Key Elements of Success – Building Knowledge and Trust

The Beddoes Institute has identified seven critical ‘domains of knowledge’ that will become essential ingredients for any advice business seeking to thrive in the coming years. The institute also shares its insights into what consumers think when it comes to their trust in advisers…

 

Financial Advice 2020: The Seven Domains of Knowledge

The Beddoes Institute’s Dr Rebecca Sheils takes advisers on a journey through her firm’s extensive research findings that have identified seven critical ‘domains of knowledge’ that will become essential ingredients within the make-up of any advice business seeking to survive and thrive in future…

 

It’s not an understatement to say that the advice industry has been in a constant state of change for years. External forces that range from societal, economic, political and technological have all contributed to the evolution of the advice industry.

Add to this the repercussions and reshaping of the industry in the aftermath of the Financial Services Royal Commission, combined with general distrust and cynicism in market sentiment and one thing becomes clear: there has never been a more apt time than now to re-think and re-define what advisers should learn and put into practice.

At Beddoes Institute our team has undertaken research across advisers, regulators, academics, consumers, licensees and professional association members with the aim of identifying the skills advisers need to thrive in the new financial services landscape.

Our extensive research reveals that a broad range of knowledge domains and competencies, in conjunction with the recognition of adviser attributes that are more reflective of the conversations between advisers and their clients, is required to help the advice sector develop further.

Another primary finding of our research is the confirmation of an industry-wide belief in the need to invest in education that extends beyond traditional technical knowledge in order to adapt to the shape-shifting forces of financial advice.

In analysing feedback and input from over 500 experts, 1,600 written submissions and over 60 qualitative interviews our research team has been able to identify the primary skills required for an adviser to be considered proficient, trustworthy and effective at developing strong adviser-client relationships.

These findings form what we refer to as ‘The Financial Advice Competency Framework’. This concept comprises:

  • 36 specific competencies
  • Seven domains of knowledge that house these competencies
  • Five domains that apply to financial advisers active in the management of clients
  • Two domains that specifically apply to advisers who manage staff and the delivery of advice within practices
  • The timeframe involved in the development of these skills

What are the competencies advisers need to thrive into the future?

The Financial Advice Competency Framework can be considered a contemporary reflection of today’s adviser and client relationship.

Our team at Beddoes Institute worked extensively with industry participants to identify the primary skills required for an adviser to be considered efficient, authentic, credible and apt at developing strong adviser-client relationships, which resulted in the formation of seven domains of knowledge outlined below:

The Financial Advice Competency Framework

 

Each domain consists of several core competencies, which cumulatively form an overall picture of the soft and hard skills advisers require to thrive moving forward in the new financial advice landscape.

What are the seven domains of knowledge?

1: Technical Services

The ability of an adviser to provide technical financial advice services remains core to the successful performance of advisers. This domain represents the need for advisers to have an extensive understanding of these six areas:

  • The financial advice process
  • Insurance
  • Cash flow management
  • Investment
  • Retirement and estate planning
  • Taxation

2: Professionalism

Also considered fundamental to the provision of financial advice services is professionalism. This includes areas such as:

  • Professional and ethical conduct
  • Regulation and compliance
  • Professional development
  • Training and expertise

3: Client Focus

This domain represents the importance of maintaining client centrality in the advice process, as well as the ability to provide individualised, proactive, responsive and reliable client service. It consists of five core competencies:

  • Recognition of client needs
  • Effective client management
  • Well-informed contemporary advice
  • Customised service
  • Client education

4: Self-Development

The Self Development domain embodies the need for advisers to understand the impact of personal qualities on the client and their professional relationships. Five key elements constitute this domain including:

  • Sound judgemen
  • Deep understanding of client personal values
  • Adviser adaptability
  • Being organised and systematic
  • Possessing an appreciation of the role resilience plays in maintaining performance and quality under difficult circumstances or uncertainty

5: Connecting with People

The focus of this domain includes communication and interpersonal skills that contribute to the development of a personal connection and strong relationship with the client. It includes:

  • Trust
  • Effective communication
  • Interpersonal skills
  • Coaching and psychology

The final two domains are considered essential to the sustainability of businesses but not to all advisers, only those who chose to work in a managerial capacity:

6: Business Operations

This domain includes:

  • Understanding the role of information and communication technology
  • Development of talent
  • Clear goal setting and robust performance measures
  • The ability to evaluate operations of a practice, its client management systems and its marketing

7: Strategy and Leadership

This final domain relates to the ability to perform in a leadership role:

  • Knowing how a practice reputation is developed
  • Understanding the business model and its effect on factors such as efficiency, strategy and business management
  • General business planning

How long does it take to develop these skills?

Our research shows that during the first five years of practice, an adviser’s growth and development occurs rapidly and concurrently on many fronts at the same time. Our findings indicate that the domains of technical services and professionalism are developed first. Then the adviser goes on to acquire levels of capability described within the client focus, self-development and connecting with people.

Importantly, as advisers begin to practice, and the acquisition of client-facing competencies such as interpersonal skills become highly relevant, their need to further develop competencies in Technical Service and Professionalism doesn’t diminish, but needs to continue apace.

This research demonstrates that skills are not learnt one after another. Rather, advisers increase in proficiency as they move from developing competencies to becoming proficient and finally acquiring mastery of many competencies simultaneously. So, at any point in time advisers can be viewed as possessing many competencies, with differing levels of proficiency that change over time.


The Role of Experienced Advisers

The research conducted by the Beddoes team highlights the value that experienced advisers bring to both clients and new advisers. Experienced advisers, if harnessed in ongoing mentoring and coaching roles, may be able to provide the longer-term professional development necessary for the acquisition of competencies in the Client Focus, Self-Development, and Connecting with People domains by younger advisers – and this is before the managerial experience is shared.

However, given the fact that an average of 15 advisers are leaving the industry every day for various reasons ranging from retirement through to the new professional standards, there is a chance that this could produce an industry-wide “memory gap” resulting from a lack of experienced practitioners available to mentor and coach. If this is the case, then who will transfer their knowledge to the next generation of advisers?

 

Building the Four Pillars of Trust

This article is based on findings contained in a white paper published by the Beddoes Institute, which considers the critical issue of trust.

 

Trust. It’s an essential component not only for a strong adviser-client relationship, but also for the overall success of the financial services industry.

But amidst all the conversations about trust there has been little in the way of guidance or frameworks that provide advisers with practical steps on how to build trust and move forward in the post- Royal Commission landscape.

At Beddoes Institute our team has conducted a detailed and unparalleled study of trust in the context of the advice industry and subsequently developed a comprehensive model of trust specific to the advice sector based on the findings.

In analysing feedback from over 3,000 advice clients across 60-plus different client experience metrics, we have been able to:

  • Establish the determinants of trust specific to adviser-client relationships
  • Quantify the benefits of high trust adviser-client relationships; and
  • Develop an Adviser Trust Model that outlines four trust pillars and a pathway of actions and initiatives to help build high-trust relationships

Why is trust vital to the adviser-client relationship?

When it comes to the adviser-client relationship, trust is based on one core concept: client centrality. Above all, the client must come first. The client needs to have the confidence that their adviser will manage their financial affairs as if they were managing their own.

The issue of trust is unique for any service-based industry such as advice. Whilst trust normally develops over time, in financial services it is a prerequisite as it empowers a client to be confident enough to take their first step into the financial planning arena and entrust an adviser with their financial livelihood.

Simultaneously, it also lets them move forward with an adviser, trusting it will be a positive relationship with positive financial outcomes. Trust is integral for both the ‘here and now’ and for the tomorrow to succeed.

How can you build high-trust adviser-client relationships?

Our extensive research has not only enabled us to systematically deconstruct the meaning of trust as it relates to the adviser-client relationship, but it also facilitated the development of our unique Adviser Trust Model.

This Adviser Trust Model is a predictive and actionable model of trust that defines four trust pillars. Strong performance on these pillars, and their respective foundations, creates high-trust relationships that deliver significant returns for a practice.


What are the four pillars of trust?

The Adviser Trust Model consists of the following pillars:

  • Adviser Qualities
  • Client Service
  • Business Model
  • Practice Reputation

Each of these consist of three foundational elements that contribute to the development of high trust adviser client relationships:

Pillar One: Adviser Qualities

Based on our research and adviser trust modelling, this pillar is a significant predictor of trust, contributing 47 per cent overall to high trust relationships. Whilst strong technical skills are a “hygiene” factor that advice clients expect of their adviser, this pillar is based on the qualities outlined below which are key differentiators and determinants of trust:

  • Integrity
  • Credibility
  • Caring

Pillar Two: Client Service

According to our findings, client service is the second highest predictor of trust in adviser-client relationships, contributing 34 per cent overall to high-trust relationships. It is based on three foundational elements:

  • Individualised service
  • Proactive service
  • Reliable/responsive service

Pillar Three: Business Model

We also discovered that the third predictor of trust, which contributes 16 per cent overall, related to a practice’s business model. This pillar consists of the following foundational components:

  • Value visibility
  • A varied service offer
  • A competitive and transparent fee model

Pillar Four: Practice Reputation

The final pillar of trust identified was that of practice reputation, which contributes 3% overall to high-trust relationships. This pillar consists of:

  • A leading brand, employing high-calibre individuals with leading expertise
  • Quality and excellence in systems and processes
  • Corporate social responsibility

What is the value of creating high trust relationships?

There are a multitude of benefits that result from a high trust environment including the easy flow of information, collaboration, innovation, better quality advice and improved client outcomes, all achieved in less time, with less stress.

In essence, a high trust environment increases efficiency for advisers and improves outcomes for clients. But how can we determine this is actually the case?

In order to quantify the tangible benefits of high trust relationships, our team analysed client feedback and outcomes for clients of Beddoes’ Most Trusted Advisers (MTA) Network versus clients of other advisers. Here the MTA Network was used as a comparative point as these advisers exemplify high trust adviser-client relationships, so were ideal to use to quantify the benefits of high trust to the client and the practice.

The conclusion of our analysis is clear: trust matters. The significance of trust is apparent when we observe several high-level findings of our research:

Client Outcomes

MTA clients have significantly better outcomes in terms of being on track with the goals and objectives of their financial plan with 46 per cent of clients providing a rating of 9 or 10 out of 10 compared with only 32 per cent for other advisers.

This can be attributed to the fact that these clients involve their advisers more fully in their financial affairs and significant life events, share more information, and are more likely to implement the advice.

Client Satisfaction, Loyalty and Client Referrals

MTA clients are significantly more likely to refer their adviser business compared to other advisers with 77 per cent of MTA clients rating their propensity to refer as at least 90 per cent versus 53 per cent for others.

MTA clients were also found to be more satisfied and have stronger relationships with their advisers than clients of other advisers. They also rated their advisers higher on all important adviser qualities, (which is the dominant key pillar of trust) as outlined below:

Fees and Value

Clients of MTAs are significantly more satisfied with the fees they pay, they rate their advisers more favourably on fee transparency and believe they are getting better value than clients of other advisers. As such, they are likely to pay advice fees more willingly, on time and without question. The difference in the ratings (out of ten) can be seen below:


Benefit from building high-trust relationships today

The value of trust is evident. It delivers economic benefits such as easier upsells and increased revenue, as well as goodwill benefits such as a stronger brand, better reputation, positive word of mouth and more.

So, how can you build high-trust relationships that benefit you and your clients?

The first step is to establish how effectively you are currently communicating your trustworthiness to clients by asking yourself these four questions:

  1. How well are you conveying to prospects that you will help them to establish their needs and goals quickly and easily?
  2. How well are you conveying that you care about your clients first and foremost and that you are honest and responsible?
  3. How clearly are you articulating the benefits your services provide, value for money and transparency of fees?
  4. How well are you demonstrating your practices’ technical expertise, qualifications, accuracy, skills and knowledge? Is your practice, the quality of your services, your staff and your processes highly rated?

Your answers will help identify areas that need improvement or processes that may need to be developed in order to help you build high-trust adviser client relationships. Consequently, you can leverage our Adviser Trust Model to help you implement the actions and strategies required to build high-trust relationships with both current and prospective clients.

This article is based on a white paper published by the Beddoes Institute: “Why Trust is the Cornerstone of Business Growth and Sustainability”.

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