Advisers, reimagine your role

Jul 13, 2023

Suresh Sadagopan, Managing Director and Principal Officer, Ladder7 Wealth Planners, and author of If God was your Financial Planner, believes that improving client engagement is key to establishing yourself as an astute financial adviser.

It is a cliché to say we live in a VUCA world. That is a fact, though.

(VUCA is an abbreviation for Volatility, Uncertainty, Complexity, and Ambiguity).

There are too many changes underway and the pace of change is bewildering. Customers are evolving rapidly and adopting ever-new fintech platforms, which offer all services online without the need for an intermediary. Information, which once was scarce, is available to anyone who can use google.

Investing today is a matter of a few clicks. Fintech platforms are able to take in some basic information and come up with portfolio recommendations, almost on the fly. Technology has become a major disruptor and is commoditizing the financial services area and even some portions of the advisory business.  At the same time, it is also a great help for finance professionals, as it eases their work and allows them to ascend to doing more meaningful work with their clients.

Costs are up

Regulations are tightening, product costs are being trimmed that translates as lower commissions to intermediaries. However, costs of doing business are going up which affects the earnings.

For Registered Investment Advisers (RIAs), compliance burden is increasing which adds to the costs. The various regulatory fiats like higher education, experience, certification needs for advisors, again pushes up the human resources costs. Robo advisory, competition and a general reluctance to pay fees for financial advice further pose challenges to RIAs.

All these together along with competitive pressures are ensuring that the earnings are being driven down though costs are going up. This is what is classically referred to as competing in Red oceans, where products and services are mostly undifferentiated, competition is intense and there is a race to the bottom on charges. This not a very happy situation.

Lack of insight from our side

The problem is partly with us. Many of us will find it difficult to articulate what business we are in. Most mention that they are in the business of managing money. If we are in this business and lakhs of others do the same, there is very little that differentiates us.

We tend to overestimate our hold on the clients. We delude ourselves about the strength and quality of our relationship with clients. We tend to flatter ourselves about the strong client relationships, walking that extra mile for clients, the trust and confidence our clients repose in us etc.

The reality is a lot more sobering.  Clients could move if they find easy to use platforms where they will save on cost or break ranks when another advisor comes along offering better returns, new exotic products, or some other hook that appeals to the clients.

Return focus

The problem is that most intermediaries, including many advisers, tend to talk about their value in terms of the returns their portfolio offers. Clients too are mostly looking at the returns.

The irony is that, portfolio returns are not really in our control. They are a factor of markets and other external factors like economy, interest rate cycle, geopolitical situation, stock market performance etc. Hence, if the value proposition to the investor is based on returns of the portfolio, we are going to face a rough time with our clients a lot of times, which can end up in client disillusionment and disengagement.

Successful/ wealthy people especially tend to extrapolate their success in an area with ability in every other area, including finances – they tend to be head-strong and dictate where they want to invest to their advisor!

For them, portfolio returns is just a way to keep score of how well they are doing in life! Even the wealthy use that as a measure of their success, even though the quantum of returns from their portfolio may not alter their life trajectory in any way.

What is important is whether the client is able to meet all their goals when they come up and whether the life itself goes on smoothly without disruptions.

Living a meaningful life

What is important for all of us, including our clients, is to ensure that we are well funded and have money to meet the goals as they occur in life.  Ultimately, we want to live a happy, contented and peaceful life.

Also, it does not hurt if we live a life that is meaningful, vibrant and eventful.

For that, we need to know what we want in life. Most people have not thought about that. We tend to go about life mechanically going where it takes us, never really trying to influence the course by intentionally charting out where we want to go and take action. That is where one should start.

Can financial advisers play a role here? I think they can.

Most people need a nudge to first examine the life they are living and see whether that is the life they are happy with or they are just going where the life currents take them. We can discuss with clients and goad them to make a life plan that will work for them. We can be their sounding board and facilitate in coming up with an architecture that will make their life delightful and well-lived.

We could also discuss regarding the various things in life, like kids education, their retirement, taking care of parents, career, property, gifting, philanthropy, relationships etc., where there are perspectives beyond money. At various points in life these discussions will come up and our inputs as an unbiased third party, who is not emotionally invested in the decision, would be very insightful and refreshing. It will allow them to take decisions after getting fresh and different perspectives.

That will help us broaden our role from being just money managers to those who can play a positive role in the clients’ life itself. We can be their trusted confidants and be a reliable sounding board, making us truly valuable. This will be a win-win arrangement.

This way we would have broken free from the shackles of the limitations we have placed on ourselves as being just money managers. That would be liberating for us and our clients!

Content for Financial Advisers and Mutual Fund Distributors

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