Many people in the adviser community seem to think that the way to improve service and profitability is to streamline everything so that advisers spend more time with clients.
Like many propositions, this is only half true and if pursued obsessively will reduce, not improve, the quality of service and advice.
Let’s consider the commonly accepted six steps of the financial planning process:
Establish and define the planner-client relationship
Gather client data
Analyse and evaluate
Develop and present recommendations
Many advisers would argue that they add most value in the first, fourth and sixth steps when they are in front of clients.
The first step is all about salesmanship – the adviser has to sell themselves and their firm’s service to the client and get buy-in. Most advisers like doing this.
Advisers mostly like presenting solutions to clients because solving people’s problems makes you feel good. And provided their investments haven’t tanked, client reviews are nice because as you develop the relationship there is the chance to win referrals.
Most advisers delegate implementation, which is sensible. Many advisers also delegate the job of preparing recommendations to a paraplanner and don’t get involved with the analysis of the client’s situation. This is where it can go wrong.
First there is the issue of the client’s aims and objectives. Some fact-finding processes force advisers to get these spelled out, but ‘soft’ facts are harder to capture than hard facts.
I agree with life planners that the aims and objectives that should form the basis of a financial plan are not themselves financial and the adviser needs to encourage clients to articulate their aims in non-financial terms.
The adviser then needs to consider the financial implications, opportunities and risks relative to those aims so that they can convert them into financial goals. Then the adviser can explain them in terms clients can understand so that they can make informed decisions on the choices they face.
In my view the analysis and evaluation stage is critical. For a start, without such analysis you cannot determine the client’s capacity for risk, which will be affected positively or negatively by circumstances such as state of health, liabilities and expectations, each of which may or may not be relevant. Recording this analysis so that the adviser can explain the capacity issue is vital.
Skimping on the analysis stage is likely to lower the quality of advice.
I would argue that this is where the advisers add most value, not in the time they spend with the client. So managing the interaction between advisers and paraplanners is crucial, especially in ensuring that relevant soft as well as hard facts get passed on. It is best if advisers are involved in analysis and evaluation.
There is a risk that the automation of advice processes using semi-detached paraplanners and relationship manager advisers will dumb down the advice. It will be easy for business managers to justify this – most clients do after all have very similar requirements expressed in financial terms – but to add value as an adviser you have to put the client first.
It is not how you deal with Mr Average that defines the quality of your advice – that is bank-think, and shows you are just putting clients into boxes – it’s how you deal with the exceptions.
Chris Gilchrist is director of FiveWays Financial Planning, edits the IRS Report newsletter and is the author of the Taxbriefs Guide, The Process of Financial Planning