by Kobus Barnard, Allegiance Consulting

Articulate your value

Creating a blue ocean strategy with financial planning


The earth is shifting… It is true. We are at an inflection point in the financial services industry. This inflection point is driven by exponential change in technology, new entrants, direct players, robo-advisers, changing regulation and the rising billion, fittingly referred to as the millennials. Entire industries are shifting.

Think about what Uber, a software company, did to the taxi industry. They have a bigger market cap than companies like Ford, Daimler Chrysler, and General Motors. They are doing it without owning a single car. The level of disruption is driven by consumers reacting to new engagements that speak to either convenience, quality or trust. People now trust Google and Amazon more than they trust the financial services industry, including the banks. Ten years ago, it was the other way around.

Once adoption reaches a tipping point, it drives the disruption into an unstoppable tsunami of change that can wipe out industries overnight (five years). The biggest corporates can be giants of the industry one moment and irrelevant the next.

Everywhere I look…

Vanguard offers S&P500 index funds for five basis points to direct clients. Direct players offer a cost benefit to clients. Their value proposition is one of operational excellence and convenience. Clients are flocking to the direct players for the cost benefit. This is a swell in the sea that cannot be stopped.

Will you be able to compete with low-cost players that offer direct solutions to the market at a significant lower cost and zero adviser fees? Will you be able to justify the advice fee, especially if you calculate the aggregated cost over long periods like 15 or 20 years?

For you as an adviser to guarantee a client that you will always be able to pick the best fund or best fund manager, that will outperform the market after cost, is a difficult, if not impossible promise. Will you be able to guarantee a client that after paying the additional cost, his portfolio will always be able to outperform the market? Think before you answer that.

Disrupting the disrupters

A blue-ocean strategy is one where you change the rules of the game so that you outwit your competitors. Change the rules of the game. Move the client’s focus away from performance to a financial goals focus.

Shift your investment narrative from fund picking to financial planning. The adviser value lies in moving the client’s focus from performance chasing to their financial objectives, measured over the lifetime of the client. With proper financial planning, advisers can add years to the client’s retirement objectives with withdrawal strategies, tax strategies, and targeting bad investor behaviour. It is with these strategies that you can potentially add years of funding to their retirement.

Whether you can prove your value add as an adviser or not, you need to articulate the value that you add to a client’s life and charge the client for it.

You are forgiven if a slight anxiety is building up in you about the future.

So many opinions. So many people who can see the future … In the meantime, you have built a career and a practice, doing the hard work, maintaining the relationship with the clients, explaining a sideways market, explaining away why fund managers got it wrong, and sometimes right … Don’t you get tired of explaining?

Steps to change the rules of the game:

  • Shift focus from fund picking to financial planning.
  • Shift from performance chasing to focussing on the client’s financial objectives and the achievement of those objectives.
  • Shift from a product focus to a financial planning focus.
  • Nurture the relationship with the client and delight your clients with value.
  • Customise the client’s financial planning. Make it deeply personal. Work with a scalpel not a shotgun.

Compiling your genius plan for your new practice

Do not be afraid of change. Embrace it. Use it as an opportunity to outmanoeuvre the competition. It releases energy in the industry that you can use to your advantage. Do not wing it. Plan for it. You can become the disruptor of disrupters.

Your value proposition must rise to meet the expectations of the market.

To do that you need to:

  • have a clear vision of your target market;
  • understand the value that you will add to a client;
  • understand the economics of adding that value, i.e. how are you going to be paid for the value that you add;
  • be clear on how you will be delivering the value; and
  • articulate and communicate the value that you are going to add to your client in a clear and understandable way to your client.

Something for something…

Economics is about the continual exchange of value. There is a disconnect between the commissions earned on implementing the product and the value added to a client.

Commissions earned from implementing products are under pressure worldwide. It is exactly the disparity between value and commission that got the attention from the disruption breeding Silicon Valley. Clients are disillusioned. We created the environment for disruption with this exact business practice.

Would a doctor work for free? How about lawyers, dentists? The short answer is no one works for free. Then, why should you? Financial advisers can offer serious value to a client.

So, if we must charge a fee in the land of the fee, a client could easily turn to and “broker” or “adviser” that will be too eager to say to the client, “I will do this financial plan for FREE as long as you take the product with me”.

If a client is faced with a decision where the complexity of the decision exceeds his or her understanding, the decision will be reduced to the smallest known common denominator i.e. price.

So if adviser A charges R 25 000 for an estate plan and adviser B charges R 0, then the client will in all likelihood pick B. This is only correct if adviser A has not articulated his value.

Show your value. Bring your financial engineering skills. Use the tools that align with your market and your value proposition. Understand that clients will not pay you to pull a slider on a screen that they could have done themselves.

At Allegiance Consulting, we have been charging fees for the last 18 years. In our experience, when you charge a fee for financial planning, clients want to see and experience value.

The proximity of the fee payable i.e. an invoice for the work done, is very different from a “distant” commission that is enclosed in a product. Their behaviour changes, so do their expectations.

Parting thoughts

In any disruption, there are winners and losers. You can choose to be a winner. Create your genius plan. Do it in writing. Think about your market. Think about your role as a professional financial adviser.

Being a good financial adviser is one of the best jobs on the planet. You may not always get the recognition for the value that you add, the lives that you have touched, the children that could get an education because of the work that you have done.

Nothing can compete with the value that a good financial adviser can add. To those advisers where the truth came first, and the sale came second… we salute you. ■

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This edition

Issue 72