Having recently spent time with advisers on three continents, I am struck by the fact that across the world they are wrestling with the same challenge: how to articulate their value proposition for clients in a world of unlimited free information, low-cost market access platforms, and robo-advice.
Although the answer is the same as it has always been: that advisers help clients reach their financial goals – the way they deliver this proposition has changed considerably in the past 25 years.
When I started my career as an adviser, we primarily acted as a source of technical expertise and market access. By working with us, a client could discover the most tax-efficient way to save and then select the most appropriate home for those savings. However, as the availability of information has increased, advisers no longer have exclusive access to technical knowledge, leading to that question about value proposition in today’s world.
In some ways, the challenge faced by advisers is similar to that which theology has faced in the modern scientific era. Historically, the Church has appeared to adopt a ‘God of the gaps’ approach to theology, where each gap in humanity’s knowledge was attributed to divine intervention. As scientific knowledge expanded, the niche occupied by the deity shrunk, leading some to question the relevance of the Church in modern society. In response, it seems the Church has retreated from the ‘how’ questions and focused instead on the ‘why’, refocusing on relationships and a shared journey.
If advisers are to thrive now and into the future, they too must focus less on the how, which can be adequately addressed by science through the internet, platforms and robo-advisers, and instead focus on the human challenges represented by the why.
In the context of financial planning, the most important of these is: ‘why do clients fail to reach their financial goals?’ While there are as many individual answers as there are clients, the overarching reason is that we all suffer from behavioural bias. This bias, if left unchecked, can act as a significant impediment to success. Fortunately, advisers are uniquely positioned to help clients recognise and overcome behavioural bias, and in the process build a sustainable business that is complemented by technology, not challenged by it.
While it can be daunting to contemplate such a change in the focus of a business, it is worth remembering that behavioural coaching has always been an important role of the adviser. Although not always recognised as such, almost all advisers will recall persuading clients to start saving, to stick with a falling investment, or to avoid chasing the latest investment fad. However, the lack of evidence and theoretical framework for these coaching interactions has meant that this key benefit of the adviser relationship has been poorly acknowledged and underdeveloped.
This need is being met by the developing field of behavioural finance, which has provided both the necessary evidence and the tools to help the advisers become coaches. Morningstar’s nine-person behavioural insights team is making an active contribution to this area by conducting experiments, publishing research, and most recently developing a curriculum to help advisers become coaches.