With the right marketing capability in place, a huge opportunity exists for financial planning practices to tap into the current pool of Australians in need of financial advice.
However, despite financial planners' efforts to attract new clients, the current reality is that for a majority of advice firms their marketing strategy is the weakest link within their business operation.
"Of all the six business capabilities of advice businesses that we assess, marketing is the poorest one," Advice Centre Consulting managing director David Fox observes.
The main contributing factor to this largely stems from the fact the accountability for marketing has traditionally rested with the adviser, Fox says.
"Ten, 15 to 20 years ago when a lot of these businesses were established there was one principal and he did everything, and with many of those businesses the principal still retains the accountability for marketing and they haven't got the time, nor do they devote appropriate resources to it," he says.
It is typically only best practice advice firms, around the top 10 per cent in the industry, that allocate an average of 10 per cent or more of their business expenditure towards marketing activity, he says.
"So very few advice businesses allocate very much of their expenditure towards marketing, and they approach marketing very much on an ad hoc basis and very rarely do they get results," he says.
"The biggest shift that I've seen in the better firms over the last three to four years is establishing a dedicated marketing division and shifting the accountability for generating potential new clients away from the adviser."
However, employing a dedicated marketing manager can be somewhat of a luxury expense for a financial planning firm, particularly in the current market environment, according to Macquarie Practice Consulting head Liz McCarthy.
"I've seen advice firms use marketing managers in the past, but it's an expense that usually goes in a tight market," McCarthy says.
It is more common for advice firms to outsource their marketing to specialist consultancy firms that can help the business strategise and develop an action plan to roll out internally, she says.
"The best practice firms that I have met really do understand their strategy and what they're trying to achieve; they've articulated their value very well," she adds.
"Once they have that value proposition right, then that is driven through all their marketing material and all of their collateral."
Yet she observes that a majority of advice firms often lack a clear marketing strategy, which essentially underpins the success and effectiveness of the techniques they employ to reach their intended target market.
"The missing piece for most planning firms when it comes to marketing is they haven't thought about the strategy upfront. So they haven't thought about what their objectives are, and they change as the market changes," she says.
"So, for example, they haven't thought about, 'well, I want to grow revenue by X, therefore I need X number of clients, how am I going to go through doing that?'
"So they haven't thought about those strategic targets upfront so the marketing tactics don't unfold correctly at the back end." The marketing strategy could involve an advice firm deciding to concentrate on driving relationships with brand new clients, focusing more on building networks with accountants and solicitors to refer ideal clients, or perhaps deciding to deepen relationships with existing clients, she says.
For example, an advice firm could grow relationships with existing clients by adding a new service offering, she says.
"You see a lot of practices at the moment who are bringing their insurance offering in-house and that's because they've realised that if they send the guy down the road they are actually losing $150,000 worth of revenue," she says.
"So thinking about it strategically upfront in a different market helps you articulate what those tactics should be."
Most advice firms, however, struggle with what marketing techniques to employ and these methods also need to be reassessed and sometimes altered during different market cycles, she says.
The use of a common marketing method, such as the newsletter, may not always be the most effective technique to achieve an advice firm's marketing goals, she says.
"It depends on what they are trying to achieve; if they're trying to retain existing clients then maybe a newsletter is a good one to communicate with them and that's a method of doing that," she says.
"But if this is about getting new clients in the door and investing all your marketing dollars into a newsletter, that might not be the way to go."
Fox says advisers also rely too heavily on gaining referrals from existing clients and instead should be collaborating more with other professionals working within the financial services arena, such as accountants, to widen the potential pool of new clients.
"Most advice businesses would probably get 70 per cent of their new clients through referrals from current clients," he says.
"While you could use that data to say that's the best approach to get new clients, I believe it is because they have such a poor marketing capability that they can't get clients any other way."
Furthermore, Macquarie Practice Consulting research shows that in this current market environment, existing clients are not referring potential new clients like they were in the past, McCarthy adds.
"And why would they be when their portfolios have fallen by 30 per cent?" she says.
"We're seeing more reliance on the accountants and solicitors to get referrals, but that's hard work though. You have to work that relationship, and that's a slow burner over time, so that could take an adviser a year or even 18 months.
"You've got to build the relationship and build the trust and then communicate what exactly you want. Now most planners don't have the time in this current market to do it, or don't see the need for it."
Fox adds that the advice businesses that are working well with accountants at present are not looking for referrals from these professionals; they are looking to work collaboratively with the same group of clients.
"So the accountant still retains the relationship; the financial adviser will be having the appointments with the clients of the accountant in the accountant's office, the accountant will still manage that relationship and they'll bring the adviser in when advice is needed from their speciality, and that works both ways," he says. In the current market, rethinking client value propositions has never been more important for a financial planning practice to consider, Perennial Investment Partners head of retail funds management Brian Thomas says.
The government's inquiry into fees, the impacts of the market downturn on client portfolios and consumers' perceptions of corporate debacles, such as Storm Financial and Great Southern, have all played a part in creating a tipping point for the advice industry, Thomas says.
"You've got a quadruple whammy . if you put it all together it's like the perfect storm for financial planners. So now it is the time for them to be looking at their business models and rethinking their value propositions," he says.
"I think it's fundamental at the moment because they need to look at where the industry is going to go and make sure that they have a sustainable value proposition.
"They've got to think long and hard about their brand, not in the sense of the big bank-type brands, but just how they project themselves and the image to their clients."
Advice businesses also need to be very mindful that their value proposition is in fact adding value to clients, he says.
"They've got to find in some cases new ways of adding value, because if their value-add was more based on investment returns rather than managing risk, then they've really got to rethink what they are doing," he says.
While financial planning firms may be currently rethinking their value proposition, Fox argues most do not know what a proper value proposition is.
"Instead of focusing just on investments, they are now also focusing on insurance and that's what some of the changes they are making are limited to," he says.
Macquarie Practice Consulting has been inundated with advisers wanting help in working out their value proposition, McCarthy says.
"Our research indicates that seven out of 10 advice firms think that a good value proposition is very important in running a good practice," she says.
"So it's a hot topic in the market at the moment, and I think that a lot of them struggle with what that actually means.
"It's a challenge to get traction because you need a framework to work through to get yourself to the proposition."
The framework involves an advice practice firstly understanding what it is they offer and how they can differentiate that from a financial planning firm down the road, she says.
"So if you can't articulate that in what we call an 'elevator speech' - so you've got 30 seconds in an elevator to communicate that to someone whether they're an existing client or a brand new client - you sound like you really don't know what you offer," she says.
"So we get them just to go through a process of starting to articulate who is it you offer it to, how do you do it, how do you differentiate yourself from your competitors and then we start to help them craft that into a couple of sentences, and that takes time."
Once an advice business has got its value proposition right, they then know what their service levels should be to deliver that, she adds. To gain competitive advantage some advice firms are restructuring their business on more of a conceptual basis with a new offer, Thomas says.
"There are some that are starting new businesses within old businesses, and the new businesses are having a totally different way of interacting with the client on a different fee basis and a different approach," he says.
"Others are sort of looking at restructuring their business on more of a cost basis, so it's the same offer but they are maybe streamlining their costs.
"Some are saying, well are there different approaches using SMAs [separately managed accounts] or different master trusts that I can get my costs down and still have a similar model?"
Despite the different strategies financial planning firms are currently trying to tap into the large pool of Australians who have unmet financial advice needs, dealer groups do not provide enough marketing support to their advisers, Fox argues.
"They all say they provide marketing support but they don't really. A lot of the marketing support that's provided by licensees or dealer groups, for example, will be a product brochure, which is of very limited value to most advisory firms," he says.
"The marketing campaign of most of the institutions is around superannuation, investments or insurance; that's about the limit to their marketing and I don't know anyone who would say, 'wow that's what I've been looking for'."
Therefore, most advice businesses do not have an offer that is really attractive to potential clients, and this is the reason why many advice-seeking clients do not go to financial planning firms for advice, he says.
"If you went into 10 different websites of advice businesses, you would normally see that their service offer is just a menu of investment strategies or product and really it is not attractive to most markets," he says.
"But a specific offer designed around the advice needs of individual markets can gain the response from individuals in that market saying, 'wow that's what I've been looking for'."
To build what Fox describes as an irresistible offer to prospective clients, financial planning businesses must identify their target market and its particular advice needs and then roll out effective communication campaigns that directly speak to this group.
"We go through this with all our clients. There is a really simple logical sequence of events to build your marketing capability and first is to identify your target market; that is absolutely imperative," he says.
"Then we really need to understand what the specific advice needs of those markets are. Once we understand that, then we need to design an offer that is presented in client speak and focuses on delivering to the advice needs of those markets.
"So we call this the irresistible offer, and I do believe that the successful firm in the next two to five years will have this offer.
"Thinking the way the clients think and presenting your offer that way, I don't think too many firms are doing this well, but I believe that those firms that are will really have a huge advantage in accessing new clients."
The most significant lesson advice firms can learn from other industries outside of the financial services sector is understanding the client, or the potential market, better than they understand themselves, Fox says.
"A lot of businesses outside this industry are very good at just marketing towards their target market and not just marketing towards everyone. For example, you'll see beer ads are marketed towards the 20-35-year-old male, they really target those ads," he says. "I really think that this industry has been, I don't know whether arrogant is the right word, but the advisers often just assume that they know how their potential clients think."
Financial planning firms in the United States are much better at targeting a particular market, he observes.
"American firms are very good at that, Australian firms are not; they still can't resist the temptation to be out there looking for anybody," he says.
"I visited a US advice business that really targeted woman divorcees; that was their target market and they built an offer that was really attractive to female divorcees.
"So male senior executives would not be attracted to that firm, because their offer was obviously directed towards a particular market."
The better financial planning practices in the US that are starting to dominate the advice industry have employed a dedicated technique that sets out to create a marketing culture throughout the whole business, he says.
"They really worked hard at making sure that everyone was responsible for generating new clients. It didn't mean that everyone had to go out and pull potential clients into the business, but they had this culture where they were aware, they were always looking," he says.
"So when a junior employee uncovered a potential client or referral source or other professional to work with, they would go back and report that to the marketing manager who would then get the appropriate people to go and talk to this potential client or this potential referral source."
To bridge the underinsurance gap that currently exists in Australia, Fortitude Financial Management risk adviser Ryan Watson has spent some time looking into more innovative marketing strategies that target life insurance at young Australian couples.
Approaching local councils that set up community mothers' groups was one such strategy Watson was looking into last year in an effort to target new mothers through their maternity groups.
He also found a company that distributes 72,000 new mother kits per year through health centres along the eastern seaboard and was looking to advertise in these maternity kits.
Nonetheless, despite these innovative marketing strategies to target this particular market, he says he has come across various roadblocks and, to date, has not had much luck in implementing this plan effectively.
"To be honest, I haven't had much penetration into the young families' market. I have found resistance from local council groups and hospitals because they don't want to be seen as advocating any financial advice service," he says.
"Also, mothers' group and playgroup organisations have initially been keen to back the idea but want exorbitant fees/commission splits to offer my services to members."
Furthermore, he says he has been competing against the likes of larger institutions operating in the market, such as ING, Suncorp, Real Insurance and Insurance Line.
"So of course I can't match their marketing budget," he says.
"So all in all, I have really been unable to effectively implement my marketing strategy, which is a real disappointment. I am currently evaluating whether I will continue with this marketing strategy." As traditional clients such as baby boomers continue to shrink in number, intergenerational advice and directing marketing strategies towards generations X and Y will be a key focus for financial planners, Australian Private Capital (APC) senior planner Rob Sarafov says.
"The demographic analysis in Australia is quite straightforward. The traditional target client of financial advisers is dwindling, the baby boomers are moving on and so it's an important strategy to be able to access and cultivate a younger group of clients," Sarafov says.
To achieve this, APC is looking at its existing client base, in particular baby boomers that have generation X and Y children.
"It just makes sense that if we have in many cases longstanding relationships with their parents, well we should be trying to make similar relationships with their children," Sarafov says.
"The other thing too, which is also commonsense, is that you should mind your own backyard. You've got a bunch of clients that are traditionally between the ages of 45 and 65 and those clients have got kids by and large.
"If you've got a couple of hundred of those primary clients and every one of them has got a couple of kids, then that's 400 potential gen X and Y clients with whom you already have some form of relationship via their parents."
APC is in the process of defining the profiles of this younger pool of potential clients to develop a targeted intergenerational advice model for this particular market.
"From our perspective we need to be clear about what these people look like, for example, if they are the children of our existing clients they probably have a young family between the ages of 25-45 years," Sarafov says.
"They either own a home or a saving for a deposit for a home, they probably don't have a great deal of investments at this moment in time, but they certainly have a lot of needs from an advice perspective, that is, they probably have debt, and a great deal of the debt is probably non-deductible debt."
This particular group of clients would require wealth protection strategies, tax minimisation strategies and most importantly cash-flow and expense management strategies, he says.
"I think a lot of these types of clients, by and large, may not necessarily have a handle on their cash-flow management, so that's an area where if you get that under control it opens up a number of possibilities," he says.
While an adviser may have a relationship with a parent, it does not guarantee the adviser will automatically be considered as an adviser to the children, he points out.
"You can't assume that just because we've got a relationship with the parent that it automatically means they'd love to become a client of ours," he says.
"With any form of marketing message you've got to tell your target market the same message many times before the penny drops."
Communication is an intangible aspect of delivering advice in a financial planning firm and making this more tangible is a challenge that financial planning firms must also solve if they are to retain and attract new clients, McCarthy says.
"I think in this market, many firms, if they have lost clients, have lost them because they didn't communicate well. So it's about having a range of tactics that deliver to that communication objective," she says.
"So it's continuing to speak with clients all the time, whether they use newsletters, phone, email; it's a combination of all of those things that clients need to feel like someone is out there.
"And that's a lot of what planning firms do that you don't see and you can't touch. It's that intangible aspect of communication; it's that layer there that you can't touch that clients really want."
