the notion of permission marketing.
“Permission marketing segments the consumer by how much trust they give the adviser. This ranges from a DIY approach, through to ‘I’ll take some advice’, to ‘you advise me but I make the decisions’, to ‘you have permission to act for me’,” he says.
According to Coplestone, the perception is that most people hold back and do not provide their advisers with all the information they may need to formulate a client’s financial plan.
However, given the trend towards holistic planning, this raises interesting questions of just how well planners are doing their job.
“Lifestyle, or holistic planning, assumes you have complete knowledge of a client, but that is dangerous if consumers keep things from their advisers,” Coplestone says.
The advantage of permission marketing is that it takes the service one step further, with the adviser anticipating the client’s future financial needs and fulfilling these expectations.
“You’ve got to anticipate what the segment wants, to add value,” Coplestone says.
Connect Financial Planning, a practice set up alongside the Tasmanian-based Connect Credit Union five years ago, is currently developing a lifestyle planning strategy in a bid to win more clients from its aligned credit union’s membership base.
Connect general manager Nick Connor says the financial planning practice, which currently services 1,600 clients, says there is the potential to attract up to 25,000 people in the 30-45 year age bracket from the credit union’s 67,000 membership.
Connor admits lifestyle planning is not for everyone, but Connect Financial Planning has the direct advantage of already knowing the characteristics of its targeted market.
“Lifestyle planning is a term we are starting to hear now, but it is not universally accepted. It’s about focusing on the holistic financial planning process, on the lifestyle outcomes, not just the financial outcomes,” Connor says.
“The credit union is smaller than institutions, has a loyal membership and a product range to leverage off. Its members have loans and investments already, so Connect Financial Planning is well placed to do the financial planning for these clients.”
Connect targets middle income earners without a large lump sum who generally do not believe they are in a position to have a financial planner.
