A coaching way of being

To survive disruption, help clients understand themselves


There is much talk of the tsunami of regulation and robo-advice that is about to hit the industry. This raises the key question of what the role of the financial planner will be going forward. To answer this question fully, I think there are actually three questions to consider.

How real is the tsunami?

RDR probably felt like a tsunami for financial planners in countries like the UK and Australia. South African financial planners, however, are more fortunate. Requirements like the FAIS Act, TCF and regulatory examinations have prepared the way for RDR to land gently. Moreover, regulation is actually a boost for any reputable financial planning business. Warren Buffett loves investing in businesses that have a “moat” around them, something that protects their core proposition from competitors. Coke is one of Buffett’s many successful investments. A “secret” recipe has been the moat to protect this investment. Arguably, regulation is that moat for financial planners. It makes the barriers of entry higher and higher. In effect, therefore, the regulatory tsunami is probably more of a gentle wave that has already started breaking.

The robo-advice wave is different. The thing about any technology evolving is that, like a tsunami, it takes no prisoners. It simply destroys existing players or changes the rules of the game. Digital photography destroyed Kodak. Amazon is destroying retail shops, one shopping centre at a time. Uber has smashed taxi companies and making many people re-think why they even own cars. Very few industries are immune to the technology tsunami. It is real.

According to a Vanguard study, technology will impact “basic” skills like recording information, and “repetitive skills” like getting and processing information, monitoring, and scheduling. Advanced skills such as maintaining relationships, interacting with the public, persuading outcomes, applying knowledge, strategising, solving problems, thinking creatively and assisting or caring for others are likely to remain the domain of the human being.

Much of a financial planner’s service embraces basic and repetitive skills. Machines are already doing this work. A 2018 World Economic Forum Report on the Future of Jobs estimates that by 2022, machines will do more than 60% of administration work and 60% of information and data processing. The report also suggests that machines will do almost 40% of communicating and interacting and up to 30% of so-called “advanced tasks” like reasoning and decision-making.

If you combine the technology threat with the thrust of regulation across the world to treat clients fairly, financial planning is ripe for a disruption of Uber proportions. After all, a robot has no incentive to line its own pockets, so any advice it offers is likely to be conflict free, or at least can be programmed that way.

How will the technology tsunami impact financial planners?

The good news is that the World Economic Forum report suggests that the role of financial planners and investment advisors will remain stable. In other words, they won’t become redundant. However, it depends on what sort of financial planner you are.

Thirty years ago, financial planning was very much a sales-oriented business. The perspective that insurance is sold, not bought, underpinned an industry that rewarded intermediaries with commission on the sale of products. The legacy of this perspective is that many clients today still struggle to see any value in financial planning itself but rather in the products that are sold to them.

Not all financial planners are sales people. Over the last 20 years the industry has been evolving into a profession. The establishment of the Certified Financial Planner® Professional mark bears testament to this. But this alone will not protect financial planners. We are already seeing how the medical profession and the legal profession are bearing the brunt of the technology revolution. According to the World Economic Forum report, many lawyers will become redundant, as will sales agents and even financial analysts. On the medical front, research already shows that robots are better at reviewing scans and X-rays than human radiologists.

If we think that financial planning is somehow going to ride out the robo-advice tsunami, we had best beware of having a Kodak moment. Already there is a local financial institution that provides a compelling robo-advisory service that includes investment advice and implementation at an all-in fee of 0.57%. And for those financial advisors who see great service as a key part of their offer, this same institution can now open an account with a client within a matter of minutes with only an ID document needing to be uploaded.

The challenge that technology presents is that you can buy almost any financial product on the Internet, at very low cost. This brings into question the role of the financial planner and their value add. A 2016 survey of financial planners in the US highlighted that their number one challenge was to communicate their value add to clients. Regulatory change promises fee transparency. Robo-advisors promise to add great value. Having a relevant, clearly articulated value proposition that clients will pay for will be the number one challenge for financial planners all over the world. Doing what robo-advisors can’t do will help meet this challenge.

One such task is to get to know the client as a human being. A client can tell a robo-advisor that they want to save for retirement, save for a holiday or save for their children’s education. The problem, at this stage, is robo-advisors can’t help clients prioritise appropriate wants and needs. This can only happen through meaningful conversation. Once a client decides what they want or need, a robo-advisor is fantastic. But how do they decide what’s really important to them? How do they know if their wishes are being driven by real needs or just their personal money history? Money goes to the core of our beings. We develop relationship with money from an early age. We also have relationships with other human beings that involve money.

The fact that many existing robo-advisors offer clients the opportunity to phone a real person while engaging with them suggests that there is a place for real people in the financial planning process. But what is their role exactly?

What are the implications for the future role of the financial planner?

As professionals and advisors, financial advisors are experts. Their job is to give advice. However, human beings are complex – and there is a growing recognition that effective advice demands as full an understanding of a client as possible. The problem here is that clients often don’t have a full understanding of themselves. They often don’t know what their own priorities are or how to articulate them. Nor are they clear on the potential consequences of the choices they make.

Consequently, the role of the financial advisor is surely first to help the client understand themselves. This helps the advisor and client build a shared understanding of the client’s situation. It’s like tilling the soil before you plant the seed. Advice lands best on well-prepared ground.

Take the story of a real client Rose (not her real name). In 1999, just before the peak in the tech bubble, she held just over R1m worth of shares in a well-known technology company. This was her retirement savings, and she was very loyal to the share. She had worked at the company for some time. Rose’s financial advisor at the time recommended that she sell her shares and invest in a diversified portfolio. Tech bubble or no tech bubble, this was very sensible advice. But it didn’t land. Rose could not bring herself to sell the shares.

The tragedy of Rose’s story is that when the tech bubble popped, Rose’s shares feel to less than a 20th of their value at the time the advisor gave her the advice. The problem with the advice is that the ground had not been prepared for the advice to land. The advisor had not helped Rose understand herself and her own needs. Her dream for her retirement was to buy a smallholding and do organic farming. The advisor gave great financial advice. But this was something a robo-advisor could have done. Rose really needed a reason related to her life, rather than an investment rationale to make the right decision. The advisor’s task was to help Rose determine how much money she needed to fulfill her retirement dream, not to have an investment discussion about diversification and concentration risk.

Many practitioners and experts suggest that the key value add of the financial planner is already behavioural coaching. Vanguard’s research talks about the “advisor alpha”, and suggests that of the 3% additional value an advisor can add to a client’s portfolio, 1.5% of that is through behavioural coaching. US financial advisor Nick Murray, author of the book Behavioural Investment Counselling, believes the value add of Behavioural Coaching is closer to 5%.

For financial planners who want to survive the robo-advisor and regulatory Tsunami, the message seems clear. Adopt a “coaching way of being” with your clients. This means helping your clients understand themselves. Let them solve their own life riddles first. That way, when you give them the financial advice to support their life decisions, they will own that advice, and unlike Rose, will almost certainly implement it. 

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