IFA sat down with this year's IFA Best Practice winner and finalists to discuss how their businesses have fared amid the market turmoil, what they have learnt and how they have prepared themselves for 2009.
The discussion was facilitated by Business Health's Terry Bell (TB) and Rob Bertino (RB).
The adviser principals in attendance were: IFA Best Practice 2008 winner TFS Financial Planning's Danny Maher (DM); WB Financial St Leonards' Paul Carroll (PCar); Menico Tuck's Anthony Menico (AM); Australian Private Capital's Michael Tratt (MT); rmg financial services' Patrick Canion (PCan) and Eureka Financial Group's Greg Cooke (GC).
RB: What are you doing differently from a business perspective than say 12 months ago to cope with the marketplace as it exists today and where you think it will go?
GC: I guess the main theme is increasing communication and clients that may have thought a six-monthly review was a bit frequent now are happy to meet at least that often. So obviously if you multiply that by a couple of hundred clients then there's a lot of extra work for the business.
PCar: We have a monthly newsletter, which we've always had. Now we have a fortnightly mini-newsletter and we try and make that about the subject matter of the market but in a positive vein.
DM:. We have increased the email and written communication with clients. There have certainly been a lot more phone calls, but communication is the key. We've seen some new clients come through the door purely because the communication hasn't been there with their existing advisers. I think communication is definitely the key, and I think you need to have a robust business plan as well that allows for that communication to happen as business as usual rather than ad hoc reactive.
AM: Being a smaller practice we have also narrowed down the clients that we know are of a nervous demeanour and have specifically called them, and so we know that these people tend to be nervous nellies and we're going to spend a bit more time with them and to reiterate what everyone else has said, we've really used the email system a lot more.
PCan: We've been focusing on getting right back to the basics - what can you control and take control of, so your expenditure, your daily living expenses, making sure you've got a handle on budget, paying down debt.
PCar: We have a team of financial advisers which are relatively young if you compare them perhaps to myself. But the point being is that none of our advisers have given advice in a market like this previously. So we are very mindful of internal training and development. Financial advisers' best role in a time like this is to make sure clients don't make silly decisions when it comes to their money, so it is about keeping the game plan in perspective.
PCan: We talked a lot last year in this forum about the importance of developing those soft skills in advisers, and I mean how much has that come into the fore in the last six months where our clients are looking for reassurance and perspective and guidance through all this and we're their expert on tap.
PCar: I would reiterate that the industry still isn't addressing the soft skill development part of what it is we do, not facilitating the development of what it is we do.
RB: Who should take that challenge up?
PCar: The FPA has started down the process under the heading of training and development opportunities where some workshops have appeared and have been run in regards to this. I think this whole area needs to be picked up by either an industry association or by an organisation that's connected to the industry that has regard and credibility to its input into the development of those in the industry on a commercial basis.
DM: But I think we're seeing a lot of people who are very highly qualified and are technically very good but they've got no bedside manner. PCar: We've got a lot of keen and eligible young people wanting to enter the financial planning industry who come out of the appropriate courses with all the technical knowledge in the world, but I'd be one to stick my nose out and say that all the technical ability in the world doesn't make a good financial planner. The relationship and soft skills come first before any technical ability as far as I'm concerned. The rest can be learnt or outsourced, the relationship bit can't.
MT: Like the rest we've focused more on communication, but I just add the word targeted. We've really targeted our messages, which we've always done, and we're able to give financial evidence in support of it as a result of being around for quite some time.
RB: You've spoken a lot about extra communication with your clients. Paul, you touched on skilling of the other client-facing members of your team. What about your support staff? What are you doing on that front?
PCan: For the first time I think I've taken the support people aside and said 'listen, for us advisers it can be pretty emotionally charged at times and we might be pretty exhausted when we come out of these meetings, especially if it's our second or third one for the day, and just understand that it just might not be the best moment to ask us an admin query'.
DM: As part of our team meetings each week and certainly when there has been a major downturn day in the market or we've had a number of bad days in a row, we pull the team aside and just reiterate that there are going to be phone calls from clients who are highly stressed about the situation, you're going to have advisers in the office who are highly stressed about this information. The critical thing is that it's not you that the stress is all about; the stress is all about themselves and about their clients.
TB: Has anyone actually looked at reducing your own expenses?
PCar: We have from a pure business plan point of view. From a profit-budget point of view, if the revenue is down we simply go to the bottom line because it is a profit focus, so we're cutting expenses where they can be cut. They're more internal and things about ourselves. They're certainly nothing to do with the client or marketing seminar programs, so yes, we are addressing expenses.
MT: We've actually probably bumped our expenses up. So we've outlaid more money in respect to marketing. So at this stage we haven't cut anything back. We have bumped our expenditure up and I think we'll keep on spending more on marketing.
GC: We've made a deliberate decision at Eureka to increase our marketing and client communication budget, and we've actually hired a publicist to our business a couple of weeks ago to raise the profile of our business and to keep on being there for our clients in these difficult times. My saying on it is that clients will remember for twice as long and twice as well the things that you do for them this time as they'll ever remember in the good years. So being able to do this you've got to be able to have a bit of a fighting fund or strength in the balance sheet in the good years and I guess most businesses that properly planned it have done that, and I guess for some out there they haven't. And I guess if you're sailing close to the wind six months ago you're going to be in troubled waters at the moment.
PCar: We certainly haven't cut anything to do with client marketing. We would have upped that. We have looked to trim our sail from a shareholders' point of view of things internal that don't impact on marketing a client and they are things more to do with the staff, some of which are shareholders, so it's an interesting mentality.
DM: We've had to cut a few what I would call non-essential expenses like travel and some client and staff events, but while revenue has dropped it certainly hasn't dropped anywhere near what the market has and the drop is really more a reflection of new business and not of the existing client base.
MT: We're funding more workshops and study for our employees. At this stage we haven't cut expenditure we've actually pushed it up. I think it is also one of the areas that one of the advisers spoke about shareholders, it would be interesting to see what a lot of the planning practices that are now listed, what's happening there because obviously their allegiance changes from the client to the shareholder. So I'm not quite sure what the impact will be, but I'm sure there will be an impact in respect to clients.
RB: I remember from last year the key challenge the successful practices were facing was attracting and retaining quality people. So it seems completely knee jerk that 12 months ago we were looking to attract and retain new people yet for some firms the first thing to go are people.
AM: In 2005, 2006 and 2007 markets and legislation led to very good times. We paid ourselves some good bonuses so the first person to get paid less in this place [Menico Tuck] will be the two directors of this firm. Our staff to support our clients are going to remain paid as they were as usual. We're not going to cut any expenses relating to supporting our clients. PCan: It's been an interesting situation over here because our revenues have suffered a bit but the world economy is still going reasonably well over here. We have spent significant amounts so far this year in revamping our client experience and a lot of that motivation came out of last year's awards. And at the same time we are rebranding our business - so you need a significant amount of capex to do that. We've also been increasing our expenses of our IT.
TB: So how do you find the right course or know what to do?
MT: We're getting all the structured ones, we're doing the Kaplans and so on, but we're also looking around to plug gaps such as reverse mortgages and things that are coming through. I just gave a task to someone to put more work into exchange traded funds, so we're just trying to keep an eye on what's coming through and how we can keep up to speed in those areas.
DM: We have a monthly training day which involves everyone but the receptionist. On that day there are no appointments to be made and we do all the formal stuff . but we also involve the clients in live case studies of what we're doing for particular clients at the moment. So it gives them an understanding of the advice that we're giving and why we're giving it. And that could be anything from handling a deceased estate to a margin call to a professional indemnity claim, whatever the case may be, but we're involving them in the reasons, so they're getting an understanding in an informal training manner of why we're doing the things we're doing with our clients.
RB: Greg, you're involved with a big dealer group. Does that help in terms of the development of your staff?
GC: Yeah I guess a percentage of the courses that I've done and my business partner and our staff have done over the years have been things we've suggested to our licensee and they're subsequently made available. A couple of things that I've got on the agenda at the moment for 2009, about 35 per cent of our business revenue is through risk so we've got one of our admin staff who looks after the underwriting and claims management in our business, or the pre-underwriting I should say, and so she's relatively new to the industry, but we've got an agenda for her to actually do a certain level of underwriting calls so that she can pre-empt loadings and all those kinds of things.
PCan: Our dealer, Chartered Financial Planning, does some great soft skills courses and the communication skills, which we've actually used for our support team to help them understand what advisers do and that's been really well received by our support team. But it is a challenge finding the right course that's beyond the obvious ones like the Kaplan. It isn't easy taking the time to find and research and get the right courses more for your support team than anything else.
MT: Those with their own licence also have to be trained in other areas . so we actually have to keep up-to-date with things like that as well. But certainly it's a matter of just looking around and putting your hand up to do them.
TB: What else do you need or do you get that you value or you like that you don't get from your licensee?
PCar: We do outsource a lot to the dealer, for example, we do not employ a paraplanner for our business. Our view is that our business is better off with more financial advisers sitting as much face-to-face or telephone-to-telephone with a client. So whereas we do have paraplanning skills and we do do it if we need to, but we certainly look to the dealer's outsourced paraplanning as well as marketing for the newsletters and creation of marketing material.
GC: Our practice, Eureka, is a premium practice of Financial Wisdom . so I think the big ticket additional items within Financial Wisdom are coaching so we have a regular business coach . and also peer groups, so there's three or four groups of a dozen or so advisers that meet quarterly throughout the year, which has been of high value.
AM: We've outsourced a lot of our training and I think it's a matter of communicating with the dealer and the flexibility of the dealer. You let the dealer know that there's levels of demand there and they certainly put things on. We found that with Financial Wisdom anyway. I'll just give you an example: they're bringing in two-screen technology now for our support staff so they can run Coin on one screen and do emails and word processing on the other and they think we might get a 20 per cent increase in productivity by doing it that way.
PCan: I think from Charter's perspective having them as a dealer it's the issues such as compliance and access to product research and strategy research - their technical team - and that goes for ipac's as well, just tremendous. On the flipside you know the challenges with Charter being a very large dealership they have to focus in areas that get a maximum benefit for them, and a lot of what we do with our value proposition is a little but different from the average adviser, I guess, by definition. Even broader issues such as helping us finance acquisitions and that sort of thing, that's just brilliant support that they give and ipac as well as our equity partner so we're a little bit spoiled in our support areas. We get it both from our dealer and from our equity partner, ipac. MT: Certainly the advantage of not going through a dealer is that I can make up my mind which platform I use for clients and I've swapped platforms a few times now because I can do it better and cheaper. We're able to decide what software we wish to use, how we run our portfolios, how we can lower costs and so on, whereas when I was using a platform of a dealer, the dealer is taking a cut out of that.
DM: We do operate our own licence and we have all of the advantages and disadvantages that come with that, but we're part of the ipac equity partner community. The whole dealer group thing and the independent thing, it's really just what you're most comfortable with and I think you can leverage off the bigger players but that doesn't mean you have to compromise your integrity.
RB: Given these are almost unprecedented times - we've seen things that we haven't had to grapple with in the past - we'd be interested to know your one key learning in a business practice sense from 2008? What can you take forward and learn from?
PCan: Have a deep understanding of what your value proposition is and communicate that with your clients so that there's an alignment there.
MT: I think what we've been through in the past year means that communication is much more important and hence why we've been much more proactive and more regular and more targeted in our message.
DM: I think understanding your value proposition and communicating that effectively to your client is the key thing to it. We've never positioned ourselves as pure investment advisers and the term coaches or lifestyle financial planners gets bandied around quite a bit these days, but our value proposition is all about delivering reliable outcomes for clients, emphasis on reliable, through personalised advice and that builds quality relationships and in bad times that's when the strength of relationships can be tested, and I think it's a testament to the quality of relations we have with clients is that we haven't seen too many walking; they know that we're with them. PCar: I know it's been said before but we have learnt that there is no such thing as too much communication and the point that was made earlier including the importance and the value of client feedback.
GC: My learning would be that you need to build and maintain a bullet proof business. If 2008 had occurred in our business in 2006 we may have been in trouble, but we've had a business coach and worked really hard on our business. The other parts of our value proposition and our service offer to our clients, I divide them up into three. One: you've got the investment and the product; two: you've got the strategy, which has been very important in the last two years of or business; and three: being admin and service, if the client feels you're letting them down a little bit perhaps even if it's no fault of your own on one of those you've got to make sure that at least you're getting the other two right.
RB: Looking to next year: what help do you need and who do you need it from, so encompassing your licensee, the industry bodies, the FPA, the AFA, what business help do you need and who are you looking to get it from?
DM: I think one of the things that has come out of this crisis is there are certainly some holes that need to plugged in a regulatory framework. We are seeing not just investment managers that have gone under but some of the practices that led to them going under. But we're also seeing anecdotal evidence that some fairly large dealer groups are in strife because there's been holes in their advice proposition. The regulatory bodies, and I don't necessarily include the FPA in this, but more your ASIC and APRA (Australian Prudential Regulation Authority), need to act more quickly on evidence provided to them that something's wrong. I've had a couple of occasions where things were reported to ASIC or to FOS (Financial Ombudsman Service) where they said 'well it's not within our guidelines, you better talk to someone else', so you've got people out there that are really hurting as a result of poor advice. So I would say the thing we need is, I'm not saying more regulation but more effective regulation.
AM: I think 2009 will be another year of basically doing the right thing by the client. If you treat every client like it's your mum and dad's money then I don't think you can go wrong. What goes around comes around and if you do the right thing it will come back to you. We're just going to keep doing the basics and holding people's hands until that confidence, which I think is the main thing, is restored in the marketplace, and what we've gone though is probably the worst we've seen ever, and you can't really say if it's going to get better or worse, but we're in it for the long run. I'd say we'd have to go back and re-survey our clients after this once we know we've kind of hit the bottom and there is some kind of recovery, and just get the real guts of the information out of the clients.
GC: In terms of generally what 2009 is going to show, I think one of my other sayings is that there might be a few naked swimmers emerging at low tide, both institutionally and also down at an adviser level, and I think the level of professionalism and the value and quality of advice for many advisers over the last few years has been lifted. I think the other half of advisers have lifted their compliance ability, but I don't know necessarily whether they've lifted their professionalism and quality of advice, and I think if I was to isolate one issue for the FPA or for our industry, it's not actually continuing to raise the bar for everybody, it's just getting the medium professional financial planner to a higher level.
PCar: I think going forward in 2009 and beyond the industry needs a forum or a space into which it should get to allow communication and development of more of a mentality that the future of the industry does belong more in the industry becoming a collection of exceptional corporatised sustainable businesses, as opposed to the one adviser, two support staff practices. Now the reason why I say that is in the opening at the FPA conference, [FPA chief executive] Jo-Anne Bloch presented the outcome of some research saying that over the next three to five years, based on their research, the future of the industry was in 60 per cent of that small one to two practitioner businesses with one or two support staff. Now if I was the FPA I would be really concerned about that, and as an industry I think we should be concerned about that . but this value of advice in the future needs to be protected within corporatised sustainable business structures otherwise we will continue to be, perhaps earn the tag of, a cottage industry, which I don't think we are compared to what we used to be, or we will regress or the succession issue of the industry as a whole will fester.
MT: In regards to the FPA, I think it would be really good for them to continue focusing on the CFP designation and enhancing the standing. I think that one of the areas we need to target also there is an evidence-based value of advice campaign because we can actually value the benefits of our advice. We did it the other day for someone who was asking about our fees and we were able to demonstrate that we saved three times our fees in one bit of strategy advice. So I think the FPA has a role here to play as well, and I guess the third one of the FPA would be that I still think the advice aspect that remains a mystery for the man on the street with respect to who do I turn to for advice. So I think that those areas I think I'd like to see the FPA play a greater role. That's not to say they're not playing a role, but certainly play a greater and more effective role.
PCan: If the FPA could continue to emphasise that value of advice, that to me will create an environment that will not just be good for our profession, but it will be good for our society and people's lives. I think too it will help counter what we might see next year, which is a whole bunch of people looking for targets for their decisions and maybe want to take it out on their financial planner as well. So, yeah, I think raising the difference that the value of advice makes.
