Defining a compelling client promise

Transcription

1 Building a successful fee-based advice practice Defining a compelling client promise For investment professionals only not for retail investors.

2 This guide builds upon the introductory guide in this series, Building a successful fee-based advice practice, delving further into how to define a compelling client promise. A valuable business Achieving profitable growth Ensuring client loyalty Value creation Keeping your promise Aligning your people Defining a compelling client promise

3 Contents 4 Defining your client promise 8 What business are you in? 14 Building trust 18 What next?

4 Defining your client promise In previous guides in this series we have stressed the importance of keeping your promises and only making promises that you can keep in order to ensure client loyalty, which leads to long-term profitable growth. In this guide, we explore how to define a compelling client promise that clients explicitly understand and are willing to pay you to keep.

5 Defining your client promise 5 Controlling the outcome Successful advisers have learned to anchor their service promise on things they can actually and confidently predict and control. They have found that basing their client promise on uncontrollable outcomes, such as the performance of their chosen asset classes and managers, can quickly and easily destroy credibility. Your promise to clients should comprise two elements, implicit and explicit promises. Implicit promises Like all professionals, your own code of conduct will contain elements that your clients take for granted, such as: An expectation that you act in their best interest at all times and will place their needs above your own. An expectation that you will maintain your skill and knowledge. An expectation that you will act in a trustworthy way with disciplined and prudent procedures. While the client assumes these values, how much do you emphasise them in your offer? While you shouldn t overplay them as they should be self-evident and understood by the client, these values form the foundation of the trust your client places in you. So likewise, don t underplay them. What are the enduring values of your firm? What do you stand for? These are elements of your promise that should hold true regardless of which representative from your firm sees the client and regardless of market conditions or investment fads.

6 6 Defining your client promise Explicit promises This is more about the outcome the client can expect as a result of dealing with you or your firm. It explains the value you will deliver to your client through the services you provide. Note that we say will deliver, not hope to or try your best to deliver. Are your answers based on your own perceptions or on what your clients think? Having understood your place in the market, you can carry out a gap analysis to highlight missing elements in the services expected by your clients and your firm s ability to make a promise around those needs. Only promise what you can and will do. Only when you deliver your promise on time, every time, will you build the trust that underpins long-term client loyalty and value. One way to understand how you may best add value is to consider the current strengths and weaknesses of your practice [define your business competencies]. Make a list of both, considering subjects such as: Current perceptions of your business What do clients say about you? The quality of your marketing Is it attracting the clients you want? The skills and knowledge of your people Are they market leading? The quality of your service delivery Are you delivering the promised outcome? The quality of your systems and processes Do they help your business?

7 Only promise what you can and will do. Only when you deliver your promise on time, every time, will you build the trust that underpins long-term client loyalty and value.

8 What business are you in? Clearly defining what your business offers and how, can set you apart. This clarity also helps you demonstrate your value. For example, your expertise may lie in life coaching, financial planning or investment management. The focus for each of these is quite different.

9 What business are you in? 9 Focusing on clients you can really satisfy What is advice? When reading an adviser s brochure a prospective client should immediately understand what business they offer and what they re promising to do for them. Typically, words like advice, investment expertise, tax, counselling and product pepper the industry s marketing collateral. These words provide little clue as to the ultimate outcome of the service. You need to make it absolutely clear to your client what advice services you will undertake on their behalf. This includes what you are promising to provide under each service, how much each service costs and what the client can expect by way of outcome. Quite often, the marketing commentary focuses on explaining what you do, rather than how the client benefits from it. For example, consider the following service : Life coaching Financial counselling Financial planning Investment management Asset location Review Clients might access each part of this service discretely, or as part of an overall package. But when you describe each part, you should explain how each step can add value to the client and how they, or the firm, will ensure that you deliver the service as promised.

10 10 What business are you in? For example Life coaching Financial counselling Financial planning Investment management Asset location Review We work with clients to uncover their real intent in life and what they really want to achieve. This allows any further financial planning to have a focal point to ensure that our other services meet our clients true life goals. This service helps clients understand the importance of money in relation to their aspirations. We work with clients to help them understand the basic rules of investing. We teach clients the basics about time, costs, risk and emotions on their investment plans. We help clients understand the basic investment principles that are the bedrock of their financial plan. We build a client s financial plan to meet their life s real intent. We consider the amount of time available to meet the goal, the impact of costs over time, how much risk the client is prepared to accept and how to avoid emotional investment mishaps. Working from our client s financial plan, we build an asset allocation and investment strategy in line with the client s time, cost, risk and emotional budgets. This ensures that our clients are able to sleep at night and always have a sound sense of the ability to meet their goals. We provide advice on the best way to shelter investments from tax and how best to provide protection for the client s (or their beneficiaries) assets. We meet regularly with our clients to make sure that their aspirations and their plan remain on course. We demonstrate how we are managing their investments in line with the agreed plan and make adjustments if the client s plans have changed.

11 What business are you in? 11 The importance of review Review is worthy of special mention. It s no accident that successful advisory practices place a significant emphasis on the review process. In the past, initial client engagement was perhaps the most significant event, as this established the relationship and was in many cases, where commission was earned. Thereafter, review meant a cursory check on the client s holdings and a chance to uncover further sales opportunities. As the fee-for-service model has grown, bestpractice advisers have come to understand that the client will only pay an ongoing fee for a valuable service. Only if clients feel they are making progress towards their goals will they keep paying their adviser. Indeed, demonstrating your ongoing service for the fee you charge is now a regulatory requirement. The most successful advice practices don t just offer a portfolio review service, they offer a goal attainment review service. As a result, the review has become more than just a review of the investment portfolio. It involves a fundamental reappraisal of the client s goals and aspirations, with any necessary adjustments to the financial plan. Advisers can use the review process to reassure the client that they remain on track to meet their goals.

12 12 What business are you in? Defining the service you offer Consider each part of your service in turn and ask yourself these questions: What do we actually do in each part of the service? What outcome do we promise for the client? Do clients understand what we re not promising? To what extent can I guarantee the client outcome? How important is the promised outcome to the client? What happens if we don t deliver on our promise? For example, consider Investment management in the above example model. You may actually mean: We seek to derive an asset allocation strategy consistent with the client s longterm need for growth and their time horizon. We will then select investment managers we believe will perform to their brief and deliver the investment performance necessary to achieve the return needed in the timescale available Your client may think you have promised: Better returns than anybody else. Best practice firms regularly conduct an audit of their client-facing materials and conversations to check that their intent is matched by the outcome. The audit is fairly simple to conduct. Take each part of your client communication, break it down and run it through this test. What does our marketing material say? What do we mean when we say that? What do our clients think we mean?* *For help on how to gather client feedback, see the guide in this series called Ensuring client loyalty.

13 What business are you in? 13 Does one size fit all? Your core values should be obvious to each of your clients. Your values define who you are and what you stand for. But that doesn t mean to say that you have to offer the same service to each client. One of the characteristics of successful practices is a discipline in offering only those services that a client values and is prepared to pay for. It is easy to get into a situation where delineation becomes blurred, where all clients receive the same service, regardless of their contribution to profit. Quite often, the lowest value clients consume valuable resources. The best practices carefully segment their clients to understand their needs, and then work out if a service promise can be delivered in a cost-effective manner. For detailed guidance on how to undertake such a segmentation exercise, please see the guide in this series called Achieving profitable growth. Some practices may choose to offer a one size fits all approach or to put it another way, that s our promise and price, you decide. Others choose to segment their offering, perhaps using a menu approach. Another common approach is to have several tiers of service, say, Gold, Silver and Bronze. Activity does not equal value Don t be fooled into thinking that the more you promise your client, the more valuable they will consider your service. Some firms confuse activity with value, promising Gold clients a long list of deliverables and Bronze clients a shorter list, believing the length of the list determines value. In fact, the reverse may be true. The longer the list of promises, the less credible it becomes. Which sounds more credible and realistic, a short list of clearly defined outcomes, or a long list of possibilities? The promise you make to your client is fundamental to building trust. Each time you make a promise you have a chance to keep it or break it. Each time you keep it, you build trust. Each time you break it, you lose trust. You build your brand as trusted client advocate by accumulating a history of kept promises. The trick in building client loyalty is easy really: Make a simple promise and keep it on time, every time.

14 Building trust The key to building a trusted relationship is doing what you say you will every time. Having a gap between what you promise and what you deliver will result in an unsustainable business model. The viability of your brand depends on what your clients experience, not on what you say about yourself.

15 Building trust 15 Basing promises on your capacity Successful practices that have built high levels of customer loyalty, have done so by ensuring their promise to clients never exceeds their capability. They carefully manage the relationship between the promise to clients and their ability to guarantee delivery. Where a task or skill is important to the client but low on the firm s current capability, the firm often seeks to remove the variability of outcome by outsourcing. Even then, outsourcing to somebody else to deliver your promise is a significant step. Where the firm has a high degree of skill or knowledge in the practice, this should be leveraged in the client offering, as it is something you can actually control. Consider the key deliverables from your firm and plot them on this graph. Promise vs Control High Remove variability of delivery and avoid over promising to your client in this area Exploit your expertise and emphasise in your client proposition Importance to client promise Manage the hygiene factors but don t over emphasise Sell benefits of your expertise and make a virtue of your service Low Control over delivery High

16 16 Building trust Getting your people on board Delivering on your promise requires staff who are organised and incentivised to make that promise happen. This requires motivated and aligned staff and a systematic approach that ensures a consistent outcome. It may be necessary to realign staff and their tasks to ensure that they deliver the promised outcomes. Teamwork is essential, with everyone understanding their critical part in meeting the promise made to the customer. Recognition and reward should be focused on meeting the client promise. You can read more about recognition and reward in a separate guide in this series: Aligning your people. Client proposition checklist Putting together a compelling promise that clients will be delighted to pay for is no easy task. It takes considerable understanding of your target market at the same time as successfully setting out what sets you apart from the crowd. What makes you different? You need to be authentic, honest and sincere about your capabilities and what you can do for your client. Best practices also spell out what they don t or can t do. Best practices always start from the client s perspective. Why should a client use you? What s in it for them? And they focus on several metrics in helping describe their value: Quality What can we do better for the client? (Better than the client themselves or than another adviser). Quantity What can we deliver more of (e.g. relevant plan updates) or less of (e.g. pointless client communications). Cost What can we do more cost effectively for the client? Time What can we do faster or more efficiently for the client? Having worked out the benefits to the client, these benefits are then threaded through the client interactions and reinforced each time. The same messages should appear when: Prospecting for clients. Contacting clients. Bringing clients on board. Reviewing with clients. Turning clients into advocates.

17 Building trust 17 Example of a client value proposition checklist: Have you identified your target client segments? Describe them. For each segment, do you understand why those clients use the services of others? Do you understand why those clients don t buy your type of service? Do you understand what troubles your target clients (quality, quantity, cost and time issues)? Do you understand what your client is looking for (quantity, quality, cost and time)? Do you understand the risks to your client of choosing you? Have you captured and articulated your firms core values? What are they? How are they seen in action? Have you identified the specific parts of the service you are offering your client? What are they? If you are promising these to your client, have you confirmed you are in complete control of their delivery? If you are not in complete control, how certain of your suppliers are you? Have you linked your services to your clients needs? What are the benefits of your services to your specific client? Have you checked the competitiveness of your offering (quality, quantity, cost, time) against your competitors? Are you able to provide evidence of your success in the things you offer (e.g. client citations, awards)? Have you identified your key differentiating messages? Are these threaded through your communications? Are they used consistently by all of your people? Have you checked that what you want your clients to hear is what they actually hear?

18 18 What next? With a well-defined and compelling client promise, you can turn to ensuring you keep those promises by systematising and automating your processes. The best advisory businesses have learned how to automate a personal approach. It is also essential that the systems and process of the business are optimised to ensure effortless delivery of your promise. Humans are fallible and should be saved for the value-adding personal touch to the relationship. The highly repetitive, mundane but vital processes should be automated wherever possible. Machines don t get bored. We are here to help We are committed to supporting advisers and practices through this transformation. If you found this information useful, you may want to visit the Adviser Support section of our website. Better yet, why not give us a ring? We d like to hear about what sort of information or resources would be most helpful to you as you work to build a valuable advice practice. Contact Vanguard Adviser Support , or visit vanguard.co.uk. The next guide in this series, Keeping your promises, explores this topic in greater detail. A valuable business Achieving profitable growth Ensuring client loyalty Value creation Defining a compelling client promise Aligning your people Keeping your promise

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20 Connect with Vanguard > vanguard.co.uk > Adviser Support Important information This document is directed at investment professionals in the UK only and should not be distributed to, or relied upon by retail investors. This document is designed only for use by, and is directed only at persons resident in the UK, material contained in this document is not to be regarded as an offer to buy or sell or the solicitation of any offer to buy or sell securities in any jurisdiction where such an offer or solicitation is against the law, or to anyone to whom it is unlawful to make such an offer or solicitation, or if the person making the offer or solicitation is not qualified to do so. The information on this document does not constitute legal, tax, or investment advice. You must not, therefore, rely on the content of this document when making any investment decisions. Issued by Vanguard Asset Management, Limited which is authorised and regulated in the UK by the Financial Services Authority Vanguard Asset Management, Limited. All rights reserved. UK10/0412/0611