In the post-RDR world, helping clients with their investment decisions has never been more important but how can Financial Planners and wealth managers keep up with the competition and follow best practice at the same time?
Three new reports on the wealth management sector published recently by MDRC, Pershing and Barclays Wealth give some clues as to how clients view their advisers and what works and what doesn't when it comes to investing best practice and treating customers well.
The reports suggest that many planners and wealth managers already make good client servicing a high, if not, paramount priority but many have more to do and with rising expectations from clients it's clear that there is still room for improvement. Wealthier clients expect and demand better service and more personal attention.
This feature looks at what works and what doesn't when it comes to investment best practice, what the reports reveal and how Financial Planners can add some of the best tips and ideas from the reports and other planners to their own processes.
The good news is that consumers are reporting higher levels of client satisfaction with their advisers than previous years, suggesting that something is going right.
When surveyed by HNW research firm MDRC, satisfaction rates of high net worth clients (those with over £650,000 in investible assets) were the highest for 14 years with over half of clients rating their adviser as very good or better.
Respondents said that their wealth managers had far greater client focus than at the time of the previous survey and were delivering a higher level of service. They felt there had been "significant improvements" in service since 2008.
Encouragingly for Financial Planners, smaller advisory firms were rated particularly well and this could be due to their ability to adapt to changing circumstances quicker than larger firms, according to one experienced Financial Planner I spoke to.
Firms which were rated highly scored well on calibre of relationship managers, clarity of reports and understanding of financial objectives.
However, value for money was also a top concern for clients as was the cost and availability of receiving impartial advice. Only 64 per cent felt portfolio management fees were fair and this concern over pricing offset the positive ratings.
The report highlighted that client satisfaction fell in the first quarter of 2013 when the RDR was implemented, unsurprising when one considers that many consumers thought the advice they were getting was free.
This was also noted in a report by wealth management firm Pershing that firms had been "nervous" about introducing new fee structures, some for the first time, and were "anxious of the reaction" they would get from their clients. The report, titled 'Through the Looking Glass', questioned 342 HNW advisers. In contrast to many Financial Planners, fee-based advice was a new practice for many previously commission- based IFAs. In some cases, paying fees was seen by consumers as giving them the upper-hand and the industry has seen more "consumer activism" about which firms consumers select and what they want and expect for their fees.
Consumers need to be convinced why they should select and stay with particular firms and, in turn, firms need to position their model towards the consumers they want to target. This may be an opportunity for firms to define their approach in the market and their value proposition - what does the firm believe and what does it offer?
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Alternatively, some consumers are opting out of advice altogether and turning to DIY options such as Hargreaves Lansdown. The execution-only firm reported in its Q1 2013 results that it had added 30,000 new users to its Vantage platform, bringing the total to 476,000 and increased assets under administration to £35.1bn. While it acknowledged it was too soon to identify the long-term effects of the RDR, it said it had seen continuing growth in client numbers and an increased volume of business transfers in terms of investment switching. While some clients may have left their advisers due to high fees post-RDR, many others will have viewed the move as a convenient excuse to leave an adviser they already had problems with. Common reasons for leaving an adviser were they were unhappy with the service, unhappy with fees, unhappy with investment performance or their adviser had left or moved internally. With this in mind, 71 per cent of firms said they
were most concerned with maintaining existing relationships as key to their survival and enhancing their treatment of clients. Pershing found that, in contrast to investment managers and financial advisers, many wealth managers were going on a "charm offensive" with their clients.
According to Pershing, the first step in handling existing clients is to segment them into appropriate categories and decide which are most commercially viable for their firms. Selecting only the wealthiest clients is not necessarily a measure for long-term success although neither is accepting any client who approaches a firm.
Pershing said: "Segmentation among existing clients will adopt a much colder review of which clients are going to have the most consistent requirements of the solutions on offer.
"It appears businesses now are looking more intelligently to identify which clients represent the most sustainable revenue and ultimately profit."
The purpose of good segmentation should be identifying discrete groups of clients and ensuring that the right customer is offered the right products and services for their needs. The report by Barclays Wealth and Investment Management titled: 'The New Normal; Codifying Superior Client Experience in Wealth Management' surveyed 346 wealth managers and found the most common categories for client segmentation were current asset base (96 per cent), domicile (79 per cent), potential wealth (78 per cent) and profession (72 per cent). It highlighted that simply offering tiered pricing for different clients was not the same as segmentation. The report expressed surprise at the omission of family circumstances and age as popular categories as these could play a huge part in clients' requirements. It said: "Age is about more than an adviser's preferences, although this might be a factor. Rather it is about a stage of life and where a client is at on their 'wealth journey'- therefore ignoring it impedes forming a complete picture of the client and their needs. Clients' investment decisions are driven by life events and age can be an important prompt for discussions; for example a middle-aged client might need to fund a child's university soon."
Family circumstances can play a key part in helping to understand family dynamics and what motivates clients; key factors in the Financial Planning process. It was also a sign that firms were failing to look beyond the typical financial background of a client into more deeper family and personal values.
An example of when segmenting clients was especially useful was when dealing with clients who worked in sectors such as accountancy and banking where senior individuals could receive big annual bonuses. At the right time of the year, all those clients could be targeted as their investment habits would be dictated by this bonus system.
Problems encountered when segmenting clients were pigeon-holing clients, holding clients in the same segment for long periods of time despite circumstantial changes and advisers being unwilling to relinquish clients they 'own'. In terms of looking after clients well, Barclays Wealth highlighted in its report the customer care programme of the Ritz-Carlton hotel group, a company that places huge priority and focus on customer care (see box opposite). So once a client- base has been effectively segmented, how can Financial Planners and wealth managers serve each segment best? MDRC found that clients rated their firms negatively when they had poor credibility of relationship managers and when they failed to have frequent meetings or poor quality meetings with their relationship manager.
This finding emphasises the importance of offering clients regular reviews. Clients do not want to be given a plan in their first few meetings and then never have this checked or amended, they value regular meetings with their adviser and information, whether face-to-face or via phone or email, on how their portfolios are doing. Changing circumstances for clients such as children, death, house moves and further education can also require further reviews. How often this is done is down to requirements of the client but an ongoing service demonstrates to clients what they are getting for their fees, an increasingly significant factor for clients post-RDR.
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Another major error often made by firms, according to Barclays, was the relationship between the adviser and client. In firms with many advisers, speaking with one adviser and then being advised by another can be confusing for clients and indicates a lack of consistency. Having to explain their problems and give their details multiple times can suggest there is a disconnect within the company. Clients want to know that a single person is dedicated to their investment portfolio or at least they want to have a consistent point of contact at the company. Once an adviser is established the client is hopefully going to build a long-term relationship with them. But, in the same way that clients should not be held in the same segment forever, they should not consistently have the same adviser if their circumstances change.
Barclays said: "A clear majority of 59 per cent of survey respondents said that having a 'personal long-standing relationship with the firm's staff' is the most important 'soft-side' factor in delivering a superior client experience.
"But while such connections are doubtless the end game of wealth managers, the contributors said it is also important that clients feel they can request a change at any time. Clients and their needs (and indeed advisers themselves) change over time so checking that both clients and advisers think the relationship is still working well needs to be an ongoing process."
When an adviser leaves a firm their clients should be informed of the circumstances and given a suitable replacement. Long-standing clients are likely to have built up a solid relationship and rapport with the adviser and it will take time for a new relationship to form. However, if the two parties do not 'click' then clients should feel they are able to state these concerns and request a different adviser rather than leave the firm. Even if their adviser does not leave, their changing circumstances might necessitate a different adviser and the same rules apply.
Barclays also compared the wealth management sector to other HNW sectors and found it "trails far behind" other service providers such as law firms and luxury retailers. It highlighted that rather than offering an entirely bespoke personalised experience, firms should be offering all its clients the same consistently excellent service. This could be outlined via a standardised 'blueprint' to ensure all staff know how to treat clients in the same way and all clients receive the same service regardless of who they speak to or deal with at the firm. He gave the example of a firm which offered clients reviews four times a year. If a client was abroad at the time, the meeting would be held via Skype to ensure they did not miss out.
Other tips were to send clients follow-up letters with phone calls, sending small gifts, encouraging staff to find out something new about the clients they worked with when they visited and noting clients' individual preferences. With these tips in mind, Financial Planners and wealth managers would have the opportunity to improve their services and ensure their clients are treated well and treated as important individuals. Pershing said: "RDR has been a watershed moment for many operators in realising what they should and should not prioritise to maintain their commercial viability.
It added: "All accept they need more business and that the sources of this are going to be a combination of new and existing clients. Crucially, all advisers realise the clients they are targeting are more able now than ever to vote with their feet and are more conscious than ever that they should consider the economics of the relationship they have with financial providers."