Whether you’re an established advisor looking to grow your business or just starting your career, you cannot ignore a major shift happening in the financial services industry worldwide: we now live in the world of low fees. Today, I’m going to show you how to succeed in this new reality by staying technologically relevant, using client education as an opportunity to create great experiences, and seizing an underserved market.
How did we get here?
Vanguard started lowering their investment management fees in the early 1980s when the rest of the industry did the exact opposite. Their long-term focus on passive low-cost diversified portfolios eventually paid off: the firm now has over $3.5T in assets under management, adding $1B from investors every working day. Their commitment to passing value onto the retail investor made them one of the largest fund companies in the world.
Vanguard’s unique ownership structure, where the firm is owned by its funds, puts further pressure on keeping fees low. Competing with such a fee structure is a race to the bottom; it would be a decidedly flawed strategy. While most Canadian investors still own mutual funds rather than low-cost ETFs ($1.1T in mutual funds vs. $100B in ETFs in 2016), the net outflows from mutual funds into ETFs show what the not-so-distant future holds.
Because the technology landscape is changing so quickly, leveraging technology to deliver more value and a better experience to the customer is not optional; it’s now key to survival. If you don’t leverage technology, you’ll be quickly displaced by a more technologically savvy competitor. One of the most relevant recent examples is the bankruptcy of Blockbuster, totally outcompeted by Netflix, which offered lower fees and more value through an online business model delivering memorable and personalized experiences for their customers.
A great success story in the financial services sector is a firm that applied technology to better serve their clients. AdvicePeriod has gone from a startup to managing more than $6B of assets under advisement in the span of a few years. They did this by combining technology with a heavy focus on financial planning.
“We wanted to focus more on what really mattered to clients, and for us that means a lot of planning, a lot of advice, leveraging technology where we can,” says Larry Miles, one of the principals of AdvicePeriod. “It’s more important than ever because technology is just changing so rapidly that if advisors fall behind, it’s going to be really difficult to get back ahead.”
Customers expect great experiences
Consumers now expect great experiences. What are the ingredients of a great experience?
Customers want ongoing value from a service. If the value stops being delivered, the service is cancelled.
We got used to instant fulfillment when we started being able to order food, an Uber or anything on Amazon with just the tap of a finger right from our smartphones. This is setting a standard for all industries, including financial services. For example, if you insist on asking for all financial data from a prospective client upfront and telling them you’ll see them in 3 weeks, you may lose a prospect.
Customers also expect personalized and relevant advice to help them make better financial decisions. This advice encompasses not only investment planning, but includes the broader areas of tax planning, financial management, estate planning and even behavioural coaching.
Collaboration means the session with the advisor becomes interactive instead of an advisor working in the back office on a complex plan and then presenting that plan to the client. Collaboration between the client and advisor helps to identify the client’s goals that would otherwise go undiscovered. It helps to cement the client-advisor relationship, too.
All of the above aspects help to create a great, memorable experience for the client.
The question now becomes how to find the right opportunity to deliver such an experience.
Finding the right opportunity
I wrote about the value of client education in why client education matters today more than ever. The likelihood that a client will provide a referral to her advisor gradually grows with that client’s increasing levels of financial literacy. Providing the right advice to clients and educating them in the process leads to a powerful referral formula.
Well-educated clients become more satisfied clients. Satisfied clients become long-term, loyal clients. Loyal, long-term clients tend to generate more referrals.
Even though opportunities for advisors in the investment management area are somewhat diminished, you can still build and grow strong, sustainable and profitable businesses. The formula for success is not just providing advice and educating clients, but also focusing on the right clients. This means picking the right market segment and specializing in serving it better than anyone else.
While there has been a lot of attention on millennials lately, with 13.6 million Canadians who are 50 years and older, I see the pre-retirement and retirement segment as particularly attractive for many reasons.
While there are a lot of DIY options and tons of free education online, retirees have a lot at stake. They are heading into retirement during historically low interest rates, which forces them to be more exposed to equity and makes retirement planning more complex. Their biggest concern (and rightfully so) is not running out of funds in retirement.
The progressing fee compression forces larger institutions to raise their minimums, making the mass-affluent segment underserved. These firms cannot effectively serve clients with assets roughly between $100,000 and $800,000, which creates an opportunity for independent advisors and smaller, more efficient advisory teams to come in and effectively serve that market.
Most advisors are not focused on retirement planning, retirement income planning or asset decumulation. This is an obvious gap in the market.
What do clients want to know?
Addressing the needs of the retirement market segment doesn’t have to result in spending hours on creating long, complex financial plans. In fact, we found that long, complex financial plans are rarely read, never updated, and frankly useless to clients (you can read here that clients, unsurprisingly, don’t understand 50-page reports). A lot of clients have fairly basic questions around their retirement.
First and foremost, they want to know if they are going to be okay. They ask questions about how long their capital will last or how much they can spend so they won’t run out of funds in retirement. They are also curious about when to take their CPP and OAS, which of their assets they should spend first and how their estate will transfer upon their death.
You can instantly add a lot of value by providing them with useful insights into their financial situation.
There are many ways to help clients address these questions. If you would like to see how we help advisors do so here at Snap Projections, click here. See for yourself how you can address the 6 most common financial planning questions for your clients in just a few minutes.