Is history haunting change in financial planning distribution?
Recent research collated in the form of the ‘Top 100 Dealer Groups’ (MM October 23) has highlighted some very interesting management behavioural trends within financial planning distribution.
A strong performance in planner number growth by some groups and a loss by others confirms that the musical chairs behaviour of the 1980s is all but gone. There were lots of reasons discussed on what planner firms look for in a dealer relationship and perhaps why they move.
For dealer groups, the message is clear — retention of firms, and quality ones at that, is going to be a continuing challenge. They work in a parallel relationship with planners who need to work at gaining and retaining quality clients, all of which is based on the critical foundation of what is perceived as ‘service, support and value’.
Gaining more clients or more planner firms is not a substitute for quality funds under advice, advice that can be relied upon, advice that gives you comfort, and satisfaction that it will lead to long-term loyalty.
The dealer groups that have been working hard at building strong business management and support models will eventually win out in the recruitment and retention battle. The cross selling of platforms and planning software will leave differentiation fairly and squarely at the doorstep of support, service and value.
What are the key factors when evaluating your business on support, service and value?
They are relatively simple and must meet the following business imperatives:
1. Employ employees who are trustworthy and knowledgeable;
2. Make it easy to do business;
3. Provide advice and support that is trustworthy;
4. Make difficult issues easy to understand; and
5. Handle problems effectively as they occur.
Looking at these imperatives in the light of some of the recent findings within our industry, we know that people factors are critical. Planning firms need to recruit good people and dealer groups need to have good people to service those who work within the planning practice.
The business development manager who can recruit the highest number of firms is a relic of the 1980s. We now need trained (academically and technically) experienced business advisers working in the distribution channel market and adding value to the business support model provided by the dealer group.
The support, service and value proposition of a dealer group will determine the longevity of its relationships. The funds under advice volumes will be the end product of a well-defined business support unit.
The upshot of all the research showed that planner volumes are not a good benchmark for profitability and effectiveness.
It is amazing that as an industry we still scale success on quantity rather than quality when it comes to distribution channel relationships. Would the Top 100 Dealer Group league ladder change if effectiveness and quality were imperatives?
The answer is certainly ‘yes’, as highlighted by the subset tables published in the survey, where certified financial planners, median funds under advice and client numbers were analysed.
Financial planning practices are small to medium enterprises (SMEs), so building a good SME support model is the best strategy to gaining and retaining the best planners and life advisers available. Building a partnership in business culture supported by good business development and senior management professionals within the dealer group will further enhance this strategy.
The transient behaviour of multi agents and agents in the 1980s did nothing for long-term growth and profitability of any of the organisations involved. In fact, it was an image destroyer as well.
The better performing planner will be attracted to the better performing business support model.
It is evidenced that most dealer groups have a genuine desire to add value to the SME needs of the financial planning practice in the same way that planning firms are always seeking to add value to clients’ services.
The tip is to choose your preferred platform for differentiation, be it any one of the basic technical skills of running a good service-based business and then going about perfecting your delivery and performance on that platform.
There are many successful business models, even within financial services, that one could emulate and reap the benefits. The key is consistency and persistence.
The challenge in this new era of change is to refocus the strategic thinking towards quality clients and quality relationships, whether you are a dealer group or a financial planning practice. If your organisation has this as its cultural and strategic focus, it will have a much greater chance of winning the distribution battle.
Max Franchitto is the principal of MGF Consulting Group.
