Don’t talk goals – talk values

We hear a lot of industry discussions these days about values-based or goals-based advice. What do those terms mean to you and how do you think an adviser can embed them in their proposition to clients?

Goals-based advice and values-based advice are quite different things. When I think about goals-based advice, that's what most advisers [do] - you've got to be aiming at something, you're not just flooding advice out in the air and have no intention of where it's headed. Goals are a common thing in the business, but it should actually start with values. Everyone's got a goal, but understanding someone's values leads to a much better goal conversation. Values are what differentiates people. It’s been around for a long time as well, values-based advice, but I don't think it's mainstream enough. And I think the advisers that are using that to their advantage are having better relationships and outcomes with clients.

Right, because some of the pushback that we get from readers is around "what's new about goals-based advice, I've been talking to my clients about their goals for years". But I guess the difference in your mind would be a goal like "I want to retire at age 68", as opposed to a value like "I'm interested in spending a lot of time with my grandkids in retirement".

That's it. A client may present with a need, but [it’s about] understanding what's driving the need. The classic is even someone who's talking about risk, it doesn't have to be so transactional even at a risk advice level. There's a reason [clients] are fronting up and wanting to protect something - what is it they're wanting to protect? I want to protect my family. How do you feel about family? It's really important to me. What's a perfect day for you? Spending it with my family. These conversations then become a lot more meaningful in terms of what's driving someone's behavior. I think as an adviser, if you then really get that relationship level, where it's not about retiring at age 65, it's about, what are we going to do to get you closer to spending more time with your grandkids?

Risk is one that comes up a lot in terms of this transition towards flat fee services and advisers saying, “No one's going to pay a fee for my services if I'm just selling insurance”. In that case is it not talking about insurance, but talking about what that insurance might provide for you in line with your values? And have you seen some risk advisers take to that proposition quite well?

Absolutely, and I've done it personally a long time ago. I used to 100 per cent rebate commission on risk and just charged a fee for advice. So it's definitely something clients will accept. There's a lot of limiting beliefs happening here where advisers can sometimes convince themselves that a client won't accept that proposition. But if you frame it the right way and you've got confidence in the value you're providing, even if it is just risk advice, people will pay. 

I guess another opportunity for the values-based conversation is getting rid of some of the industry jargon that has plagued financial services for a long time. Do you think that, if you start to talk about what drives a client, it naturally moves the conversation away from, do you want to invest in an ETF or this or that?

Yeah, we're great on jargon. So many acronyms, I could build them up all day. Clients don't care about jargon, that disturbs them really. One of the things that is part of your job as an adviser is to remove complexity, not add it. Clients aren't looking for you to sound clever and use jargon. It's quite the opposite. Their needs are much more simple than that. Your job is to remove all of the jargon and cut through all the complexity and focus on what they really want, what's really important to them. We probably don't do a good enough job of that.

Do you think that puts people off as well? Because I think particularly in terms of people of my age group, mid-30s, for a lot of them it contributes to that idea of, you need to be a certain level of professional expertise or wealth in order to get advice, because the whole process of talking about all these financial terms is very intimidating for someone who may not know a lot about them.

Yeah, definitely. I don't think we've done ourselves a service at all in that regard because when you cut it down, people just want to live a better life and money does play a part in that. So if they can find someone who can understand what their version of a better life looks like, and then simply guide them towards living a better life, then that's a value proposition right there. And I don't think there's enough of those clear value proposition conversations happening between advisors and clients.

Coming back to this whole transition towards flat fees, which a lot of advisers have done already, but perhaps some of the slower movers are maybe just grappling with this now that grandfathered remuneration has been removed. Do you think it's important to have those values based conversations with clients in order to get them to understand what exact value they're getting from this upfront fee that they're paying?

I actually think it's essential. I think if you're an adviser today and you aren't nailing this values-based conversation, you really in danger in terms of what your value proposition then is. I meet advisers a lot in my role and we talk to them all the time about the challenges they're having. A common one is if I'm not doing fancy things with their money and their investments and choosing the right products, what are they paying me for? I always find that really confronting to hear because I think, is that really what you think your value is? That's not what a client's actually looking for from you.

I guess that is what drives a lot of people to DIY because they think, “There's nothing an adviser can provide me in terms of returns or products that I can't just get myself through Google”. But if you're talking about a trusted relationship between two people, that's not something that a computer can give you.

No, and having been a practitioner of values-based advice, [clients] have conversations with you they'd never had before. You really understand what makes someone tick, and what their priorities in life are, and where their focuses are, and what really moves them. It's not like they have those conversations every day. In some cases they've never had that conversation before.

Once you’ve teased out what clients' values are, what drives them, how do you then link that successfully to goals and what you're doing with their finances?

The funny thing is advisers are really close to getting it already. Using the age 65 retirement example - they want to retire at age 65 and you work out how much income they'd need after tax to live a happy retirement. But ask them, what would you do in retirement? What are you looking forward to? Why do you want to retire? And then you find out it's about their grandkids and they've got five of those and they want to spend as much time with them as possible. Then the goal isn't to retire at age 65 on $100,000 indexed to inflation, the goal is to spend more time with the grandkids as soon as possible. 

And you could then even get to the point where they spending time with them sooner than they thought, but without having that conversation, you wouldn't know that that's necessarily what they want.

And then that brings in a whole other part to the conversation, where you start talking about things like risk and other priorities because actually  it's not just about retirement. You don't want to get to age 64 and get hit by a bus, people want to enjoy their life now. So I think then you've got potential conversations around trade-offs. You might want to go on an international holiday every year with the family. But if you did that, the likelihood of you being able to achieve time with the grandkids at 65 reduces.

And you do those projections and you have those conversations. And then you're giving them all the information and then getting into which value is more important to you at the moment. You want to spend time with the grandkids later on, but you want to enjoy yourself now as well. So it puts them in a position where they're helping make those decisions and then things like how they invest comes into it as well, because [the client has] said that, based on our conversations, you’re probably middle of the road in terms of the amount of risk you can tolerate. But if you stick at that level, then there might be trade offs to make as well. So straightaway, it's in the client's hands. 

Do you have any examples of advisers that are doing this really well at the moment, exactly what their process is and how they do it?

I remember going to meet Bill Bachrach, who's like the godfather of values-based advice, I think that was back in 2006 where I went to San Diego and spent time learning this stuff very firsthand. There are plenty of people who have used this for a long time to great advantage. And I certainly did when I was in practice. I think it's a way of treating people as well. So a lot of this comes back to the client experience and operating as a professional in a really consistent way.

The analogy I'd probably give to this is, when you go and see your doctor, you might not realize it, but they realize there's a certain process they follow with every single patient, regardless of what they present with to provide a professional outcome. The best advisers operate in a very similar way. They have a pre-meeting process, they have a meeting agenda. That's how they have the conversation every time. They don't spend two hours in a meeting because they talk about things that probably aren't that relevant right now. They have a post-meeting process. Having a script, if you like, for how you have these conversations, it means you're delivering a professional outcome every time. It becomes very consistent. I don't like the idea of just winging it in every meeting because you walk out of some thinking, now that meeting, that was great, or, yeah, that could have gone better. A lot of that can be solved by just having discipline in how you approach and how you treat people every single time.

Coming on to client-centricity, which I know is going to be a fairly big part of your presentation at the conference, what are some of your top tips around providing a better client experience? 

You’ve just got to learn how to facilitate a values conversation. A lot of advisers would be thinking right now, well, I do. I just think being very overt and very purposeful about it, that's the key because so much spins off having that quality conversation. As I said before, having a discipline about how you run these meetings is super important and thinking about the client experience all the time. When we talk to advisers who are struggling with the fees side of it, a lot of the advisory industry aren't charging enough. When I say that in forums, I get a lot of nodding heads and a lot of this comes down to the clarity or lack of clarity in terms of their value proposition.

When you're running these meetings, you need to be really clear about your role, what it is you're there to do and what it is that you don't do. And then you develop your value proposition around that. I see a lot of advisers leveraging the wrong things when it comes to their value proposition, not letting go of things like investment management, as an example. Clients don't value that necessarily, but I see a lot of advisers hang on that as part of the value proposition, and then wonder why they struggle a bit with the fees. That would be my number one tip, get your value proposition right so it's something that people want to pay you to do, then you're home.

I guess another issue is freeing up time to have more of these ‘getting to know you’ conversations with clients. What are some of your tips around how advisers can delegate down, free up some of their time to have more face to face time with clients? 

Whether you're big or small, you've got to outsource. The terms I would use is high value activity versus low value activity. There are things I see advisers spending a huge amount of time on, and let's face it, time's the most precious resource now for advisers. But I still see a lot of advisers spending a lot of time not doing client centric things and definitely doing things that clients aren't actually valuing. 

The best practices I see spend up to 70 per cent of their week in front of clients, whether it's emailing clients, VCs with clients, or face-to-face meetings. That is their focus - how much of my time can I get in front of clients? And if that's a struggle, what are the things I'm now going to start letting go of because I can't afford to be doing that? You're doing yourself a disservice every time you're stuck in low value activity, because you could be out seeing new clients, helping existing clients. 

Do you have any recommended partners in that space? Because probably the next comment we would get from advisors is ‘I'd love to outsource this stuff, but I don't have anyone that I can really trust to do it and I don't want to get in trouble with ASIC for doing something wrong’.

It depends what you're looking to outsource. There’s loads of good businesses that provide good paraplanning services. And I know that because I know so many advisers who outsource paraplanning. You just get the right relationship with the right provider [and] they get to know how you'd like your advice written. You might go through a few hard yards to establish that relationship and get it right, but you'll never look back. You'll think, why was I ever spending all that time doing that when this person's actually better at it than me.

When it comes to investment management, I think we haven't done enough as an industry to help advisors with outsourcing. We've still kept them tied to it. We've made them feel like they need to be involved to the extent that they're making decisions and doing more administration than they really should be doing. 

We're encouraging advisors to gain a stack of efficiency by letting go of investment management, but at the same time, how do you do it in a way that's individual at a client level? That's the bit that's missing as well. ‘I still see your risk profile’s balanced, so you'll have these eight SMAs’. And the next person who comes in as well, you get the exact same SMAs. It's more than risk profiling, so when you're looking to solutions that you are outsourcing to, you've got to look at stuff that's actually client centric and you can treat people as individuals, but at the same time build efficiency. 

I agree with you that the wave of growth in managed accounts is great, but there are quite a few practices out there who, as you said, just stick their clients in a vanilla SMA. Particularly for high net worth clients, they do expect a level of personalization in the product you're giving them.

Yeah, and that's harder to come by. I see advisers talking about, "I've got a core satellite approach" for example, which that sounds to me like you haven't quite let go of outsourcing investment management. You're still having a tinker - I leave the core, I tinker around the edges. Clients don't value that. They probably don't even know you're doing it for a start. But also it's a fine line between a win and a loss on that too. What if your tinker's wrong? Why take responsibility for things that really aren't in your control, and you certainly don't want to hinge a value of proposition off the back of that. So the industry has got a bit of a way to go in terms of providing more solutions that are better at individualization at the client level without the administration. 

To wrap up, what are your key takeaways for advisers if they want to embed client values more closely in the service that they're providing to clients? What are some key steps that they can take immediately to do this better?

I think you need to be fairly bold and very honest with yourself. Let's go back to our analogy we used about the age 65 retirement. If you're someone right now that is saying, "My value proposition is I'll help you retire at 65 and $100k a year," think about if it was, "My value proposition is I'm going to work with you to spend more time with your grandkids as soon as possible." It’s so powerful, that difference. You've got to have a real think about what you bring to the table, because you're there to help people live a better life. And whatever that means is their version of that. But unless you're going to have a deeper conversation and understand what their version of a better life is, it's really tough. You're writing goals that aren't as meaningful.

Phil Pilgrim will present at ifa's Business Strategy Day on 30 and 31 March. Click here for more information and to secure your place to this virtual event.