Tuesday, September 7, 2010

Evolving Financial Advisory Business

The financial advisory business has been undergoing transformation of sorts in recent times. We have entered into a phase of unprecendented possibilities and opportunities in the financial planning / services profession. However this is also coupled with changes in the ecology of the industry. In addition to the challenges posed by the evolving industry, independent financial advisors of today are being faced with key generic challenges in the profession that will define their success. While the confidence level in the profession remains intact, there is now a sense of urgency on meeting these generic challenges. This blog shares some of the problems being faced by the financial advisors and some ideas on tackling them...

Challenge 1: Defining the Value & Fees
Defining the value proposition for the financial advisor and his services is the core of the advisory sales pitch. With easy product availability to the client no longer a challenge in most of the products, there is now a growing emergence of advisory oriented value proposition / offerings to the client.
Traditionally in India, the concept of the financial advisor is generic and is used synomously by every other product distributor or agent & even accountants. But creating a strong offering with the client at the centre in this environment can be seen not only as a challenge but also as an opportunity for new age financial advisors. The trend is towards greater professionalism, transparency and product neutral advice with a multi-asset & mult-product basket.
Increasingly, advisors are showing creater inclination to offer holistic client advisory and financial planning services. Though pure fee-based advisory is a greater challenge in this country where advice is freely given rather than asked, advisors have started charging fees for their planning and transaction services. While one may segregate differing service offering for different client groups, the question is putting a right price on it. One may define a price based on the advisor's time / hours, and the actual transaction / operation costs for any service. The challenge here is to get the right mix of offerings / services that appeals to the client and rewards you for your efforts and expertise.

Challenge 2: Delivering Service Excellence
Being in the service industry, the client is the king. Every offering has to be designed keeping the client in mind and driven towards client's interest. But promising is not enough and every promise has to be backed up with proper infrastructure, process and the right people who would execute the promise on time. Here, It is better to under-promise and over-deliver rather than over-promise and under-deliver. Sooner or later, the client is wise enough to find out better service providers if you are not up to the mark.
The first step towards delivering service excellence is defining service standards. Remember, that being just good every time is much better than being excellent some of the times. Sticking to basics often works as clients over time value small things done properly. But for advisors today, this is only the starting point and with growing client expectations and growing exposure to services being offered by others, these service standards have to be revised from time to time. The best time to begin, is now.

Challenge 3: Maintaining Quality of Advice
In the business of advisory, the advice is the commodity that one is selling. Ofcourse it is intangible, subjective and dynamic to the extent that one advisor may at different points of time give differing advise to a client in same situation. Defining quality of advice and maintaining the quality is then possibly the greatest intangible challenge for the advisor. Being in a fiduciary relationship, often undefined, with the client also places the advisor in an obligation to provide the best advice possible, which is at the heart of the profession.
The best way to ensure quality is to be institutionalise it – make the advice process driven, rather than advisor / person driven. Though this may sound a difficult, it is not impossible to achive a certain degree of standardisation, provided the advisor commits himself to this. One may of doing this is make standard advice / plans for standard situations / objectives or client profiles. Designing standard portfolios or methodology of arriving of portfolio or investment recommendations is part of this process. The idea is to look at every advice as result of some set of logics, assumptions, product preferences, client preferences, etc. Defining these components will throw up new realisations and increase productivity significantly. Although it is not possible to entirely replace the expertise & knowledge of any advisor.
Quality of advise is also a lot about keeping self and team updated, educated and skilled in advisory subjects. This is something that directly involves person committment to continuous learning and education.

Challenge 4: Keeping Costs Low
Independent financial advisors have one huge challenge to grapple with. Managing operations in such a balance that the costs are under control and the service offerings are not compromised. Many advisors often tend to approach this challenge with breaking up the operational tasks, processes and handling each independently. While this micro-approach is effective, advisors must also look at the bigger picture. This entails creating of the client groups, defining of the service standars to the exact processes & frequencies and devising the plan for its execution. While many advisors, may even do this activity, most advisors often short of breaking it further into 'free' services and 'paid' services and putting the price therein.
Other than the above, costs can also be managed by smarter use of technology and automation. Making the most of what is available on hand is the best way to begin with. The question one should ask is – am I making the most optimum use of available resources for all my clients? Quite often, the answer will be No. Advisors often tend to skip activities that can be done easily with the technology at hand and rather look for newer and better packaged products in market. Quite often when evaluating new systems, rarely does one find solutions that meet all the needs of the advisor. After considering license & renewal costs, installation, migration / integration / customisation costs, future integrations of other applications, etc., the ready-made solutions loose their appeal. The ideal option, as seen in trends in many markets, is being associated with large platform providers who provide advisors with a ready solution for implementation at much lower overall costs and with the promise of continuous additions on the product & the technology front.

Challenge 5: Managing Growth & Expansion
For a bicycle to stand alone on its two tyres, it needs momentum to go forward. This is true for every business and not just for the financial advisory practice. However this is a greater challenge since financial advisory is a people driven or advisor centric profession where trust & personal touch is critical and time is limited. An independent financial advisor with focus on quality advisory can only handle a limited number of clients or households. Even this is subject to the range of financial products / asset-classes and the scope of services / advisory the advisor is dealing into. The larger the range and scope, the fewer would be the number of manageable clients, single-handedly.
In the end, there are two ways of expanding. One being increase in the time devoted to building of business and second multiplying the time available by recruiting manpower. It is a fact that the advisors devote a very large portion, upto 60-80%, of their time towards non-productive, operational, servicing activities rather than on pure advisory and client acquisition activities. Advisors should be aware of where their time is being spent and should smartly delegate the non-value adding tasks. The second option of recruitment of quality manpower at reasonable costs is also a challenge, with still greater challenges appearing thereafter in terms of training, maintaining quality, measuring & rewarding performance & retention. Another way of looking at expansion is progression into newer product categories, newer services and newer customer segments. This though is more in nature of 'forced' evolution rather than expansion of the advisory practice.

Challenge 6: Building Customer Loyalty
Customer loyalty is the end result that boldly says the the advisor has successfully met all customer expectations over time. This statement itself lists the recipe for customer loyalty. The advisory should be careful that customer retention should not be interpreted as customer loyalty. While customer retention may be because of any reason, be it personal relationship, gratitute, non-availability of other options, customer inactiveness or indecision, reputation, etc.; customer loyalty is only for the reason of satisfaction. Always remember that retention is temporary and loyalty, though permanent, can never be taken for granted.  

  • Building customer loyalty is being able to do the following continuously for long term...

  • providing right advice in client's interest

  • meeting most, if not all, of the client's needs

  • keeping client's trust and confidentiality, intact

  • having a larger share of the client's mind (brand recall)

  • maintaing client relationship, with a personal touch / intemacy 
Meeting the challenges of the evolving financial advisory business though, not an easy task, is also not something which cannot be done. Advisors often tend to evolve a smarter practice suited to them and thier clients. The opportunity for financial advisors is huge if one is ready to the most in this transformation. In changing business dynamics, one thing is sure. People who mistakenly believe that they have reached such a degree of success that nothing much needs to be done, are sure to be left behind and advisors who anticipate and adapt to change would be the ones to reap the harvests tomorrow.

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