It’s all about the client - or is it?
Half a lifetime ago I was doing post graduate study in marketing, kicking off with Marketing 101. What I remember of it could be summarised as: all good product/service/business ideas begin with a customer need; and sales is about selling what you have, whereas true marketing is about creating what customers need and connecting them with it.
Sounds pretty simple, right? Identify what people need, build it, put it in front of them and watch them buy it. Turns out it’s harder than you might think. Some of the largest industries on the planet have struggled to anticipate and respond to client need – think US automakers continuing to build large, fuel inefficient cars long after Toyota had pulled their pants down, or the residential housing industry’s abject failure to design and deliver affordable, energy efficient homes at scale.
How has the Australian financial services industry scored on meeting client needs? In my opinion, and putting a positive spin on it, there is still plenty of opportunity for industry players to differentiate themselves by better meeting client need. Some areas where our industry could do better:
Focusing on market risk – we are getting better at this as an industry, but still have a way to go. If the majority of variation in portfolio returns is explained by asset allocation, we should rightfully allocate more of our advice time to that investment decision.
More active management of client portfolios – again we are making headway, but are still closer to the beginning than the end of this journey. For many practices, adjusting portfolios is timed to coincide with client reviews, which may not be the optimal time to take action, and there is often an administrative capacity constraint that becomes a conflict of interest. The obvious solution is a portfolio administration structure, such as an SMA or MDA, where the decision to re-weight a portfolio can be made without any negative or positive financial impact for the party making that decision.
Providing more robust answers to the investor questions “Am I on track for my goal? Am I going to be ok?” – this requires software with sophisticated algorithms addressing path dependency, tax, social security, human capital, home equity, non-intermediated investment assets, inflation, changing cash flow requirements and more. All too often, what planners get is software that projects at assumed average earning rates, inadequate coverage of real world cashflows and risk, and results subject to massive and undisclosed variability of outcome.
The reasons why sensible innovations take time to be implemented are too complex to properly explore here, but there is no doubt that good old fashioned inertia is part of it. One contribution we can all make when seeking to satisfy client needs is to think in terms of “what is the logical and sensible response” and to not be distracted by how different a new way of doing things is from prior practice.
Have a good week.
Brett Sanders