When It's Time For A New Plan - Managing The Strategic Priorities Of Your Advice Business

Many advisers may have a short-term focus on managing regulation, responding to immediate client demands and understanding the current market environment. However, successful advisers will also have an eye on the longer-term horizons and the strategic priorities that they need to be preparing for today….

When is it time for a new plan? One of the most important things we need to know about plans right now is that they are flawed. Even the first recorded plan in western literature, the plan devised by Zeus, king of gods, to win the city of Troy in Homer's ancient Greek epic poem The Iliad, failed because it didn't consider the complexities and uncertainties of human nature.

Tim Noonan, Managing Director, Business Solutions, who has over 40 years of experience in working with Financial Advisers around the globe, explains that there is a lesson in this classic tale for everyone working in the business of financial advice and money management today. "That is the problem we face as an industry. Our plans are flawed, and they are flawed in three ways."

What's wrong with the old plan?

  1. The first flaw is our plans for investors are too short. "The first frailty in our planning is the assumption that our lives are going to be shorter than they are actually going to be."
  2. Thanks to medical breakthroughs and healthier lifestyles, people in developed countries are living longer, but many lack the funds to sustain their high consumption lifestyles over the extra years of life. While financial advisers and their clients know the implications of longevity and take it into account in retirement planning, many still plan for a horizon of 10-15 years - 20 at most. Meanwhile, many baby boomers retiring today will live for 30 years or more beyond retirement and with every new generation, the average life expectancy is expected to edge closer to 100.1
  3. Secondly, because we think of our lifespans as being shorter than they are likely to be, the range of problems we anticipate in that shorter lifespan doesn't incorporate all the problems that we are going to face and the probable changes in behaviour that longer lives are going to entail. Just one example of the behavioural changes already occurring in response to increased longevity, divorce rates for people over 70 are rising, with Australia leading the way in this global trend. "Why? Because 20 years ago you would have thought it's too late to make a change like that. If you are 70 years old and you think 'I might have to wake up with this person for another 30 years' you might think of it a little differently. This is just one example of how behavioural decision making is being impacted by our longevity and therefore the sustainability of our wealth."
  4. Thirdly, we are not flexible enough: "We don't know how to adjust our plans in front of an uncertain future."

To accommodate these longer lives, we need to think of creative solutions, but it won't be easy. It won't be easy because as lifespans continue to increase and healthcare costs continue to rise, returns from asset prices are forecast to be lower than they were over the last 30 years.

At the same time, the Internet has changed the way people consume and how voluntary their consumption is. "So, it is unlikely that the baby boomer generation in particular is going to wake up one day and decide to slow down on consumption."

How can we develop a new plan that will be meaningful to the client and help them succeed?

Helping clients develop resilience

Part of the answer will be helping clients build resilience by understanding what part of their spending is necessary spending and what part is discretionary, by encouraging people to be disciplined about their saving, and by providing solutions that are highly tailored to the needs of the client.

Financial advisers need to work towards creating client-specific outcomes and provide asset allocations that really speak to the personal utility functions of the owners of those assets."

For the most part, those personal utility functions come in three 'flavours':

  1. accumulating sufficient surplus wealth so that you can look forward to a comfortable retirement
  2. decumulating that wealth so that your income stream is sufficient for an actuarily-predicted lifespan
  3. And for the lucky few that have accumulated a lot of surplus wealth, to manage that in a way that we are creating more wealth to be passed down to their estate.

What is key is truly understanding your clients' needs and goals.

Four steps to better discovery

For advisers, the key to understanding the needs of clients is to improve the discovery process.

Often advisers do most of the talking, and the client does relatively little of the talking.

"We have an environment where financial advisers tend to do most of the talking themselves. They tend to talk about their ideas, their forecasts for the market, and so on, rather than discovering what are the actual needs and the tendencies of the client."

"Imagine if you went out on a date, and the idea was to get to know the other party, and they talked about themselves the entire night, would you think they were in to you? If they do that on the second date, you're probably not going on the third."

Our research published in the Journal of Financial Planning in August 2016 found there were four key steps to successful discovery:

Scribe: Write down what the client is saying. "Writing something down while someone else is speaking is actually a demonstration of respect for what they are trying to say."

Ladder: Put things in a logical order. "When it comes to financial matters, especially portfolio construction, most people are operating in very deep levels of illiteracy. So, when asked questions about their financial well-being, they tend to give very disorganised responses. The act of taking a disorganised response and organising it, is a powerful demonstration of the adviser's expertise."

Check: Repeat back to the person what you think they said to ensure and affirm that you understood. "This is the most important part of the conversation, because it ensures the highest level of fidelity. Bad decisions with low fidelity lead to bad choices that you can't stick with when something goes wrong."

Triage: Prioritising the issues so that they are addressed in the correct order.

Re-envisaging the client book

The key learning Tim has been communicating to advisers around the globe right now is to look at their client base differently.

Advisers need to understand that their client books are like congregations, and in their congregations, there are cohorts - there are young families, older families, grandmas and grandpas, and great grandmas and grandpas."

It is important to see your collection of clients as people moving through a lifecycle where the type of advice they are going to need is meaningfully different at each phase of the cycle.

"It's time to stop thinking about all these clients as needing the same amount of asset allocation or having the same amount of small cap weight to their portfolio. The real issues are whether young families have begun to develop discipline around savings, whether families that have recently gone into retirement are serious about controlling their spending."

"These are the things that actually matter. These are the things that should consume the conversations that take place between advisers and their clients."

Bottom line

While it is understandable for advisers to feel the burden of current circumstances, we also see significant opportunity to be successful over the longer term.

We believe it is important for advisers to recognise the short-term horizon while simultaneously identifying the more strategic horizons of your business.

Consider the sources of growth, the changing needs of clients and the opportunity to develop deep and lasting relationships that allow quality advice to improve the financial security of your clients.


1 World Economic Forum, We'll Live to 100 – How can we afford it?

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