New Thinking

Over the past six weeks there has been an increasing amount of data emerging – particularly in Australia – that economic conditions are improving markedly.

The signs are clear – at least that money and sentiment are on the move again. Business and consumer sentiment are up and, more importantly, the excess money being hoarded in cash funds (see Love Affair Threatens Funding article) is starting to flow out.

It’s not yet completely apparent where the money is going – but it does appear that more money is flowing back into investments rather than into consumption of, for example, white goods or new cars.

All of this is encouraging news to the advice industry, as increased investment activity generally means more work, and more work usually means more profit.

However, there have been some interesting changes in the way many Australian investors now approach and perceive financial services and advice in particular, even for those who understood the effects of the GFC and don’t link the fall in their asset values to the advice of their planner.

Over the past two months at CoreData we have been talking to and researching client behaviour trying to understand how they will behave as the world emerges from the GFC and what role advice has for them.

The upshot is that for most of consumers, particularly those with more than $500,000 to invest, the world has changed, particularly their relationship with their adviser and how they want to invest.

We want to insert a caveat here – if you are one of the few advisers that has been meeting with and communicating with your customer base actively and clearly – then you almost certainly don’t need to read this article, but our research indicates – just less than 20% of consumers that have advisers think they have received this type of service.

The rest of the consumer market – more than 7 in 10 – aren’t really clear what happened to the economy, to their investments and the role the adviser played in what happened – which naturally means that for the majority of this group they have started to question the role and value of advice.

This doesn’t necessarily mean that they are going to leave their adviser – but it does mean that the way they now approach and work with them and even how they pay them is now on their mind.

One of the curious behaviours that we have identified is that most of the people that we have been researching don’t ever effectively terminate their adviser – they simply add another one, start working with someone who better understands their needs or can better communicate with them about what they are doing.

All of a sudden – there are new processes on the mind of the investor – they want to not just hear about the upside of an investment, they want to hear about risk, structure, ownership, reporting and (more interestingly for the market) they want to hear about planning.

Many now want to build a medium and long term view of their position.

At the same time we have been busy talking to and listening to advisers – trying to hear what they are doing differently how they are behaving and what they are doing to satisfy the changed investment and psychological needs of investors.

The answer for most appears to be nothing. Most advisers are simply repeating the behaviours that have made them successful for the past five years – just doing so more furiously and for longer hours.

However it’s become apparent to at least some of them that something strange is happening.

In interviews we have been conducting we are getting some interesting messages about the lead-to-closure ratio.

Most of the practices that we have been speaking to repeat the same mantra:

“If we get the client into the boardroom and make a presentation to them – then we are a good chance of getting the business.”

Most practices estimate that they close about 60% of the customers that they make a full presentation to.

For two of practices that CoreData has been working with for the past few years – the lead-to-closure ratio has dropped from the mid 60% mark to just below 25%, for the other from the mid-70% mark to the mid-30% mark.

Clients it seems are starting to behave differently.

The drivers which people used to asses adviser ability – trustworthiness and long term viability – are shifting and that means the way advisers need to relate to clients needs to change too.

Curiously a lot of advisers fundamentally reject this and consider that eventually the world will revert to the pre-GFC behaviours, and that their phones will once again start to ring and that they will be referred clients by a stream of other happy and successful clients.

The truth is that this is a brave new world and the goal posts have moved.

Many clients, at best have a benign view of financial planners, and at worst think they are the engine of capital destruction and that it’s time for them to stop being order takers and to start to engage in what appears to be the loathed process of actually being in business, which means marketing, selling and communicating actively and clearly with their clients.