Over the extended Christmas period I thought of many things, but the single biggest question I asked myself all holiday was: “What key issues should financial services businesses focus on to increase sales and profits in 2018?”
Well, there is only one answer to that: our clients. That may sound glib, but the client was, is, and always must be our key issue. It is easy to forget that simple fact. Of course, it may be argued that if we are looking for results over the next 12 to 14 months, then we should be focusing on certain fundamentals such as reducing overheads, streamlining operational procedures, improving information technology, etc. All of these actions should contribute to improving our profit margins.
But they are things we should be doing every day of every month, every year; as a normal part of our business.
What I believe is that what we consider to be key issues over the next 12 months should be informed by what you see as key issues over the next five to ten years. So, how do we better serve our clients?
This is an important question because by so doing we better serve our own future prosperity — if not ensure our very survival. And this is where it becomes more complex. The one thing that you and I do know for sure is that we don’t know what the future holds.
The other thing I do know for sure is that we can’t NOT make plans for the future. As the Carrick Ambassador Chris Bertish said when planning his solo crossing of the Atlantic Ocean on a stand-up paddle board: plan for the worst; hope for the best. In other words, calculate the risk; and act accordingly.
According to recent surveys, the Baby Boomers — those now in their 60s and 70s — will pass on an estimated $4-trillion within a generation, in the UK and North America alone. This will be the biggest intergenerational wealth transfer in history. And it is happening right now. The beneficiaries now in their 20s and 30s are the Millennials — or Next Gen — and they are our future clients. And if, as I believe, our key issue should be the client, then the question becomes how do we address, sharpen, and improve our interaction with our potential clients, especially when we are going to be dealing with a market that thrives on disruption? How do we engage with people who are tech-savvy, meaning they are more inclined to a digital delivery of services than the “personal” touch of the traditional financial advisor? And because they are tech savvy, they will have done their own research on both cost and investment strategies and have clear ideas about their preference for sustainable and impact investing. What plans must we make to ensure that potential and existing clients are always in our focus range?
I break it down into three approaches.
First, we need to change our ways of thinking — i.e. advisories need to innovate or we will be consigned to stagnation.
Second, we need to re-think our ways of doing — i.e. we need to ensure that we are effective. Effectiveness requires us to innovate otherwise it is simply being efficient and in 2018 simply being efficient will not be enough. We need to encourage and enhance the effectiveness of our actions, in order to become more efficient and ensure an on-going customer centric approach to service.
And thirdly, we need to look at our (and our clients’) ways of being — i.e. what is sustainable, what will last, what will provide a legacy.
Let’s look at these three approaches in more detail.
No. 1 Thinking differently.
I know that when some people hear the word “innovation” they have to consciously make an effort not to roll their eyes. It has become over-used and clichéd. This is why we need to think differently about innovation per se. For our future clients — the Next Gen — disruptive businesses are the norm. They have come of age in the time of Über and AirBnB. They think differently about technology and its role in their life. Take for example the two youngest billionaires on the Forbes list: the Collison brothers, Patrick and John — both under 30 — who started Stripe Inc., seven years ago.
In 2010, they saw the flurry of attention online shopping was generating. But they also realised that the stumbling block to internet shopping was the payments system. In order to process payments companies selling products online were forced to use a complex process which involved the banks, credit cards and gateways with their clumsy coding in order to make the transactions happen.
The brothers designed a simple piece of software that companies could immediately plug into their websites or apps and which enabled instant connections with credit cards and banks to enable payments. Disruptive thinking. Different thinking. Innovative thinking. And yes, like many, I am thinking of the inroads that robo-advisors can and will make into our business. But I will come to that in a bit.
But more immediately, two important areas come to mind. First, we need to think in terms of teams.
I am afraid that many people in the financial advisory companies still see themselves as the Lone Ranger, riding into town to save the day — and wealth of their clients. Those who stick to this image are indeed headed for distinction. More and more advisers and therefore investors are seeing the benefits of a team approach; of forming partnerships and creating teams of advisers made up of team members with differing skills that together can provide a comprehensive array of services for their clients.
However, I caution you not to rule out the fact that some form of purely digital method for managing money will need to be part of this array of services that appeals to the Next Gen.
Second, we need to be more transparent. Recently, an EY survey found that 63% of respondents cited “a lack of ethical culture” as the contributing factor to their lack of trust in financial advisers.
By this I don’t mean we have deliberately obscured the details of our financial advice. However, we need to remain aware that there are many clients with a negative perception of financial advisers and the way they operate.
A recent Royal Bank of Canada report on “Millennials and Wealth Transfer” stated that 69% of the Next Gen conducts their own research to improve their wealth knowledge.
Lesson one: the Next Gen is far better informed than their parents. This study also found that an astonishing 80% feel responsible for researching and understanding their own financial affairs.
Lesson two: the Next Gen need to feel that they are not being told what to do with their money but are involved in the decision making process. Our key issue then is to make them our partners as well as our clients. Treat them as part of the team.
No. 2 Doing it differently
Our core business is to provide advice to our clients on how to manage their wealth. Doing it differently means we need to look at a number of issues and in turn the effectiveness of our actions in relation to these issues. First, we need to become more professional. And I am not simply referring to dress code and self-appearance. We need, for example, well-written job descriptions, recognised and rigorous qualifications, constant learning programs, and the recognition on university campuses that is enjoyed by the investment banking industry. We must lobby to change this.
We must provide clarity and direction by defining more distinctly the path from student to financial adviser. We must give it gravitas and the respect it deserves. I am saying let’s do it differently through recruitment. We need to start looking at recruiting and more importantly retaining people under 30 within the profession. They are the ones who will relate for effectively with our Next Gen clients: millennials, chronically under-serviced female investors, young families and the baby boomer. Also, we must make more use of mentorships programmes and furthermore partnering U30s with veterans.
Second, we need to make better use of technology and specifically disruptive technologies. Digital technologies within the Finance Sector, and the start-ups adapting them, will disrupt existing financial institutions — ourselves included. Take Über, for example. The existing taxi models called for it to be banned. But surely, if an existing taxi operation (such as the Yellow Cabs in New York City or the Black Cabs in London) wanted to compete it should design and implement its own software that provides the same service as an Über.
It could be said that robo-advisers are the Über of our industry.
Simply wanting to ban or shut-down Über — or robo-advisers — won’t save your business in the long-term. If we fight back against robo-advisers, I am afraid we will not win. And we cannot deal with it by hoping to discourage younger investors from opting for technology-oriented solutions such as robo-advisers. We need to make disruptive technology part of our offering.
We are in what has been described as the “age of digital transformation”; a time when artificial intelligence, big data, cloud computing, advanced analytics, etcetera, all conspire to effect enormous change in our industry. How effectively we are able to adapt to these changes will determine our future. Technology is also a necessary draw card in recruiting. New recruits (and existing ones) want to hear that their firms have powerful and adaptable technology in place. Technology should be adopted only if it leads to greater efficiency. As an example, effective technology should result in being able to spend more time on our clients real concerns, not just their investments? In other words, their legacy, their aspirations, their goals.
No. 3 Being different
Being different encompasses three major areas: regulation; sustainability; and goal-based investing.
The impact of regulatory changes is far-reaching. New rules detailing the stringent requirements of a fiduciary and broader definitions of “advice” could end up costing us thousands of dollars annually in compliance reviews and additional insurance and supervisory requirements. New regulations across the globe are also likely to mean additional paperwork and more questions for the advisor community. We must face this head on and accept it with grace.
An EY survey found that 73% of high-net worth individuals (HNWIs) rate a clear understanding of risk tolerance and fee transparency as of “high importance”. HNWIs rate correct assessment of risk tolerance and transparency in fees as even more important than strong investment performance.
Similarly, sustainability is not simply a buzzword.
Investors of all ages are becoming more conscious of the impact that they can make on their world, both socially and financially. Investors want to make sure that their investments reflect their values as members of society and as business owners, rather than just the realisation of their financial goals. And finally, we must acknowledge the importance of outcomes and goal-based investing. As we move more and more toward a financial planning focus for our clients, more potential and current investors are going to expect this type of care, which gives greater attention to their goals when structuring their investments. Investors are increasingly concerned with ensuring their families’ financial security, and less concerned with outperforming the market or achieving higher returns on their investments.
So let me return to the original question and my blunt answer: the client.
Undoubtedly, the digital transformation age is upon us. We will need to be agile to keep pace with this transformation. We will need to place change at the heart of what we do every day. As someone once said, change is no longer some big project that a company has prioritised for the first quarter, and then it’s back to business as usual. Change needs to be “what you do every morning when you get out of bed”. This is far more than simply managing an investment portfolio. This is about our ability as financial advisers — or what we prefer to call “wealth specialists” — to talk about life’s purpose, individual aspirations, and family issues. Of course, when all is said and done, the biggest challenge for us is getting in front of new clients in the first place in order to grow, protect, and preserve their businesses.
Chief Executive Officer