Planning to succeed

Succession is a function of automation and education

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Financial regulations are increasing in scope and complexity at a rapid rate in South Africa. The effect of this is to exclude greater numbers of South Africans from the advice industry at a time when there are increasing numbers of qualified, professional advisors entering the industry. Moreover, these advisors have been taught the correct way of financial planning and are looking for professional careers, in other words they don’t want to become product pushers selling lousy products for large product providers.

If I consider the way regulations are being drafted and implemented in South Africa, I would guess that the regulators are keen to eliminate the role of small financial planning firms in SA. This seems woefully myopic for a number of reasons. Small financial planning firms can be a source of employment to graduates leaving university as well as a source of much-needed financial education and advice to large portions of the SA population who have never been exposed to investments before. If regulators aren’t careful the independent advice industry will be eliminated via death by regulation.

Automate and educate

I believe the only way that quality financial planning businesses will be able to survive and grow in this environment is if they automate as many functions within their business as possible. That means they need to narrow the range of product providers and select them differently. Personally, I would make automation a key criterion when selecting a product provider. As an example, does the product provider offer an automated FICA process? In addition, how manual is the new business and review process for clients? I also believe you need to find client relationship management (CRM) and financial planning tools that will enable clients to complete as much of their personal information online as possible. We also need to begin forcing product providers to provide client data to financial planning tools in an automated fashion so that we don’t need to manually request the information in the laborious and unproductive way it works now. If regulators really cared about clients, they would force this data integration via regulation. Currently, I believe the large product providers are resisting data integration as it suits them to retain clients who are not being serviced correctly.

Financial planning firms will need to segment their clients carefully and ensure that they service clients profitably, which might mean they need to reduce the number of clients they service. This is a natural consequence of the spate of new regulations being forced on the industry.

My advice to all financial planners when they ask how they should grow their businesses is to spend time educating clients about financial planning. The more you educate your clients, the more trust you build. In addition, your unplanned meetings with clients will reduce in frequency as their understanding of markets improves and their need to be pacified in stormy markets is reduced.

I recommend to every advisor who is over 50 years old to employ a high-quality financial planning graduate so that you can begin training them to service your clients. It is silly and inefficient to get new financial planners to generate clients for the business. The best source of new clients is always the established, senior financial planners. New financial planners can more easily be taught to service clients and ensure that they provide the correct ongoing advice. Pay these new financial planners a monthly salary with an annual bonus based on client retention. That way they will be remunerated to look after clients and not to sell them lousy products to earn upfront fees.

Advice to regulators

I wish the regulators would take President Ramaphosa’s commitment to small businesses more seriously. Large product providers like banks and insurance companies do not have a great history of providing good financial advice to clients. Rather create legislation that makes it easier to operate small-scale, efficient financial planning businesses and force product providers to automate FICA processes and the provision of client data to all financial planning platforms in a uniform fashion. For far too long, regulators have allowed large product providers to lobby them to create high barriers to entry for small advisors and new product providers. More to the point, why don’t regulators contact some high-quality financial planning firms to find out how we work and what impediments we face from you and the product providers. Blindly following the UK and Australia in the way they have damaged the financial planning industry is simply not smart. 

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