Is client disconnect affecting your bottom line?
You can please some of the people all of the time, you can please all of the people some of the time, but you can’t please all of the people all of the time.
These famous words by Abraham Lincoln sum up the challenges that advisers face when managing client expectations. The reality of your jobs is that you are in the business of dealing with people, and no two people are the same.
Because of this, it makes sense to feel that advisers often get dealt a challenging hand and that the inevitable client disconnect may happen sooner rather than later. However, this does not need to be the case.
Look at the basics
American hotel magnate Steve Wynn once said that the secret to success rests in doing the fundamentals (basics) well. This was the theme of a number of talks at the recently held FIA (Financial Intermediaries Association of South Africa) Investment Forum.
George Dell, Wholesale Marketing & Head Discretionary Fund Management Development Director at Miton Optimal, identified what he believes to be deadly sins of bad financial planning; identifying these sins allows advisers and financial planners to possibly avoid client disconnect.
- Often clients have no plan or their plan is unsuited towards their future goals;
- The time horizon for saving often becomes too short. This is particularly true when clients want to make up 30 years of saving in the last ten years of their career;
- Too much attention is given to financial media where the messages are generally negative. While these messages are sometimes a true reflection of the market, it leads to panicked decisions. Clients don’t know how to block out external noise; and
- Clients often want their fund managers to chase performance in the market place. They have very little faith in sticking with a stock that may turn out to be profitable in the long run. They want results now!
Effective management
So how does one manage clients expectations effectively? Dell believes that it may be as simple as identifying what you are great at and what clients value.
“Financial planning is more important than the returns clients are expecting. While they value returns, they value having a partner on the journey towards these returns that listen to them and help them plan every facet of their financial journey. Not everyone is financially savvy, but everyone can have access to a financially savvy person,” said Dell.
One of the tricks of the trade that Dell unpacked was continuous rebalancing. He pointed out that client drift is real and that there is a constant need for advisers to make sure that their client’s financial plan accounts for life changes.
This is true if you look at the journey of your typical client. Over a 35 year relationship with a client (where they enlist your services at 27 and retire at 62), the responsibilities of your client will change as they start their own family and possibly have to take care of ailing parents. Then there are their own medical needs that need to be taken care of as the risk of cancer and cardiovascular diseases are ever present. There are so many factors that can lead to portfolio drift, which is why rebalancing needs to be taken seriously by advisers.
Increase you focus
When a lay person looks at retirement planning, they are of the opinion that the nuts and bolts of it involves the pot of money that a client receives at retirement. However, Morne Rall, Investment Consultant at Grindrod Asset Management, says that advisers need to work past this singular view.
“Advisers need to move away from the nest egg metric and focus on the monthly annuity metric. We also cannot focus on one target, we need to look at the investment journey pre-retirement as well as the journey during retirement where longevity may be a factor,” said Rall.
The only way to effectively manage this is to stress test a client’s portfolio with randomised volatility. This will provide a good indication as to whether their investment is on track or whether it needs to be repositioned to account for risk.
Editor’s Thoughts:
The assertions made by Dell and Rall, while effective, may not be as easy to apply in practice. There may be other factors that lead to client disconnect that we are missing completely. Do you find that this is a problem in the industry? Please tell us your stories. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts [email protected].
