As consumers get savvier and more sceptical of financial advice, advisers have to fight harder than ever to justify their value proposition, but the smarter ones still have an edge, writes Kate Cowling.
Not so long ago, it was common practice for advisers to rely on the endorsements of clients and other professionals to channel new business into their firm.
An often unspoken quid pro quo, the referral-based relationships were the undercurrent of practice growth and in many cases did not require much maintenance.
With the promise of good service and the occasional professional catch-up, accountants, lawyers and other associated businesspeople would happily refer-on, leaving the adviser to focus on their current book.
However, the internet age, and more precisely the global financial crisis (GFC), have given rise to a new age of consumer savvy, which has chipped away at the currency of traditional word-of-mouth endorsements.
In the last 12 months, the financial advice sector has been splashed across the media, with legislative changes and scandal dominating the headlines.
The Future of Financial Advice (FOFA) reforms and the Commonwealth Bank planning arms’ enforceable undertakings have taken centre stage in the mainstream press, with the potential to cast doubt over the wider planning profession.
Noall & Co managing director, Mark Bineham, said a year ago, a mere one in 10 of his clients would have known what FOFA was, but nowadays, it and the incidents at CBA are inescapable.
As a consequence, advisers have to fight harder than ever before for new clients and rigorously defend their offering and fees.
“Clients will start to question everything you do and unless you have a very good value proposition and are easily able to hand that out, then the days of the adviser saying 'oh I’m a good bloke, I am doing the right thing by you, trust me’ are behind us,” Bineham said.
“They expect more. They really want to see what your credentials are, they want to see what education you’ve done, they want to see what they’re receiving for their fees,” he said.
For many advisers and consultants, the answer to the adviser perception problem lies in marketing and reframing how the public views the financial advice profession and more specifically, their own business.
Much of that involves marketing, however, how much money advisers should spend to promote themselves, and whether it’s a task better outsourced, is a source of contention.
Dollars and sense
Advisers wanting to grow their new client footprint, even moderately, should expect to spend around a quarter of their yearly intake on marketing, according to Bineham.
However, by his own estimate, the adviser budget tends to be more in the realm of $1000 to $2000 a year.
“Advisers don’t traditionally like spending money,” he said.
“It’s a bit like any small business, where you’ve got to try and keep your expenses down - and particularly since the GFC - advisers have been looking at their costs and things like spending money on updating your website and marketing strategies is just excess money in many minds.”
Bineham is a strong proponent for outsourcing marketing to someone who can articulate the adviser’s value proposition without the jargon.
Financial advice, like many other professions, is an acronym-driven domain and it’s easy to forget that most clients do not know what SOA and PDSs are, he said. But for many advisers, it’s difficult to break the acronym-speak, he added, making outsourcing a necessary spend.
However, Formidable Business coach Mark Laing said those unwilling to fork out large sums can make small changes to their marketing regime to bring new clients in.
He suggested a regular blog or email newsletter, a regularly updated website and targeted social media activity, with a skew towards LinkedIn and Twitter.
One of Laing’s financial planner clients wrote a “top tips” article for high income, white collar individuals looking to transition into retirement, which was emailed around and generated a series of referrals from the recipients’ colleagues in the same market, he said.
“If he had gone to that client and said can you give me a referral, he wouldn’t have had the same outcome,” Laing said.
Elixir Consulting managing director Sue Viscovic is another advocate for implementing tweaks in-house to market what an adviser’s business represents.
She said a key starting point is being clear about what the firm specialises in and conveying that on the website.
“A lot of advisers think 'if I get too specific, I won’t get the sort of clients that I want’ but what actually happens is they appear more often in searches,” she said.
Like Bineham, Viscovic said language needs to be honed to target the clientele the adviser is seeking, a task that could demand outsourcing.
“There’s only a small handful of advisers these days who don’t have a website at all, but there’s a big difference in the quality of the websites that people have,” she said.
“I think the copy on the website, the words and the language they use is often the difference between bringing in new clients and not hitting the right note.”
Despite being a vocal advocate of new marketing techniques, Viscovic said it’s far too early to write off referral networks in favour of digital techniques, instead recommending a combination of both.
She said a multi-faceted approach works, so long as the adviser is totally clear about the clients their business is targeting and their area of specialty.
“When I think about marketing it’s about how you attract the clients you want, but more often than not it’s more personal direct things, like referral-based relationships,” she said.
It’s an opinion that’s seconded by Advice First managing partner Dennis Perry, who says strong partnerships and word-of-mouth endorsements are more important than ever in a post-FOFA age.
In the last year, almost half of Advice First’s new clients have been referred by existing clients, he said, with most of the remainder from professional partnerships.
“We’ve literally never spent a cent on marketing,” Perry said.
“Eight or 10 years ago we were paying money to come up as the first page on Google searches and we just found it bought a lot of enquiry, a lot of work, but very, very little revenue.”
Indeed, with a strong service model, a firm should not have to heavily market itself or ask for referrals, according to Perry.
“I know of firms here on the Gold Coast that spend tens of thousands, if not hundreds of thousands on newspaper ads, advertising for seminars and yet I look at those businesses and it seems to be a slow death,” he said.
“The amount of money they have to earn from those seminars to justify all the advertising and media spend is almost an impossible equation to achieve.”
Instead, Perry believes firms should direct that money into adviser training and building on their value proposition.
“If (adviser firms) just serviced their database properly, gave good advice, had a good team underpinning them, were a genuine business, rather than product movers, I think they would hit more outstanding results,” he said.
Aspire Retire Financial Services co-founder Olivia Maragna similarly believes that an adviser with a solid client offering should never have to ask for referrals.
“We have never had to ask for a referral and believe that for us, doing an exceptional job, adding value and having your clients bests interests in mind naturally brings referrals,” she said.
However, it’s a slightly different story for firms who have been in business for less than five years and haven’t been able to build up referral traffic, according to Mediq Financial’s managing director Ravi Agarwal.
Being a niche supplier of financial advice for those in the medical field, Agarwal sees requested referrals as a key way to build traction.
“We actively encourage clients to refer and they have been more than obliging,” he said.
“That’s how our business grows. We attract clients who share our ideals and referral is by far the smartest way to achieve that.”
“We have been through the entire marketing circle, where we’ve given everything a shot and I think as a new business, you need to do that.
“We’re now at the stage where we’ve got our initial fee clients and we’ve focused primarily on delivering absolute excellence in service to them and being open and telling them you are our initial clients and we’re looking to build this client community and it’s in everyone’s best interests if those clients are referred by you.”
A more controversial player in the financial advice space is social media, with proponents and opponents at odds over how and when it has a place in generating new business.
While it may create brand awareness and see advisers’ names and messages resonate with potential clients, its major shortfall is its unquantifiable impact.
Supporters, like Formidable’s Mark Laing, say social media should be viewed as a fairly easy, effective way to share stories, but it’s key that advisers stay on message.
He said there’s a significant difference between tweet spam and telling a valid story using the medium.
Maragna said the end game shouldn’t always be “winning” new clients, but rather educating the wider community. She said new clients can be a byproduct of that.
“I have always seen my role as an advocate for the industry so our activities in this area are aimed to help reach all those in need of financial guidance and really show the community the real value of financial advice,” she said.
However, Viscovic said the questions over the reach and influence of social media make it a persistent grey area.
“There is commentary saying that advisers are spending a lot more time on social media, but that’s not necessarily translating to more business for the adviser,” she said.
“I’ve certainly heard of a lot of clients who have had success with clients who haven’t engaged immediately, but they’ve connected with them on LinkedIn and (the adviser has) stayed front of mind.
“It is hard to specifically point to social media and say, 'well there is the reason I won that client’¨ At this point it’s probably too early to attribute success to it.”
For others, like Advice First’s Dennis Perry, the social media hype is threatening adviser conventions and values he believes should be core to most businesses.
“We’re not a multinational, we’re not a media celebrity, we’re their personal financial adviser, they want the one-on-one tailored stuff,” he said.
Message over medium
Regardless of the approach, advisers agree the most successful practices are the ones who have a robust value proposition that they are able to seamlessly communicate to clients and potential clients.
For Perry, that means frequent communication, in the bad times as well as the good.
“A client should never have to ring you, you should be the one ringing them first,” he said.
Perry said a key mistake advisers made after the GFC was going underground out of fear they would be blamed for losses.
“They’d much rather hear it from you than open up their statement and read it,” he said.
“We kind of used the same language regardless of what time it is in the cycle.”
For Laing and Viscovic, the most marketable advisers are those who spell out the reasons a certain client demographic should spend their time and money with them.
“They’ve got a good story about how they add value, so when they go out to the marketplace they’ve got a very clear communication of their client value proposition and they look to engage and have a relationship with clients,” Laing said.
And for those who aren’t clear on their message and willing to back it, the consequence is getting left behind, Noell and Co’s Bineham believes.
“I just think clients are getting smarter, are getting more investment savvy¨ You do need to make an investment in yourself and your business,” he said.