Financial advisers can sometimes struggle to communicate the total value of advice to prospective clients - particularly in the face of concerted campaigns around industry super, index funds and emerging low-cost Robo advisers. However, a new report by Russel Investments has made it easier for advisers to create a clear, credible and attractive client value proposition that they can use to promote their business.
The 2021 Value of an Adviser Report quantifies the monetary value of professional advice at 4.83% over a non-advised client. It sets out each component and the best way to promote the services of a contemporary financial planner. Advisers have evolved from specialising in investment and insurance products to providing strategic and tailored advice to ensure each client achieves their personal financial goals. This requires advisers to develop a deep understanding of their client's entire financial life, provide a suitable financial plan, and guide them through investment cycles and changing personal circumstances to secure their goals.The two most significant components of financial advice, according to Russel Investments, are behavioural coaching and tax-smart planning and investing, contributing more than half of the value an adviser delivers. Not far behind are a customised client experience and planning as well as product alignment.
"Given the volatility seen in 2020, it's no surprise that the biggest contributor to advisor value is your role as a behavioural coach. In fact, this category on its own more than offsets the 1% fee advisors typically charge for their services," states Russel Investments.
However, communicating the intangible benefits of advice, such as behavioural coaching, can be difficult. Hence Russel Investments has highlighted five functional components that can be incorporated into financial adviser marketing to articulate the value of their services, namely A+B+C+P+T.
The first is Active investment portfolio rebalancing to boost returns and reduce volatility, which Russel Investments calculates adds 0.17% to returns. It is suggested that advisers provide clients with a written statement explaining the benefits of a systematic rebalancing policy and the firm's approach, especially during challenging market conditions.
The second is Behavioural coaching. "Statistically, the average equity investor's inclination to buy high and sell low cost them 2.02% annually in the 36 years from 1984–2020," according to Russel Investments. Advisers play a critical role in helping clients stick to their financial plan by discussing their investment philosophy at each client meeting and developing a concise and straightforward framework for tackling difficult client conversations. Helping clients understand the investment process will build trust and help them stay the course of their financial plan.
The third is Customised client experience and planning, adding 0.82% of value. Influential advisers implement a repeatable discovery process to uncover each client's short- and long-term financial and lifestyle goals, such as home ownership, travel and retirement plans, to ensure they meet their specific needs.
Fourth is Product alignment. This ensures investments precisely match the client's objectives and can help add 0.62% of value over a non-advised investor. Russel Investments says that outsourcing investment services to create more time to develop client relationships and understand their needs will make it more likely that the chosen investment strategy will better align with the client's desired outcomes. Russel Investments recommends that advisers document their investment process clearly and concisely and ensure they meet with clients regularly to review investment performance.
Lastly, tax-smart planning and investing can add 1.20% to returns and help differentiate your advice business. "Our research has shown that investors lost an average of 1.74% of their return from U.S. equity products in each of the five years ending December 31, 2020. That's larger than the total fee most advisors charge," says Russel Investments, adding that this can be reduced to only 0.54% with an adviser's help.
Advisers who can clearly articulate their financial adviser customer value proposition will inspire confidence in their clients and bring them the peace of mind that they seek financial advice, resulting in happy clients and a successful business.
An example of a business solution that enables advisers to adopt each of these value-adding practices is provided today by Dynamic Asset. Their plug-and-play managed account solution contains five portfolios covering specific risk/return outcomes relevant to short, mid and long-term strategies. Furthermore, the portfolios can be easily blended to target precise alignment with individual client goals. The solution features:
- Active portfolio management using the Dynamic Asset Allocation (DAA) approach. DAA utilised a broader set of asset classes, including alternatives, and focuses on asset value and future asset performance rather than the historical performance of asset classes. This has become a vital difference now that traditional defensive asset classes deliver zero returns at best.
- Behavioural coaching via a focus on Goals. When Goals Based Advice is matched with Goals Based Investing, the direction of the adviser-client relationship is transformed from focusing on markets and asset classes to concentrate on the trajectory of portfolio performance towards their own goals. It's a fundamental shift that helps overcome the common issues with investor psychology.
- It has a customised client experience that is entirely investor centric. It's achieved by focusing on client goals across their life, then targeting portfolio risk/return outcomes to those goals with active investment.
- Product alignment again comes back to the alignment of advice with investor goals and the risk/return target of each client's individual portfolio. The professionally managed portfolios allow advisers to spend more time with clients and developing their business.
