5 success drivers for the practice of the future

15 November 2018

Jason Andriessen CFP®

Jason Andriessen is consulting partner at financial services research boutique MYMAVINS and chair and co-founder of Catalpa, a community of independent financial planners.

The path of change for the profession is inevitable but to what extent practices approach this change will determine their level of success in the future.

These are unprecedented times for financial planners. Already faced with the challenge of understanding and then meeting FASEA’s higher education standards, the Royal Commission’s final report is bearing down.

What’s clear is that previously successful business models will need to change. The good news? CoreData has launched a research program that seeks to understand the changing landscape, and the characteristics required of financial planning practices for future success.

We call the research program Yucatan, after the peninsula in Mexico. Around 66 million years ago, a comet crashed there, creating an enormous crater and throwing up soot and dust that completely changed the earth’s atmosphere. Theory has it that it’s what killed off the dinosaurs.

But not every living creature became extinct. There were those that responded to the stress and adapted. In fact, some creatures were able to thrive in the new environment.

Let’s apply the same analogy. If this is an extinction event for some advisers, what are the characteristics of those who will survive and flourish?

Our research has identified five traits of financial planning practices that will thrive into the future:

  1. professional community support;
  2. clearly articulated business plans;
  3. adaptability;
  4. client obsession; and
  5. willingness to let go of the past.

Let’s take a look at all five.

1.Professional community support

The practice of the future will comprise a community of two or more advisers; professionals who support each other in servicing their clients and hold each other accountable. It’s becoming clear that clients and regulators expect advisers to not just be proactive, but to be available to clients on their terms to provide the services they’re paying for. That means being on duty every business day, 52 weeks a year.

Now, we know that’s not always possible. But your professional community within your practice will be there to service your clients when you’re not.

And then there’s other professionals who won’t just help you service your clients, but they can peer review your advice and discuss your ethical dilemmas with you. These are people who call out your self-interest and help you make decisions that improve the long-term prospects of your career.

2. Clearly articulated business plans

According to CoreData research, fewer than three in 10 advice practices have a robust written business plan that sets out a growth pathway. The practice of the future will set out its growth plans over the next one, three and five years, clearly document them and share them widely with members of the team.

And successful practices will have management information systems that measure performance against the key drivers of growth. Currently, more than three in four advice firms are relying most heavily on the crudest of all business measures to track their growth: revenue.

3. Adaptability

If your practice is standing still during periods of major upheaval, it’s actually going backwards. According to paleontologist Stephen Jay Gould, the reality of change is punctuated. Organisms don’t evolve gradually over time in a linear fashion. They change during times of stress, and their success depends on how they manage it.

Now is the time to adapt to a changing environment. A financial planning practice can innovate in three ways: through technological leaps; process leaps; and behavioural leaps.

The fact is, not all innovation is good, and we know that most major business transformations fail. In fact, without behavioural change, process innovation fails. In turn, without embedding process changes, technological changes fail. You need to innovate in all three ways, and that’s really hard.

With more than 600 fintechs in Australia today, it can be tempting to buy the next bright, shiny toy and start applying it to your practice. But technological innovation needs to be purposeful and anchored in a clear client need.

According to CoreData’s annual Mystery Shopping research of financial advisers, just one in four planners are using technology in a visible way with their clients. Those planners are using software to help clients understand scenarios, alternatives and trade-offs, and to explain ideas. They’re also using technology to collect data more efficiently, which clients value.

In fact, planners who use technology within their advice process have higher levels of client commitment, understanding, intention to implement and propensity to recommend.

Technological change also needs to be supported by process innovation. Again, processes need to be anchored in client preferences and needs.

The fundamentals of successful advice processes are clear. CoreData’s mystery shopping research indicated that those planners with the highest client implementation rates did five things well:

  • the practice answered the phone within six rings;
  • an appointment was scheduled within 10 business days;
  • a fact find questionnaire was emailed to the client in preparation for the first interview (and responses digested by the planner);
  • a second interview was scheduled at the first meeting; and
  • the planner confirmed execution within three days of agreement.

4. Client Obsession

The Royal Commission has been seeking to unearth misconduct and behaviour that has fallen below community standards. But community standards change, and they reflect the values of the individuals within that community at a point in time.

Over the past 10 years, we’ve seen a trend of everyday people becoming more and more cognisant of their personal rights. An outworking of that is the rise of the consumer, where everyone has a voice, everyone is a publisher and everyone has the right to feel outraged about whatever they like.

And when it comes to financial services, there’s plenty to feel outraged about.

The fact is the financial system is stacked against everyday consumers. A portion of their personal income is deferred by law, only to be released to them as a lump sum when they retire. They’re faced with extraordinary complexity and are seeking guidance from someone they can trust to cut through and help them make good decisions.

The trouble is, there are other players in the system, each better informed and looking out for their own self-interests: licensees, platform providers, product providers, asset managers, and even custodians. And who benefits from all this complexity? Well, as we have seen from the Royal Commission hearings, it’s often not the client.

It’s the adviser who is tasked with championing the needs of the client. That’s why the practice of the future will be obsessed with serving their clients. They’ll be much better at listening to them, gauging the client experience along the end-to-end advice process, seeking to understand paint points and moments of truth.

Former CEO and executive chairman of IBM and author of Who Says Elephants Can’t Dance, Lou Gerstner, said it best: “Everyone at IBM was trying to satisfy an audience – the board, their boss, the shareholders. You know who I wanted to satisfy? The customer.”

But this will require behavioural change for financial planners. Currently, only one in three advisers undertake client surveys at all. And even when they do, most do it too infrequently; annually or even less often than that.

5. Willing to let go of the past

Advice practices that will flourish in the new environment will unshackle themselves from tried and true activities that brought success in the past.

Donald Sull, in his excellent Harvard Business Review article Why Good Companies Go Bad, identified the common trap of ‘active inertia’. This is where businesses recognise that they need to act, but they continue their previous trajectory, following established patterns of behaviour. They’re stuck in the modes of thinking and working that brought success in the past.

Rather than protect a previously successful model, and replicate business drivers by complying with the letter of the law, it’s much healthier to embrace the policy position, and seek to meet the spirit of legislation and regulations.

For financial planning practices, one example of this is the revenue model. It’s clear from the Royal Commission’s interim report that income earned today from advice provided in the past, is bad practice and out of step with community expectations. Accordingly, pre-FoFA grandfathered commissions are being questioned and they will likely cease or be phased out.

If they haven’t already done so, successful financial planning businesses will need to immediately reduce any reliance on grandfathered commissions. Income sources must be agreed by the client, transparently collected, and relate to the active provision of advice and service.

When the comet smashed into Earth on that day 66 million years ago, it set in train a series of events with consequences that couldn’t have been easily predicted, but with the benefit of hindsight now, seem inevitable.

Its impact ignited oil-rich sediment – a freak occurrence that produced enough particulate matter to significantly cool the climate globally. It marked the beginning of the end for the cold-blooded dinosaurs that saw their food sources decimated and as a result, eventually went extinct.

In a decade’s time from now, when a new generation of advice practices are flourishing, when individuals are flocking to advisers and their services in droves, when public trust and confidence in advice and advisers is scaling record heights and when advisers are acknowledged as professionals in the genuine sense of the word, the path that led us there will seem just as inevitable.

Unlike the dinosaurs, however, we have an unprecedented opportunity to plan and prepare for the future we want, instead of being at the mercy of forces we can’t control.