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Key shift in thinking and behaviour needed to ensure South Africans secure their financial futures

10 July 2018Andrew Broadley, Standard Bank
Andrew Broadley, Executive at Standard Bank Wealth.

Andrew Broadley, Executive at Standard Bank Wealth.

The winds of change are blowing through the financial services sector and turning the traditional advisory model on its head. Advisers need to focus on what really matters to their clients. “It is amazing”, says Andrew Broadley, Executive at Standard Bank Wealth, “as soon as someone knows that you are in wealth management or financial advice, he or she will ask you a barrage of questions. Typically, they are questions about which investment will make money quickly: what’s your view on the Gold price at these levels? Should I buy Bitcoin? How much Naspers should I hold in my share portfolio? While it is fun to chat about these topics around the braai, these are completely the wrong questions to be asking of your adviser.”

He explains: “The right way to approach investing is to spend time thinking about what really matters and to articulate your dreams and financial aspirations. Is your priority to provide quality tertiary education for your children? To leave your job and start up a small business? To retire at 55 and live comfortably? To own a second home in the bush? Only when you have started with the end in mind and really identified specific lifestyle goals are you really on the right track to a secure financial future”. However, the industry challenge is to find the best way to shift away from legacy approaches of delivering financial services towards a truly client-centric model. The answer lies in adopting a goals-based philosophy to investment advice.

“For various reasons, we are at a point of inflection where professional advisers really need to step up and provide valuable advice to clients. A radically different conversation should now be taking place between financial adviser and client. One of the key jobs of an adviser is to help the client to reconcile the trade-offs between one financial goal and another and to prioritise the most critical ones. That can be tricky and require skills and courage,” he explains. It’s clear that the profession of financial planning must be built around helping people accomplish their goals. “It’s not only an opportunity for us to provide better advice to individuals, but it is a way to speak their language and make closer, long-lasting connections with our clients,” he says.

However, this is raising the bar for advisers to do things very differently. Goals will differ widely between individuals and a unique, tailored approach to each goal and related risks is needed. “If an adviser implements a goals-based approach whereby a separate investment portfolio is created for the delivery of each goal, the client will have a much stronger emotional connection to each portfolio. When someone contemplates withdrawing money away from an education goal in order to fund a new car or a holiday, for instance, they will think twice. Similarly clients using goals-based planning are less likely to make dramatic changes to their portfolio when there is market volatility,” he explains.

“Advisers have not historically played this role of coach and trusted partner very convincingly. The product commission they would earn from the sale always loomed large in their thinking. They now need to unlearn their traditional sales practices and initiate a very different conversation with the client about the achievement of agreed goals,” he says. Regulatory changes like the Retail Distribution Review and Treating Customers Fairly are hastening the imperative for advisers to reinvent themselves so as to provide valuable advice that is worth paying for.

“Saving for goals and planning for expected and unexpected events is not being done optimally in South Africa, where a spending culture still predominates. However, by adopting goals-based thinking you can have a really meaningful conversation with a client to totally turn the situation around. This entails instilling a disciplined, repeatable process which is customisable for each client,” he explained. “Importantly, clients for the first time get a very real understanding of what ‘risk’ means. Financial advisers have always struggled to communicate the concept of risk effectively, often falling back on investment jargon. Now the discussion is focused on the risk of not meeting a stated goal within the agreed timescale and this enhanced awareness of the future impact naturally brings about important behaviour changes. The consequences of a family falling short of a financial goal can be painful and very real,” says Broadley.

Clients cannot see the wood from the trees when confronted by a fifty page financial plan. Fortunately, financial planning using goals-based investing does not need to be complex. Well established goals within a customisable but succinct plan allows an adviser to sit in front of a customer and solve for goals by recommending which fund or which insurance policy is appropriate for each goal. Transparent tracking of progress over time then provides the data that is necessary for a meaningful conversation to decide whether the goal is still achievable and what action should be taken to get back on course. “A key shift in thinking and behaviour is needed to ensure all South Africans secure their financial futures. The best way to do this is to ensure that everyone has a goals-based financial plan that matches what really matters to them.

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