Forget ROI…embrace ROL

Financial advisers are living in interesting times. It is a time where they are feeling the earth move under their feet. It is a time of a massive seismic shift, a time of a historic inflection point where they need to take a step back and look at the value that they are adding to their clients. Speaking at the Amity Investment Solutions Wealth Management Conference, Mitch Anthony – Director at the Financial Life Planning Institute – said that advisers cannot afford to become despondent; important decisions need to be made.

A time of change

“We are living in a time of change. It is a time where clients are becoming more educated when it comes to money matters and a time when they want their specific needs to be catered for on a personal basis,” said Anthony. 

However, this is where advisers need to tread carefully because clients do not want to be compared with others. Psychologically, comparison is the killer of contentment.

But financial advisers still need to measure the progress that their clients are making. “For progress to be measured, it needs to be deeply personal. It needs to be measured against one’s own potential,” said Anthony. Perhaps this is the biggest indicator that the era of blanket investment options or product offerings is coming to an end. 

According to Anthony, the way that advisers engage with clients desperately needs to change. “Clients want to know where every cent of their investment is going. Yet, 90% of clients do not know the current health of their investments. Advisers need to have key conversations with their clients on issues that are personal in nature,” said Anthony. 

At the heart of the discussion

If advisers are trying to make a living in an industry where clients do not want to be compared with other clients and they are not interested in what they feel are impersonal investment products, what should be at the heart of the discussion? 

“Advisers need to make life the heart of their discussion. The focus should be on how clients can achieve the best life possible with the financial resources that they have,” said Anthony. 

The shift from return a on investment (ROI) to a return on life (ROL) approach will be challenging for advisers and will require them to become very personal with their clients. 

“Currently, clients are running on a hamster wheel chasing a monetary value that is dangling before them as a form of motivation. Periodically, corporates will increase the value that clients should be chasing and then they will turn towards them and say that they are lucky to have a job and be on the wheel,” said Anthony who questioned if this is really living. 

Live with discomfort

Anthony said that when an adviser moves from an ROI approach towards an ROL approach, they often have to put on their philosophers’ hat. They need to sit with clients and ask them questions which may make them uncomfortable. These questions may include: what is your earliest memory when it comes to money and how has it shaped the way that you handle money today? 

While these discussions may be uncomfortable, Anthony said that the greatest hinderance to success are the questions that advisers are afraid to ask their clients. 

Anthony pointed out that as a ROL adviser, it is important to invest in the stories that clients tell them. He added that a client’s financial plan is a skeleton which has no life without stories. 

The central challenge

We have pointed out some of the questions that advisers need to be asking their clients if they want to gain some insights into how to move towards a ROL approach. 

However, Anthony pointed out that the central question that needs to be focused on is challenging. Advisers need to ask their clients if they have enough money and if they are managing their money in a way that is improving their life. “At the end of the day, an ROL approach is never about the money, it is about being happy with what a person has within the moment,” said Anthony. 

Balancing the scales

While a move towards a ROL approach is admirable and may be a future requirement when it comes to client engagement, we need to be realistic. Yes, money isn’t everything, but it helps us to live. 

Your challenge as an adviser to embrace a ROL approach and also help clients get the returns that they expect. Because you can pay as much attention to your client’s life as possible, but if you take your eye off the ball when it comes to returns, you are going to be bowled off your feet. 

Editor’s Thoughts:
Financial advisers are at a point in their careers where serious questions need to be asked. I have said in the past that advisers wear many hats, perhaps a juggling hat needs to be added? What is the cost of this? Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts jonathan@fanews.co.za.