Winds of change for financial advisers

Most people have concerns about ‘being sold' insurance and a lack of knowledge or understanding of whether they are really getting what they need. They have heard all the stories about failed claims.

The fault for this should be laid squarely on the doorstep of the financial institutions for using legal terminology, a failure to educate, misleading marketing, high fees and charges and lack of consumer interaction. Insurance and financial planning is considered to be about suits, banks and the big end of town making them extremely profitable, out of touch and untrustworthy.

No matter how much honey financial institutions or insurance companies lather their marketing with, it will always leave a bitter taste in the mouth of consumers. When it comes time to claim, there often seems to be a get-out clause that leaves the consumer worse off and therefore distrusting.

That said, companies need to make a profit otherwise they won’t remain in business. However, the perception is that the profits are at the expense of the consumer who invested for their own benefit and expected the insurer or fund manager to deliver at the time it was most needed.

On the other side of the coin is the current turmoil the financial planning industry is finding itself in, with changes to how advisers are remunerated and further educational standards being imposed upon them. Around the globe, advisers are leaving the industry, which is to the detriment of the public let alone the advisers themselves. Some have simply had enough of the constant changes as well as being the scapegoats for public and media targets. Others are concerned about the reduction in earnings and having to change to a fee-for-service model from a commission-based model.

Why does the fee-for-service model frighten so many to the point that they take with them years of experience and leave a lucrative career? Have they been so good at ‘selling’ that they are unable to justify their service? In the future, advisers are likely to be replaced by people who are actually able to articulate their values, many of whom already exist in the current industry.

They have spent years gaining knowledge and experience, not just through further education, but through working with clients across the kitchen table or the office desk. Although the adviser can explain the need for the product, they have difficulty articulating the value proposition they provide to the client in presenting them with their service.

Advisers need to embrace the change and look for the positive ways in which they can charge fees to clients. That might mean setting up regular recurring contacts with a client to keep them on track with their financial planning rather than annually, or if at all. It means providing education about issues which the government and banks fail to do, such as cash flow and finance. Consumers are at a complete loss in this area, but won’t ask for help for fear of looking like a failure. However, if advisers approach their clients offering this as a regular and ongoing service they are likely to find client loyalty, retention and referrals will increase.

Many people are looking for a one-stop service for personal money or debt management, mortgage advice and a range of other services. Advisers can take on these services themselves or leverage through other providers and work together. This is about financial advice rather than investment and many people want to be educated. Unless advisers adopt a new business model, they may well find a different breed of ‘money coach’ who will be giving advice rather than just selling insurance products.

Providing clients with a value proposition also places a real value on the adviser as an individual. It comes back to ‘If you don’t value yourself, why should others?’

Nobby Kleinman is chief executive of Money Rules