Every service business needs a client value proposition.

Therefore every financial planner needs a client value proposition.

Dover believes your client value proposition should be to be competent in the nine essential technical competencies of a strategy based practice

This means you are able to increase the net wealth of your clients by significantly more than your fee. This means rational clients will use your services rather than your competitors, and your practice will increase its profits and its (CGT free) capital value.

Remember, it’s your client’s value proposition, not your value proposition. You must focus on creating permanent value for your clients without undue risk or complexity.

Ultimately financial planning is about increasing your clients’ wealth.

If you cannot increase your clients’ you are in the wrong profession.

The nine essential competencies for a successful financial planning practice

These nine essential competencies for a successful practice are:

  1. estate planning and business succession planning;
  2. general business advice;
  3. basic taxation planning, including choice of structure for investments;
  4. finance, and negotiations with financiers, including the management of expensive non-deductible debt;
  5. super planning including industry funds self-managed funds;
  6. record keeping, bookkeeping, accounting and basic tax compliance;
  7. risk insurances;
  8. property, including property acquisitions and tax planning strategies; and
  9. shares and other securities, including index funds and managed funds.

Notice how managed funds and similar financial products don’t really feature here, and are last on a long list? This is because financial planning is about financial strategies not financial products.

You must be your clients’ primary financial adviser

Your business plan must establish you as your clients’ primary adviser on all relevant financial matters, to the exclusion of other competitor advisers, and ensure you control all aspects of the advice process. This control is needed to guarantee quality to your client, to keep costs under control and to ensure you are not excluded from the advice process in any way. This control is also needed to maximise your client loyalty, your income and your practice’s value.

You must become a business general practitioner or “GP”. You need to know and understand the nine essential competencies, and be able to guide your clients with care and genuine empathy through the challenges each competency presents.

You must be able to meet your clients’ needs in each competency, but also recognise complex cases where it is necessary to call in specialist assistance, on your terms, to advise you on what needs to be done to promote your clients’ interests.

The financial planner as the primary adviser

 

fin-planner-primary-adviser

How do you acquire this knowledge?

Keep perspective, you do not need a law degree to learn all you need to know about estate planning and wills. You do not need to be a licensed real estate agent to advise your clients on buying or selling a property. And you do not need to be an accountant to advise a retiree on how to run a self-managed super fund. For most experienced financial planners, particularly those with relevant (ie business orientated) degrees, the relevant knowledge can be acquired through a systematic process of self-education and book-based learning, supported by selected short courses run by government and private bodies.

Remember, your client will not expect you to have “mastery’ level knowledge of each of the nine competencies, (although they will probably expect mastery level of at least one or even a few of them). What they are looking for is an awareness of the main issues, an ability to identify problems and an ability to solve the problem in a practical and economical way, including referring to specialists where needed.

For example, if you advise your clients on wills and estate planning you will be aware that the “patter” ie the verbal explanations provided to clients, is remarkably the same in each meeting. Often even the jokes are the same. (I can assure you clients think smiling and joking about death is better than an affected grave demeanour.) It’s actually not hard, at least in most cases. What is hard is being alert to the circumstances where the standard patter and explanations is not appropriate, and when as specialist needs to be called in.

What courses are available?

Institutions like Kaplan offer financial planners a variety of formal courses to improve their skills and knowledge. The National Tax Agents and Accountants run fantastic SMSF seminars, and these are open to all and are not limited to their members. The CPAs and the ICAA also offer excellent training and, again, attendance is not limited to their members.

Open Learning Australia offers the only degree course in financial planning in Australia, and there are no prerequisites for enrolment. Study is at your own pace, through internet based distance learning, and covers the full range of knowledge required to advise on these nine competencies, as well as other essential areas.

If you are uncertain about your ability with the nine essential competencies you should seriously consider completing this degree course.

When do you need to call in an expert?

You cannot be 100% expert in each competency. No one is. You do not help your client by purporting to be 100% expert when you are not, and you open yourself up to a serious risk of a negligence action if you make a mistake.

Some financial planners think calling in an expert is a sign of weakness. It’s not. It’s a sign of competency. It’s the mark of a professional who places their client’s interests ahead of their own interests and is interested in optimal client outcomes rather than short term billings. Intelligent clients see it as a sign of strength and confidence and not a sign of weakness.

Bringing in an expert seriously reduces your potential liability if something goes wrong: you can prove you took all the steps a reasonable adviser would have taken to make sure your clients’ interests were protected. It’s no excuse to a court to say that you were too embarrassed to get help, or that you thought your client would think less of you if you admitted that you were not technically competent to deal with the matter before you.

Competent professionals refer clients on all the time. No one is best at everything, and you owe it to your clients to refer on whenever it’s in your client’s interest to do so.

A competent financial planning professional knows when a client problem is beyond his or her skill level and an expert needs to be called in. It’s an intuitive process and each case is different. For example in the case of an estate planning exercise the circumstances where s financial planner may need an expert may include:

  1. larger than normal wealth;
  2. second or third marriages;
  3. mentally disabled or otherwise disadvantaged children;
  4. high probability of imminent death, such as advanced cancer;
  5. extra-marital children;
  6. dependant adult relations; and
  7. relatives facing bankruptcy or divorce proceedings.

The acquisition of the required level of knowledge to advise on wills and estate planning generally, and to know when more expert knowledge is needed, is well within the technical skills of most financial planners.

How does Dover help you?

Dover helps its representatives by providing expert advice and assistance in each of the nine essential competencies.

Dover representatives can access this support without compromising their position as primary adviser to their client and Dover works through the representative and does not have direct contact with their client.

The ten thousand hours rule

“Keep practising and within a few years you will become very good at what you do.”

This sentence may strike a chord with anyone familiar with the work of Malcolm Gladwell and particularly “Outliers, the Story of Success” published by Penguin Books in 2008. Throughout this book Gladwell repeatedly refers to the “ten thousand hour rule” and posits that (almost) anyone who practises a skill for ten thousand hours will become good at it. He then takes on examples ranging from air traffic disasters to baseball to Bills Gates writing MSDOS to prove his case. Outliers is an instructive read, and one we highly recommend to anyone interested in understanding success.

In the context of creating a fee for service financial planning practice the “ten thousand hours rule” should be seen as a metaphor connecting time and effort with results. You do not need to practice for 40 hours a week for five years to acquire the knowledge needed to run a good fee for service financial planning practice. It takes much less time than this. But it does take time, and effort. How much time and effort depends on your state of knowledge now, and our guess is virtually all financial planners can make the jump by 1 July 2012 on all ten areas of practice if they start working on it now.

Technical competency self-audit

A good place to start is to devise your own technical competency self-audit to help identify what you need to do to develop or otherwise access the skills needed to run a comprehensive fee for service based financial planning practice.

An example format is here:

Technical competency self-audit process: one suggested approach

Area of competency Self-education Action required Business plan strategy Mandatory referral arrangements with third parties How can Dover help
General business advice Maintain general reading and develop business plan preparation skills.Complete readings from major financial planning text books Develop a pro-forma business plan to be offered to all clients running businesses or contemplating starting a business.Develop a pro-forma marketing plan IT IM consultants. Business lawyers to advise on structure and asset protection issues. Accountants to complete taxation, workcover and related applications and registrations Dover provides business planning manuals and templates for business plans
Basic taxation planning Commence diploma of taxation at Curtain University through Open Learning Australia. Understand tax implications of different business structures. Understand and implement negative gearing and advanced gearing strategies. Accountant/tax agent to ensure strategies are implemented correctly in client tax returns Dover’s accountants advise on specific tax issues and to provide tax advice for inclusion in your statements of advice
Finance and negotiations with financiers Complete certificate IV in Financial Services (Finance/Mortgage broking) Advise clients on choice of lending products and interest rate management including strategies to pay off non-deductible debt Not required. Dover provides debt management strategies, refinancing and complex loan applications
Self Managed Super Funds Complete Kaplan SMSF courseComplete readings from major financial planning text books  Advise on set up and related issuesAdvise on planning strategiesAdvise investments & insurance

 

Engage SMSF manager/auditor/tax agent to provide SMSF back office. Dover can provide a complete SMSF back office service including audit and tax agent certification for between $700 and $1,000 per fund
Accounting and tax compliance Complete Certificate IV in bookkeeping and MYOB short courses (unless hold relevant undergraduate degree) Advise clients on basic concepts and provide bookkeeping service Accountant tax/agent needed to complete and lodge tax returns Dover can provide a complete accounting and tax compliance support service at $35 an hour.
Risk insurances Complete ASIC accredited course Advise on life insurance, income insurance and trauma insurance Not required. Dover provides a complete risk insurance service for a fixed fee per policy and the representative keeps all commissions
Estate planning Attend FPA seminars on estate planning for financial planners. Assemble a “readings” collection to provide to clients at meetings Advise clients on an on-going basis on estate planning and related issues, including regular will reviews Estate planning lawyers to complete wills and related documents on your instructions and to handle complex cases directly with your clients. Dover has expert solicitors on staff to help representatives advise on estate planning issues
Property consulting Complete REIV or equivalent Agents’ representative course. Advise clients on up-grades and down-sizes to the home, and on residential and commercial property Consider engaging buyers advocates or similar consultants Dover has NSW and Victorian qualified real estate agents on its staff
Shares and other securities Kaplan ASX Accredited Listed Product Adviser course. Advise clients on shares and similar securities Not required Dover can assist with sample portfolios and research reports
Managed funds Complete readings from major financial planning text books Advise clients on managed funds Not required Dover can assist with sample portfolios and research reports

 

Who is your competition?

Your competition is all other financial planners, as well as most accountants, some business lawyers, and other financial advisers such as mortgage brokers. It’s not just other financial planners any more.  And if they are not with you they are against you, and competing for the same client adviser dollar.

Your competition will all be after the same space as you: the role of primary adviser.

Your competition will want to be financial GP who controls the client relationship and who represents the client in all other dealings with professional persons.

Your clients have a choice of paying your competition or paying you. You must create a value adding proposition that supports and justifies your fees if you want your clients to choose you rather than your competition.

It’s a Darwinian model and if you are not fit you will not survive. And if you are not fitter you will not prosper. You have to be proficient in all nine technical competencies if you want to run a profitable and successful practice.

If you do not evolve you will lose your income and the capital value in your practice.

 

who-is-your-competition

A practical tip: create a homogenous client base

Practices that have homogenous clients, with similar features amongst most clients, are more profitable than other practices. There are many reasons for this.

First, homogenous clients are more suitable to standardisation and systemisation. What worked for yesterday’s client will probably work for today’s client, and tomorrow’s client too. You can get better results for better prices, and this in turn leads to even more clients. Growth compounds and client numbers build until you have a significant and self-perpetuating practice.

Second, it’s easier to get better. If you are dealing with similar problems all day every day it’s logical that you will get better at solving those problems. Client presentations start to repeat, and you can see the patterns, and you can develop precedents, templates and systems that allow you to handle larger volumes of clients more efficiently than your competitors.

Third, marketing is easier. Word of mouth referrals are stronger within a smaller group and advertising can be more specific and focussed. It’s more cost efficient to sponsor say, a teacher’s newsletter than it is to advertise in the Sydney Morning Herald.

Finally, the power of the precedent means you can create better statements of advice for your clients at a lower price and with a better profit margin. It pays to invest in your precedents and to make sure you are doing more for your clients at a lower price.

Fee for service practices work better if you have a homogenous client base.

What’s the message here?

We would all like to be the best financial planner in Australia. But that’s unrealistic and probably not going to happen. But if you focus on a particular segment of the market, in terms of occupational group, retirement status, wealth and income level and even geographic location, you have some chance of being the best financial planner in that segment.

And if you do this it means you will have a much better practice, and achieve much better client outcomes, than otherwise would have been the case.

Your clients will thank you for it.