A three-way interplay to excel at financial advising

The financial advising discipline hinges on a three-way interplay between best practice, compliance and psychology. Expressed differently, financial advisers and planners who stand out from the crowd are those who excel in applying the seven steps of financial planning, conducting a comprehensive financial needs analysis (FNA) with clients, and effectively managing their clients’ anxieties both pre- and post-retirement.

Calming your client’s anxiety

Aspects of financial advising were up for discussion during a financial adviser panel discussion at the 2024 INN8 Invest Summit, held in Johannesburg recently. Donovan Chetty CFP®, an investment specialist at INN8, stepped up to the podium to engage with four advice professionals on the challenges and opportunities in dispensing advice in South Africa. 

“Good financial advice helps calm your client’s anxiety [and] that is the core of what we do as financial advisers,” he said. He suggested that advisers build practices that enable them to spend more time with their clients, and that there is no better ‘edge’ in financial advising than knowing your client. The first question put to the panel was how to build a client-centred practice. “To serve clients well, you first need to know yourself,” said Kim Frost CFP®, founder of Bespoke Financial Services. 

She singled out self-awareness and quiet listening as two essential skills for client-facing financial advisers and planners. In her experience, bombarding clients with facts and figures to demonstrate your financial advising prowess risks alienating them; a far better approach is to pay close attention to their concerns and needs. By truly understanding clients’ circumstances and emotional triggers, advisers can build deeper relationships and foster those all-important loyalty and trust outcomes. 

Excelling at customer experience

Siba Njoba FSA™, co-founder of Imvelo Wealth, suggested viewing the adviser-client relationship from the client side. “Our practice is quite intentional when we onboard new staff, to put them through our client experience journey; everyone goes through a workshop [to learn] what we want our clients to experience when they engage with us,” she said. Puttying your clients ‘first’ aligns with the pro-consumer regulatory approach that has seen the embedding of six treating customers fairly (TCF) principles in all of South Africa’s financial services laws. 

Chetty shifted gears, asking Kobus Kleyn CFP® to share some insights on the evolution of financial advising including responses to emerging technologies such as artificial intelligence (AI). Kleyn said that today’s advice professionals had to embrace the productivity gains on offer from AI and other digital technologies as enhancers of their human intelligence and empathy. He used his practice as an example of how technology had forever changed the advising landscape: pre-COVID, 95% of his clients came to the office for meetings; nowadays, 99% of client meetings take place virtually. 

Old methodology; new methods

Kleyn said that the financial planning methodology had not changed in that the seven steps and FNA were still core to the process; digital innovation and technology had simply taken client servicing and a practice’s operational efficiencies to the next level. Johann van der Merwe, an executive financial planner at Standard Bank Financial Consultancy, agreed that technology was taking things to the next level; but countered that “personal interaction [remained] the most important thing”. In his world, being available to the client 247-365 is non-negotiable. 

A foundation of modern financial advice thinking is that the adviser-client relationship should persist even when the primary financial adviser becomes unavailable, for whatever reason. One way of ensuring this is through careful succession planning and ensuring that the team at a financial advice practice is able to step into the void when required. Another sensible approach is to leverage technology. “Within our business, absolutely everything is automated from start to finish; there is a procedure guide on every single client interaction [and] we know that if someone leaves, we have a chain of people who will be able to pick up the slack,” Ford said. 

Chetty could not resist putting in a positive word for discretionary fund managers (DFMs) by equating an adviser-DFM partnership as akin to the advice practice in-sourcing an investment team. Lucky for him, the panellists had already bought into the concept. Njoba hailed the DFM as part of the process of doing business better. “Knowing that that portfolio management is taken care of can alleviate a lot of pressure from the adviser, and ultimately free up more time to your clients,” she said. 

Custodians of clients’ financial plans

Kleyn offered a more philosophical take on the discussion. “Our main responsibility is to be the custodians of our clients’ financial plans over the long-term; we should not fool ourselves into thinking we are wealth managers,” he said. In his experience, the DFM route made sense because it addressed many of the due diligence related compliance risks facing an adviser. The adviser becomes a passive manager whose only active decision is choosing the right DFM to manage his clients’ portfolios. “We should spend time with our clients [and let the DFM] worry about the admin, the fund spec sheets and fund performance,” Kleyn said. 

The conversation shifted to challenges and opportunities in the post-retirement world, opening the way for some comments about the just-implemented two-pots retirement solution. Kleyn was upbeat, calling the legislation “one of the best government has implemented over the past 30-years”. And some retirement experts are predicting that decades from its implementation, two-pots will finally shift the ‘only 6% of South Africans save enough to retire’ reality towards 15% or even 20%. Why? Because under the new regime, South Africans will be forced to preserve two thirds of their total lifetime retirement funding contributions, and growth thereon, for a pension. 

Managing living annuities for longevity

According to Kleyn, clients have two main concerns entering retirement including whether they have accumulated enough capital, and whether their financial advisers will be able to stretch this capital in light of improved mortality statistics; South Africans of both genders can now look forward to living deep into their 80s. 

Commenting on the living annuity product space, Van der Merwe said financial advisers played an important role in managing clients’ risk-return expectations. “We have to sit down with clients and explain what risk is and why they need to take risk in their portfolios,” he said. This conversation includes telling clients how the level of risk taken will impact final living annuity outcomes. 

All too soon, the panel was winding up. Frost concluded by sharing some ‘feel good’ moments from the estate planning discipline, where beneficiaries were often in awe of how much wealth their parents had accumulated. “Being part of the entire journey, from the start to the finish, is such a gift; we are privileged to do what we do,” she said. 

Njoba referred back to a comment from an earlier presentation to accentuate her closing remarks. “James, from Schroders said that when Robo-advisers were first introduced, financial advisers thought these ‘robots’ would put them out of work; but advisers prevailed,” she concluded. Similarly, today’s advisers need not fear using AI and technology as part of business enablement; these innovations have the potential to make a great impact on clients. 

From retirement to financial freedom

Also drawing from earlier presentations, Van der Merwe suggested replacing the term ‘retirement’ with ‘financial freedom’. “At one point in life, you want to be financially free or [reach a point] where you do not have to go to work every day,” he concluded. Going forward, you should be asking your young clients at what age they want to achieve financial freedom rather than when they want to retire, and then draw on your human intelligence and empathy, enhanced by AI and technology, to guide them towards that goal. 

Writer’s thoughts:

What is in a name? One of the participants in the 2024 INN8 Invest Summit IFA Panel posed an interesting question: could we improve retirement outcomes by rebrand South Africa’s retirement focus from retirement to financial freedom? Please comment below, interact with us on X at @fanews_online or email us your thoughts editor@fanews.co.za.