Industry stakeholder Joe Perri says the adviser-client relationship comes to the fore in times of stress, such as the Covid pandemic, building a bond of trust that can’t be matched by direct marketing. Meanwhile, against a backdrop of regulatory and technical advances across the insurance landscape, Oliver Wyman partner Angat Sandhu says the industry is now in a unique position to rebuild itself.
Relationships are the Foundation of ‘Sticky Business’
Passionate industry contributor Joe Perri offers his perspective, formed over decades, as to why adviser/client relationships form the most important connection between industry and the consumer. Joe argues the bond that develops in advised client relationships delivers the ‘sticky business’ that is such a critical factor in the future sustainability of the sector…
For decades commencing in the 1980s, life companies and more recently regulators have been obsessed with finding ways to displace the role of the adviser as the ‘glue’ that connects the consumer to the institution.
It first started at the height of the Readers Digest era when direct mail suddenly became flavour of the month by a new generation of university qualified managers.
This was the first of the programs that hoped to diminish and ultimately replace the importance of the financial adviser as the traditional conduit between manufacturer and consumer.
However, the 1980s ended with an economic downturn that did the opposite and actually served to reinforce the importance of financial advisers.
As the shockwaves of the downturn intensified, the direct mail contracts were the first to be jettisoned by consumers. In contrast, those contracts that had an adviser, i.e. a relationship attached to them, were the ones that stuck.
They were that most valuable of business assets…’sticky business’.
So instead of the industry’s first attempt to use modern marketing practices to displace the importance of the adviser and the power of the interpersonal relationship with policyholders – it did the exact opposite.
Since then, much has changed, and the world has literally been turned on its ear. We have seen advances in technology, mass communication, and industry reform / rationalization. In addition, the 21st Century has been characterized with economic downturns nearly every seven years commencing with the Dot-Com crash of 2000, the GFC, and more recently Covid-19.
But that lesson has stayed with me all these years and the power and importance of relationships only continues to grow and be reinforced.
In fact, talking with a veteran financial adviser earlier this week who was bemoaning the insanity of two decades of reform since the introduction of FSR to the present – with four words he put the importance of advisers into context “We make a difference”.
Yet institutions, politicians (and their consultants) the media and consumer groups all collectively fail to understand and appreciate why ‘sticky business’ is so important.
In fact, it was ‘sticky revenue’ streams that made so many life companies so valuable and attractive as acquisition targets that resulted in the industry devouring itself until only the major banks were left.
One of the many positives linked with deep adviser/client relationships is longevity of the business – longevity with benefits that cascade down to the consumer, adviser, institution and economy.
This is more important now than ever before for two key reasons that relate to current-day circumstances:
1. The Covid-19 crisis
2. Life industry sustainability/viability
The pandemic has really served to demonstrate the importance of the adviser/client relationship.
It was financial advisers that were quite literally on the frontline helping clients and consumers when fear erupted as the enormity of the pandemic engulfed the nation.
Advisers were inundated with an unprecedented volume of calls from clients as they dealt with both the emotional and financial consequences of businesses forced to shut their doors, unemployment, and lost value of investments and savings.
It was advisers working extraordinarily long hours, many at greatly reduced rates to find solutions and alternatives for clients to cashing in investments, accessing super, or cancelling their insurance and protection cover.
Regrettably, over the past two decades commencing with the introduction of FSR and a never-ending regime of constant legislative/regulatory changes, many of the most experienced practitioners have elected to terminate their careers and exit the industry.
Life industry sustainability/viability
APRA has intervened in the IP market due to insurers bleeding losses driven by a combination of rising claims, overly-generous policy terms, pursuit of top quartile research house ratings, overly-complex products and overly-competitive pricing – and the industry has to get its act together.
Part of the solution is lower lapse rates and higher business retention, which is delivered in part by advised client relationships, which are proven to deliver more ‘sticky business’.
In summary, since that first experiment with direct insurance as a potential replacement for a proportion of the advised business stream, time and time and time again the value and importance of deep client relationships has been demonstrated and reinforced – for the client, the adviser and the insurer.
It’s for this reason that I have come to view relationships as being no different to the foundations of a skyscraper.
They are not seen – are incredibly important – and the deeper / stronger they are – the higher and more structurally sound will be the building constructed on top.
As my adviser friend said in those few profound words, “We make a difference”.
It’s about time the legislators and advocates of change for the sake of change really look at the role and importance of financial advisers. They should acknowledge the contribution they have made to client/consumer financial well-being in the most trying of circumstances – and appreciate them as being a consumer asset and a valuable contributor as well as being part of the solution to industry sustainability, especially post Covid-19.
Joe Perri founded the company in 1995 after working for more than 22 years in the corporate sector. Since then, Joe Perri & Associates has grown to provide PR and marketing focused communication strategies / solutions for clients in the corporate, SME and non-profit sectors that help them achieve their strategic business aspirations.
Renaissance: Five Steps for a Successful Advice Future
While the financial advice sector is expected to experience more change in the short-to-medium term, a new report says the industry is currently in a “unique position” to transform and rebuild itself as a reliable and integral aspect of the future of financial services in Australia…
The Oliver Wyman report, Future of Financial Advice: The Australian Renaissance, says that while some observers have commented on the collapse of the industry, learnings from other markets and industries suggest that the current period represents “…an opportunity for rebuilding a sector that better meets customer and regulatory outcomes and is economically sustainable”.
One of the report’s authors, Oliver Wyman partner Angat Sandhu, told Riskinfo that financial advice organisations should reassess how they create more a sustainable sector for themselves and for their customers.
This means a change in the customer experience, in customer management and greater use of customer data.
“Firstly, they must understand their customers better, secondly segment them better and thirdly understand their customers’ needs over time in a more meaningful manner.”
Sandhu said it was important that advisers ask themselves to what extent they actually do understand customers’ needs, not just when they engage with them – but to what extent do they understand their changing needs over time?
“If you sample some customers and ask for feedback, will they be engaged, happy and understand the value you are providing?”
He adds that a practical challenge is that smaller advice firms may not have access to the data or the data infrastructure they need and should look at who they could partner with to help address this issue.
Another challenge for the advice sector is to articulate the value it provides to clients.
In looking at the evolution of the sector in the United Kingdom and the United States the report says the key takeaways for the Australian financial advice market include:
- Regulatory changes and consumer demand for impartial advice will further catalyse the growth of Australia’s IFA sector
- Similar to what has happened in the UK, scalable financial advice models will likely leverage digital technologies to improve the experience offered to customers, while also reducing service costs and compliance burdens
Its market outlook says the broader wealth management market remains in a state of flux with ongoing regulatory reform, changing consumer expectations and the evolving competitive dynamics in the sector.
“The exact outlook and timing is uncertain but we expect the market and its participants to evolve in multiple ways.”
The market outlook for advisers includes:
- Further consolidation resulting in a small number of larger players dominating the market, with favourable profitability and valuations, and greater opportunities to invest in new technology, attract talent, diversify revenue, and access capital
- Decline in adviser numbers by a further 10% to 15% as more tenured advisers exit the industry in the short term
- Rise of the smaller independent financial adviser firms offering specific value propositions as non-conflicted advice becomes more sought after
As to advice models the report points to:
- Greater availability of tiered advice offerings, giving customers greater choice
- Rise of digital direct to consumer and hybrid models to meet the needs of both the affluent and mass segments
The report also highlights potential competition for the IFA sector including:
- Injection of private equity capital into the sector to help professionalise and uplift efficiency
- Industry funds reassessing how they meet their members’ needs particularly as a large proportion of those age and have more complex needs
- The ability of banks in the long term to identify how best to help their large customer bases with broader financial wellness needs that could benefit from “guidance” and “advice” offerings conducted in a low-risk manner
- Accelerated growth in smaller technology enabled start-ups targeting niche, but highly valued, advice offerings that will disrupt the market
The Oliver Wyman report says it expects the future advice ecosystem to be more targeted for different customer segments, more diverse in terms of industry participants as well as usage of different advice models. The diagram below outlines the evolution of the advice sector expected between now and 2025.
Five actions for financial advisers
The report says that rather than a threat, the evolving market structure should be seen as “…a significant opportunity for the financial advice sector to reposition itself as necessary and reliable for consumers financial well-being”.
It states that the priority focus of advisers should be to develop ways to restore the trust gap in the short term in order to secure and build from existing client bases, as well as comply with changing regulatory expectations.
In parallel, it says, there are five actions to pursue to position successfully in the future sector structure:
Action One: Prioritised Segment Focus
Establish a clear value proposition underpinned by a customer-first mindset; invest in understanding customer needs and re-start the process of transforming their service offerings. Advisers here need to go well beyond the traditional and static “fact-find” process to more holistically understanding their motivations and behaviours and doing so in a dynamic manner over time.
“These customer-first capabilities are relatively new to the financial advice sector and will take time and different skillsets to embed.”
Action Two: Stratify Service Offerings
Align service propositions to specific customer segments, selecting priority segments to double down on and being the adviser of choice for those segments. Examples of these could include providing holistic advisory services to specific segments (retirees, young professionals in select industries/sectors, early-stage entrepreneurs etc.). For others, this will involve trying to provide a narrower range of services to a broader customer set.
“This can only be effectively done by first better understanding your customer set and subsequently critically assessing where your competitive advantage lies.”
Action Three: Code Data Within DNA
Develop a detailed data footprint about customers at every point of interaction, taking advantage of open-data to enable a better understanding of their ever-evolving needs and so a better alignment of service offerings.
“Similar to customer-first, this is another capability that is in its infancy in the financial advice sector but critical for its future success.”
Action Four: Uplift Technological Capabilities
Embrace developments in Regtech across Australia by utilising technology to reduce costs, while simultaneously improving compliance. Similarly, using technology to increase connectivity and engagement with clients, especially in a post-Covid environment.
Action Five: Partner orchestration
Take advantage of technology to orchestrate partnerships across the advice value chain, including integration into digital ecosystems via APIs to enable a seamless customer experience.
“This will become critical especially for firms that aim to meet a broader set of customer needs and/or realise there are others that can provide select services at lower cost and better quality,” the report states.
Angat Sandhu is a Partner in Oliver Wyman’s Financial Services practice in Australia and leads the firm’s Insurance practice across Asia Pacific…
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Over the past two decades, starting with the introduction of FSR and an ongoing sequence of legislative and regulatory changes, Joe Perri says many practitioners have:CorrectIncorrect
The Oliver Wyman report, Future of Financial Advice: The Australian Renaissance, says the current period represents:CorrectIncorrect
The Oliver Wyman report also suggests that embracing technology can:CorrectIncorrect