Building a successful fee-based advice practice · have to change from selling products to building sustainable, chargeable advice practices. Change requires knowledge, discipline

Building a successful fee-based advice practice

For investment professionals only – not for retail investors.

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5 Introduction: Building a successful fee-based advice practice

6 Supporting the advice profession 8 RDR: challenges and opportunities 10 Facing the challenges 16 Five building blocks to a valuable business

18 Achieving profitable growth 20 Ensuring client loyalty 24 Defining a compelling client promise 26 Keeping your promise 28 Aligning your people 30 What next?

33 Achieving profitable growth 34 Profitable growth from repeatable

revenue streams 38 Understanding client value

42 Segmenting clients 46 Segmenting by Customer

Loyalty Value 52 What next?

55 Ensuring client loyalty 56 Profitability requires client loyalty 58 Understanding what clients value 62 Improve client loyalty through feedback 66 Step 1: Understand why you are

seeking feedback

72 Step 2: Decide an approach 74 Step 3: Gathering the feedback 80 Step 4: Analyse results 84 Step 5: Use results to improve 88 Step 6: Measure improvements 90 What next?

93 Defining a compelling client promise 94 Defining your client promise 96 What business are you in?

102 Building trust 106 What next?

109 Keeping your promises 110 Why keep your promise? 112 Deliver flawlessly 116 Create positive change

120 Decide what to change 126 Decide how to change 132 Measure improvement 134 What next?

137 Aligning your people 138 The importance of aligned people 140 Aligning stakeholder interests 142 Aligning performance 144 Effective incentives 148 Performance management

150 Right people, right roles 154 Leading change 157 What next? 158 Appendix 1 – Performance plan 162 Appendix 2 – Role profile 163 Appendix 3 – Aligning incentives – Example

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6 Supporting the advice profession 8 RDR: challenges and opportunities 10 Facing the challenges 16 Five building blocks to a valuable business 18 Achieving profitable growth 20 Ensuring client loyalty 24 Defining a compelling client promise 26 Keeping your promise 28 Aligning your people 30 What next?

Contents

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Overview: Building a successful fee-based

advice practice

Helping you meet the challenges of an ever-changing industry landscape.

Supporting the advice professionSuccessful fee-based financial advice businesses around the world exhibit a number of shared themes and characteristics that lead directly to their ongoing, sustainable success. This section provides an introduction to these common success factors to help you meet the challenge of the changing business landscape in the UK.

Building a successful fee-based advice practiceSupporting the advice profession

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The changing business landscape

Based on conversations with advisers throughout the UK, we know that you face numerous business challenges. These take many forms, including tough economic times, changing regulation, turbulent markets and the erosion of trust in the industry.

Helping you navigate change

The Vanguard Group, Inc works closely with successful fee-based advisers in the US and Australia, where the transformation from commission-based financial advisers to fee-based advice practices began several years ago. Based on that experience and conversations we’ve had here in the UK, we’ve written this guide for the benefit of the IFA market.

RDR: challenges and opportunitiesThe Retail Distribution Review (RDR) signalled groundbreaking changes for your business. It’s joined by an array of other regulatory, commercial and competitive challenges that are transforming the IFA landscape.

Building a successful fee-based advice practiceRDR: challenges and opportunities

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A product-sales model is no longer effective

At its most basic it means that advisers have to change from selling products to building sustainable, chargeable advice practices.

Change requires knowledge, discipline and determination

But challenge is also an opportunity for practices willing and able to adapt to the new environment and adopt new business models. Change is possible, but takes a disciplined, determined approach. It appears that the firms that have survived and succeeded are not the biggest ones but the ones best able to adapt. Those that have made the change have created real value for business owners, their staff and their clients.

Where do you go from here?

The first step is to truly come to grips with the nature of the challenges and the resulting shifting paradigm of financial advice in the UK.

Facing the challengesThe changing terrain of the UK advice profession is making it more difficult for the advice practitioner to demonstrate their real value. Advisers face a number of very specific challenges that require a concerted and energetic response if they are to survive and thrive in a changed world.

Building a successful fee-based advice practiceFacing the challenges

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Challenge one: Increasing competitive pressure

The internet

By making information and financial product comparisons so readily available, the internet continues to raise both awareness and understanding of financial products. Blogs and forums also offer opinions that sound an awful lot like advice and many people take that ‘advice’. As a result, clients (or potential clients) believe they are well informed and therefore may be reluctant to seek (and pay for) advice when they can access so much information for free.

Product simplification

Many of today’s financial products are simpler than they were in the past. As a result, clients may feel less inclined to seek guidance through the process of understanding and selecting an investment. Advisers who merely offer a comparison service may find themselves left behind by competition from the internet.

More qualified advisers

The Financial Conduct Authority’s Retail Distribution Review (RDR) has meant that more advisers seek to gain qualifications. This may mean that those advisers who relied on qualifications as a differentiator will lose their competitive advantage.

What we’ve heard advisers say...

“ Our clients don’t really know what we do”

“I find it hard to attract new clients”

“My clients now do their own thing”

“ Now they just look it up on the web”

“ My qualified staff moved to a new firm”

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Fee for service

The Retail Distribution Review (RDR) banned all commission and rebates, meaning advisers will have to charge their clients an explicit ‘fee for service’. Previously many clients may have perceived ‘advice’ as free when buying a product. This means that advisers making the change face having difficult conversations because some clients don’t perceive enough value in the service they receive.

What am I paying for?

Among other services, advisers used to add value by analysing and comparing sophisticated investment products. However, increasing financial knowledge as a result of the internet and product simplification have removed the ‘mystique’ and eroded the value of that sort of service. Consumers are asking what exactly they’re paying for and if they should pay at all.

Challenge two: Getting clients to pay for good advice


“ My client was surprised that I have started charging him”

“ My client has questioned my fee level. He never has before”

“ I’ve just lost a client to an adviser who’s offered to do it cheaper”


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Challenge three: Managing risk

Two sides to a difficult issue

The regulator monitors the adviser industry carefully in light of past mis-selling scandals, abuses and misunderstood risk. For their part, advisers tell us they sometimes feel overwhelmed by regulation, even as they do their best to meet regulatory requirements.

Problems with different approaches

Taking a principles-based approach among staff, with no heavy restrictions or rules can result in inconsistent outcomes. On the other hand, introducing defined risk controls can introduce ‘systemic risks’ into the equation, a further level of opaque and difficult-to-analyse risk.


“I dread a regulatory visit”

“It’s all meaningless box ticking”

“ It takes us hours to prove we do the right thing”

“ I’m worried about what my people are selling”

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Value

Some advice practices focus on finding new clients and not enough time locking in future revenue streams by building client loyalty. As a result, some overvalue their business based on large one-off past sales. However, real value only flows from sustainable future profit. Without visible and predictable revenue streams, a business is unsustainable and therefore virtually worthless.

Planning

A number of advisers fail to plan their growth and exit strategies and when the time comes, they become forced sellers. Many also fail to plan adequately for succession of key personnel, usually the principal. This normally goes hand in hand with being wholly dependent on the principal for the day-to-day functioning of the business. In these cases, when the principal is no longer there, the business is worthless.

Challenge four: Creating business value


“ If I’m not here, my business is worthless”

“ I don’t understand where my profit comes from”

“I don’t spend enough time planning”

“ We’re too reliant on finding new clients”


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Spending time ‘on’ the business

Traditional ways of doing business are deeply embedded, making it hard to change. Advisers also find themselves under time pressure to attract new business and fail to spend time ‘on’ the business of managing the firm.

Difficulty in making painful personnel decisions also hampers change, as does the challenge of putting changes in place that incentivise staff to change.

Challenge five: Dealing with change


“It’ll never work”

“It didn’t work last time”

“If it isn’t broke, don’t fix it”

“I don’t have the time”

“It’ll be all right”

Five building blocks to a valuable businessHopefully this discussion of the challenges facing the UK IFA industry has led you to think about how you can succeed in the new environment. One way to answer this question is to look at successful fee-based advice practices here and overseas, and identify any common factors.

Each block depends on the one below

Aligning your people

Keeping your promise

Defining a compelling client promise

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Ensuring client loyalty

Achieving profitable growth

A valuable business

Building a successful fee-based advice practiceFive building blocks to a valuable business

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These five related and interdependent factors that seem to typify a successful advice practice rely on each other to work effectively. They are the same for any successful business, but have some very specific applications for financial advisers. Successful practices do all of them rather than picking and choosing. They tell us that each of the five factors depends on the others for success – lose one and everything else falls over.

We examine each in detail, but first we need to define what we mean by a ‘valuable business’.

Understanding real value

Financial advisers know they add value. But in a competitive, fee-based world, that value needs to be identified and communicated. You need to show that your value is not just tied to investment performance, but is spread across an array of long-term benefits accrued from a strong adviser-client relationship.

Building on deep experience in the US, Canada and Australia, our Investment Strategy Group has now identified different areas in which UK advisers can make a critical difference, and estimated values for each area. You can read more about each component on our website, on our dedicated Adviser’s Alpha section. [add link on wrods ‘dedicated’ to ‘section’ : https://www.vanguard.co.uk/adviser/adv/adviser-support/practice-management/value-of-advice

Client value

Things which clients value in an advice business may include:

Understanding – the practice truly understands what they want from their investments and their life.Representation – the practice forcefully and faithfully represents the client’s interests.Honesty – clients rightly expect advice to be honest, transparent and clear.Follow through – clients will always see value in a practice that always does what it says it will do.

Owner value

Many owners have got the message and have remodelled (or started remodelling) their business to focus on better client outcomes. But what about their own outcomes? It’s okay to be ‘selfish’ in defining your own life goals, as this brings a focus to why you’re in business. The sooner you understand why you’re really in business, the sooner you can structure your business to achieve it. Whether your ‘reason why’ is to fund your retirement, leave a legacy to your family, service the community or just have fun, understanding the ‘why’ guides and gives energy to the ‘how’.

Five interdependent factors

Achieving profitable growthMany businesses focus their energies on increasing turnover, attracting more clients, hiring more employees and renting larger offices. But growth alone doesn’t guarantee profit – and ultimately, only profitable growth makes a valuable business. In order to achieve profitable growth it’s important to understand where profit comes from in your business, and then how to grow it.





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A valuable business

Building a successful fee-based advice practiceAchieving profitable growth

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Avoid growth for growth’s sake

Successful advice practices appear to generate the majority of their income through ‘sticky’ repeated transactions, rather than through a single transaction with a ‘new’ client that they never see again. They avoid the trap of spending all their time and resources on generating growth for growth’s sake, and instead focus a considerable portion of their energies on making their existing client base more profitable. Big doesn’t always mean profitable. Becoming profitable means creating repeatable, low-cost revenue streams.

Repeatable revenue streams

Locking in future profits requires that you figure out how to persuade clients of the value of your service not just once, but continuously. You can only do that by providing a service that clients understand, value and enjoy.

Profitable growth comes from ensuring that you take on new clients that you can service effectively at the promised price. Successful firms resist the temptation to take on every client that comes along, and certainly not those who demand a promise beyond your means, or at a cost that destroys your profitability. In some

circumstances, you may wish to cease servicing clients who are not prepared to pay your fee for service or are demanding a promise you can’t fulfil.

Growth can also come from existing clients who are prepared to pay more for extended and new services as you introduce them. To do that you need to only take on those that you can effectively service in the first place.

Low-cost revenue streams

Repeatability and low cost go hand-in-hand. High frequency tasks can be automated to deliver both cost efficiency

and consistent outcomes for clients. Efficiency increases profitability, while consistency leads to higher quality and a better customer experience. The trick is to work out the best possible ‘promise’ (proposition) that can be delivered for the lowest acceptable cost, without compromising quality.

Growing a profitable business rests squarely on creating client loyalty. The next section examines how successful practices go about doing that.

Revenue

Repeatable StickyLow costClient values it

Low long-term profitabilityHigh long-term profitability

‘New’ client One-offHigh costClient doesn’t value it

Comparing high and low long-term profitability.

Ensuring client loyaltyKeeping an existing client costs a lot less in time and resources than it does to get a new one. As we have seen, profitability rests on repeatable, low-cost sources of revenue. This requires that you focus as much on retaining clients as you do on getting new ones – and retaining clients means always keeping your promises.





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Building a successful fee-based advice practiceEnsuring client loyalty

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Loyalty rests on satisfaction

Successful firms tell us that they spend a considerable amount of energy understanding whether or not their clients are satisfied. They know that it’s easy to mistake apathy and inertia for client satisfaction. The fact that the client hasn’t left yet is not the same as loyalty.

Someone who once bought something from you is not the same as someone prepared to pay you a fee many years into the future. How many of your clients would, or have, recommended you to others? Perhaps this is the truest test of client satisfaction.

Trust and reliability

If you think about the people you consider loyal, or that you are loyal to, those relationships probably rest on a secure foundation of mutual trust. To secure your clients’ loyalty you simply must be worthy of their trust.

The fee-for-service advisers that do this most successfully are those that clearly communicate their fee-for-service model and are absolutely transparent about their charging structure. This goes together with educating clients that the fee-for-service model means that you are acting solely in their interests and no one else’s – no one is paying you a commission and you are there to serve them.

Many studies have shown that the main cause of client dissatisfaction is lack of service delivery, or to put it another way, not keeping the implied promise to the client. Why is this? In some cases, failure is due to misaligned incentives.

‘Salespeople’ are there to sell, not service, so promises of great after-sales service often don’t materialise. In other cases, the implied promise is poorly delivered.

Perhaps the most commonly broken promise centres on ‘investment performance’. The financial advice world is littered with advertising and marketing that implies a promise of better performance, but few actually deliver, especially over the long term.

So how do you ensure both the reality and perception of reliability?

• Make the promises your clients want. • Make sure you only make promises you can keep.

• Organise yourself in a way that ensures you do keep them.

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Your ‘promise’

Generating client loyalty also means communicating clearly about what your business can do for them.

‘Advice’ means different things to different clients and advisers. Your clients may not know exactly what types of financial advice they need – and importantly they may be unaware that your business can offer more than one kind of advice.

Clearly defining what you offer and how, sets 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.

Life coaching Financial planning Investment management

Focus Helping clients discover what they really want from life and how defining clear goals and having discipline and a clear financial plan can help them achieve this.

Working with clients to help them understand the fundamentals of investing, creating a financial plan to meet their goals and sheltering assets in tax efficient products where appropriate.

Creating a tailored portfolio that reflects an individual client’s needs, including their attitude towards risk and return.

At its root, what we’re talking about is delivering on promises. Successful firms don’t leave delivery to chance; they systemise and embed service excellence across the firm.

Building a successful fee-based advice practiceDefining a compelling client promise

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At its root, what we’re talking about is delivering on promises. Successful firms don’t leave delivery to

chance; they systemise and embed service excellence

across the firm.

Defining a compelling client promiseThe first step towards delivering excellent service is having a clear understanding of what you’re promising whether you make a direct or implied promise. Then you set out to ensure that you keep it.





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Building a successful fee-based advice practiceDefining a compelling client promise

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Controlling the outcome

Many advisers implicitly based their client ‘promise’ on an uncontrollable outcome, such as the performance of their chosen asset classes and managers. But as they have found over the last few turbulent years, ‘performance’ based promises can quickly and easily destroy credibility.

Successful advisers have learned to anchor their service promise only on things they can actually and confidently predict and control.

Focus on client needs

Your service promise should focus unfailingly on the client’s real intent and everything you do should be a means to the client’s end.

You can demonstrate this to your client by relating your actions explicitly and clearly to your promise … “As promised here is your quarterly review statement. Let me talk you through it, in light of your plan to retire five years early.”

Remember that perceptions are built up by repeated experiences. If you continually exceed service expectations by delivering on your promises again and again, you will create powerful client loyalty.

A trustworthy business

For your business to be truly valuable, your clients must trust the whole business, not just you. So if you decide to sell it or grow in-house successors, the client value remains. In most successful practices, clients don’t notice that the owner has moved on. This requires flawless, systemised execution in order to keep the service promise.

Beware of overpromising

It’s tempting to believe that the more the client pays, the more you should promise and deliver. Best practices, however, tend to work on ensuring that they keep their promises to a credible minimum. They have found that the longer the list of promises, the less credible it becomes. Clients begin to doubt whether a firm can really deliver on all those promises. Instead, create a short, achievable promise and exceed it, rather than a complex implausible one that fails. The trust clients put in your brand results from an accumulation of your successes, not your failures.

Keeping your promiseHaving made a deliberate promise to your client, you have to keep it. Even the smallest failure to deliver what the client perceives to be your promise will erode trust.





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A valuable business

Building a successful fee-based advice practiceKeeping your promise

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Planning to deliver

Delivering on your promise depends on knowing what is involved in making it happen. Each step of the process should be understood, planned and resourced. So understanding your firm’s talents and capabilities should inform the promise you make to your clients in the first place.

Start with the outcome

Starting with the promised outcome, ask yourself “What will it take for that to become a reality for my client?” Working backwards will highlight the dependencies involved for each step to become a reality. This ‘process mapping’ can prove invaluable in uncovering gaps in the ability to deliver what’s needed, or identifying outcomes that are out of your control and therefore a risk to the client promise being met.

Automate high frequency tasks

Identifying the key activities will also highlight those tasks that will be undertaken with high frequency. This can help to identify those tasks where automation can have its greatest benefit. Using tools and systems to ensure high quality frequent output is the key to

consistent delivery and performance. More precious resources, such as your talented staff, should focus on managing the complex, personal interactions that will add value to the client relationship.

Control costs

As we discussed earlier, successful firms build a profitable business in part by keeping a keen eye on costs. Identifying the key processes involved in meeting your client promise makes it possible to calculate the cost of delivering the service.

For example, one of the key high volume repeat processes in the business will be the regular client review. You can identify what it takes to deliver the review service promised, and then the approximate cost for each review. This should prompt a few questions such as:

• How can I deliver that part of the promise more efficiently, but without compromising my promise?

• Does my fee structure reflect the reality that my clients experience?

• Do I always do what I say I will do, on time, every time?

• Do I fully understand the actual cost of the promise I am delivering?

Clients’ willingness to pay your ongoing fee for service depends on your answers to these questions.

Perception and reality

Regardless of what you want your brand to be, what it says in your introductory brochure or what your website says, the reality is that your clients will judge you based on your actions, not on your words.

There can be no permanent gap between the image you project and the reality your clients experience. Doing what you say you will do, on time, every time is critical to building loyalty with your clients. Their willingness to pay your ongoing fee for service depends on it.

Delivering consistently flawless execution depends on more than simple automation; it depends unfailingly on high performing people within your business who are aligned to you and your clients’ goals. Now we’ll examine the people aspect of developing a valuable business.

Aligning your peopleClients only experience repeatedly flawless execution and service excellence when highly competent people are highly motivated to deliver it.





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Building a successful fee-based advice practiceAligning your people

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Motivating high performance

So how do you know if your people are motivated?

The most important factor appears to be that they understand the nature of their business, which is to meet the client’s real intent, not the individual task or role. In other words, they understand why they do what they do, not just what and how.

They are client focused and take pride in serving them successfully. They also understand the interdependent nature of the fulfilment process and their part in it.

Aligning incentives

Aligning incentive plans with client satisfaction is the key. In other words, salespeople who overpromise should not be rewarded, nor should ‘services’ that don’t help meet the promises you make to clients.

The most successful practices measure and reward people for things that really matter. They know that you always get from people what you measure and reward. They ensure that measures and rewards clearly match the critical tasks that are required to meet the client promise.

Training and development

The most successful practices never scrimp on training and development and ensure that all staff are equipped to execute their responsibilities.

They put processes in place that ensure that all staff meet an acceptable minimum standard. They also support any and all learning and development that is required to deliver the client promise.

Leadership

Focusing on building the businessWe’ve also noticed that leaders in successful practices spend time working ‘on’ the business, not just working ‘in’ the business. Getting this balance right is a common but crucial challenge for business owners.

They do this because they know that success rests on creating vision, pride, goals and setting success criteria, while stepping back from the day-to-day task focus.

Embracing and managing changeA key function of leadership involves proactively addressing concerns from staff. Most people naturally fear change and allaying that fear requires a concerted effort.

Successful leaders of successful practices don’t shy away from difficult decisions. They know that to deliver on their service promise to the client, they may have to change their process or even their people.

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Building a successful fee-based advice practiceWhat next?

What next?

The first section of this guide provided an overview of the challenges the industry faces and a brief introduction to the five building blocks of building a valuable business. Read on for a detailed look at each of the five building blocks that characterise successful fee-based advice practices the world over.

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profitable growth

Profitable growth comes from ensuring that you have clients that you can serviceeffectively at the promised price while making a profit.

Contents




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A valuable business

34 Profitable growth from repeatable revenue streams 38 Understanding client value 42 Segmenting clients 46 Segmenting by Customer Loyalty Value 52 What next?


Profitable growth from repeatable revenue streamsProfitable growth comes from ensuring that you have clients that you can service effectively at the promised price while making a profit. Successful firms resist the temptation to take on every client that comes along, and certainly not those who demand a promise beyond their means, or at a cost that destroys their profitability. The first step towards this goal is truly understanding what makes a given customer profitable.

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Achieving profitable growth Profitable growth from repeatable revenue streams

Avoid growth for growth’s sake

Some businesses focus their energies on increasing turnover, attracting more clients, hiring more employees and renting larger offices. But growth alone doesn’t guarantee profit – and ultimately, only profitable growth makes a valuable business. In order to achieve profitable growth it’s important to understand where profit comes from in your business, and then how to grow it.

Successful advice practices appear to generate the majority of their income through ‘sticky’ repeated transactions, rather than through a single transaction with a ‘new’ client that they might never see again. They avoid the trap of spending all their time and resources on generating growth for growth’s sake, and instead focus a considerable portion of their energies on making their existing client base more profitable. Big doesn’t always mean profitable. Becoming profitable means creating repeatable revenue streams with low overheads.

Repeatable revenue streams

Locking in future profits requires that you figure out how to persuade clients of the value of your service not just once, but continuously. You can only do that by providing a service that clients understand, value and enjoy.

Profitable growth comes from ensuring that you take on new profitable clients that you can service effectively at the promised price. Successful firms resist the temptation to take on every client that comes along, and certainly not those who demand a promise beyond their means, or at a cost that destroys their profitability. In some circumstances, you may wish to cease servicing clients who are not prepared to pay your fee for service or are demanding a promise you can’t fulfil.

Growth can also come from existing clients who are prepared to pay more for extended and new services as you introduce them. To do that you need to only take on those that are profitable and that you can effectively service in the first place.

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Achieving profitable growth Profitable growth from repeatable revenue streams

Identifying profitable clients

The road to high long-term value lies in segmenting your clients and prospective clients and identifying those that generate high long-term profitability. It may also mean identifying and perhaps losing those high-cost low-profit clients that may be getting in the way of generating profitable long-term growth.

This section explores the nature of client value and profitability, with guidance on how to go about segmenting your client base.

RevenueLow long-term profitabilityHigh long-term profitability

Repeatable fees Sticky revenuesLow cost to serveClient values service

‘New’ client dependenceOne-off commissionsHigh cost to serveClient doesn’t value service

Comparing high and low long-term profitability.

The road to high long-term value lies in segmenting your clients and prospective clients and identifying those that generate high long-term profitability

Understanding client valueThose advice practices achieving greatest value appear to be those who offer the best possible service at the lowest acceptable cost, delivered in such a way that it generates significant client loyalty.

They carefully segment their market to ensure that they only make a promise they can keep and their clients are delighted to pay for, again and again.

You can only do this by carefully understanding your client needs, your ability to provide an excellent solution and ensuring that you match your talents to your client’s requirements. And delighted clients equal greater business value.

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Achieving profitable growth Understanding client value

Overpromising doesn’t work

As your business grows, you might feel tempted to take on any new client in the hope that they become profitable or know another client who could be. But promising everything to every client usually ends up disappointing the client and, therefore, does not create a long-term, profitable client relationship.

One way to achieve loyal and profitable clients is by focusing on clients whom you stand an excellent chance of satisfying in the first place. For mature businesses, it may seem disloyal not to carry on serving your entire client base, profitable or not, or whether they are happy or not. We explore the topic of happy clients in greater detail in the next section, Ensuring client loyalty.

Which clients lead to profitable growth?

As business becomes more competitive and margins become tighter it is critical to ensure that your valuable resources are targeted towards delivering on your promises to those clients who will ensure profitable growth. A loyal client is one who is happy to pay your fees ongoing, and recommend you to their friends.

Determining which client groups you can best serve profitably will enable you to target your resources for best effect and higher client satisfaction. In addition, it will set a clear path for your business and your staff, both of which are important ingredients towards greater profitability and business value.

The Lifetime Value (LTV) of clients

Having a quality service no longer automatically wins business from clients. Informed companies in consumer-facing industries often use sophisticated techniques to understand how to deliver service in a way that clients find most valuable.

Companies understand that keeping customers happy and enjoying an ongoing relationship generates more profitability (because it costs a lot less) than constantly replacing lost clients with new ones. While this makes business sense, it can also have a dramatic impact on the profit, and therefore, value of your firm. One measure of client value over time is the Lifetime Value (LTV) of clients.

LTV = the total of net present value of anticipated future cash flows (revenue – costs) of an individual client.

Focusing on clients you can really satisfy

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The value of client loyalty

However, LTV only provides one facet of the story of client value. Calculating the expected revenues from your clients assumes that you will keep them as clients. Therefore, to understand true value, you also need to account for customer loyalty. This introduces another metric, Customer Loyalty Value (CLV).

Customer Loyalty Value (CLV) = Loyalty rate x LTV

Customer Loyalty Value is the lifetime value weighted by the loyalty rate. A client with a ‘loyalty rate’ of 100% will never leave you, thus enabling you to earn the entire LTV of that client. A client with a ‘loyalty rate’ of 50% assumes you have a 50/50 chance of keeping the client, in which case you can only count on half of the LTV.

So, CLV measures the robustness of your future revenue streams, not just the amount.

Why bother with CLV?

Most firms aim to make a profit and build value. Of course, the business also seeks to serve clients, help them create and protect wealth, and meet their goals.

But business owners, be they paternal or entrepreneurial, may at some stage look to exit from the business and pass it on to new owners. The CLV score of the business should heavily influence the amount the owner can expect to receive for their business.

Many firms find that prospective purchasers will pay more for firms with strong evidence of high, persistent recurring revenues, than for firms with uncertain future revenues. Building a business on delighted customers who will pay your fees for life and refer new clients to you will build tangible, realisable value.

Finding this value can pose a challenge as many accounting systems only count revenue received rather than the cost of servicing that client. However, the most successful advice practices have begun to understand and use this factor. In addition to counting projected revenues and costs, some firms also ascribe a value to other attributes such as: • Referrals to new clients. • General advocacy. • Assistance with service or proposition development.

Equally, on the cost side, some firms assign clients a value in addition to basic servicing costs, for example: • Poor advocacy, negative word-of-mouth reputation.

• Costs of discounts needed for that customer.

• Exceptional service costs above the norm.

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Using CLV to improve the business

Understanding CLV will also help you measure and structure improvements to your business. As the old saying goes ‘If you can’t measure it, you can’t improve it’. But don’t confuse ‘customer satisfaction’ with ‘client loyalty’.

Customer satisfaction surveys generally assess your clients’ views on things like your products, services, staff, speed and quality of delivery. This may reveal your clients’ current level of happiness (or unhappiness) but doesn’t tell you your clients’ propensity to leave you for a better or different offering in the future.

Using CLV measures gives a different view by focusing on your clients’ motivations and propensities to behave in a certain way. For example, they tell you if your client is likely to pay for other services from you, demand more or better service from you or their sensitivity to fees.

By understanding client feedback, you can use findings to segment customers by their loyalty rate and target your efforts on areas of activity with the opportunity to increase the CLV. Considered use of qualitative and quantitative research, coupled with research on intentions and responses to alternatives can help: • Tailor services to some segments to increase their loyalty score.

• Identify problems affecting loyalty in certain segments.

• Understand the value/price trade off in certain segments.

• Inform your marketing style and approach.

• Inform your customer acquisition, retention and disposal plans.

Understanding Customer Loyalty Value is great mechanism for gaining insight into your clients, leading to a better relationship and ultimately, business value. The first step in this understanding is segmenting your clients by value.

Segmenting clientsCompetition for clients is intense, and you need a strategy to make the most of your business-building efforts. Market segmentation can help you focus your prospecting efforts and service offerings. Segmentation can help you define the right clients for your practice, what those clients look like, and how to target them.

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Achieving profitable growth Segmenting clients

Firms can find many ways to assist the segmentation of their clients. Numerous commercial offerings exist that will assist a firm with understanding the profile of their client base using a data modelling approach. But before diving into the data, first you need to consider the question you are trying to answer as this may help inform the approach you take to segmentation.

For example, you may have different questions in mind: • Over the years my business has grown by accepting every client, but how can I achieve greater definition in my business?

• How can I change the direction of my business to concentrate on clients looking for a wealth management service?

• Why don’t I make much profit despite a large client base and high volumes?

In order to end up where you want, you have to understand your start point. New businesses have a terrific opportunity to get it right from the start. More mature businesses may face some difficult decisions; especially if that means letting go of some clients that no longer fit with your model.

You can take three different approaches to client segmentation: • Bottom up • Top down • Value to business assessment

The bottom-up approach

This method applies best when analysing an existing client base. It enables the observer to see trends or themes in the client base by studying the more detailed variables present in the data. The analysis would involve identifying important data fields such as client age, assets under management, investment or product holdings, revenue per customer and servicing demand.

By building a list of common themes, the data may show groups of customers and may give clues as to which customer categories appear more aligned to the business or are, perhaps, more valuable.

Three approaches to segmentation

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Achieving profitable growth Segmenting clients

Value-to-business assessment

Studying your clients from the bottom up can create real insight into the clients you have accrued, but may not allow you to draw any real conclusions. Looking at your clients top down to identify specific characteristics may yield a certain answer, but you may miss other interesting insights.

One way to assess the whole of your client bank but keep the task manageable is to have a focal point. Given the significance of profit to the value of the business, one focal point could be the value that each client brings to the business. Ranking your clients by business value will help inform the importance of certain clients or client types. It may uncover some interesting insights as to why these clients prove more valuable.

The top-down approach

This method applies when you know the client segment you want to identify and focus on. For example, the business may want to focus on a given area of expertise, such as servicing clients who need advice as they move into their retirement. Or maybe the business’s area of expertise lies with servicing those clients with complex estate planning needs.

Knowing the characteristics of your service makes it easier to study your client base from the top down and identify those clients who match your desired profile. This may show a high number of clients suit your model, or that your business has not attracted the right type of client in the past.

Ranking your clients by business value will help inform

the importance of certain clients or client types. It may

uncover some interesting insights as to why these clients prove more valuable.

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Achieving profitable growth Segmenting by Customer Loyalty Value (CLV)

Segmenting by Customer Loyalty Value (CLV)Ranking your clients by business value will reveal the importance of certain clients or client types. It may also uncover some interesting insights as to why these clients are proving more valuable, which will help you gather and focus on the type of clients that ensure profitable business growth.

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Given the focal point of the initial segmentation is client value, a key piece of data for each client is the revenue they produce for the firm. For example, how much does each client pay in ongoing fees or what ongoing commission or

asset-based revenues does each client generate? How loyal is each client?

When collected, start to tabulate the data into quartile or decile rankings using a table like this.

Revenue quartile Quartile 1 Quartile 2 Quartile 3 Quartile 4

Top 25% firm revenue

2nd 25% firm revenue

3rd 25% firm revenue

Bottom 25% firm revenue

Clients How many clients are in this quartile?

% of total clients

Client value

What is the lifetime value of these clients? ( LTV)

What loyalty score does this quartile achieve?

What is the Customer Loyalty Value of this quartile? (CLV)

Asset values

Highest asset value

Lowest asset value

Average asset value

Segmenting by CLV allows the firm to start to understand how value accrues, or perhaps erodes, from certain clients or client types. This means focusing on one value, client revenue, and using that metric to further explore the findings in order to make critical business decisions about which segment to focus on.

This approach not only allows an understanding of the value of certain clients, but more importantly, the attributes of that value for better or worse. • Gather data • Understand segments • Categorise findings • Determine focus

Step one – Gather data

Most firms will have documented client records showing the advice and service delivered. Ideally you will have these in digital format, but if not, you will need to spend some time collating the relevant data. See the example on the next page for the type of data that you may need.

Focusing on client revenue

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This analysis will show a high-level split of the revenue being earned by the firm and the proportional source of that revenue, together with the Customer Loyalty Value for each segment. Often, a small proportion of clients produce the largest proportion of revenue for the firm (the 80/20 rule). Likewise, it may show how a significant number of clients produce a similar or lesser proportion of revenue.

A firm will wish to avoid depending on too few clients, but equally it should avoid wasting resources on clients that provide little revenue and therefore value to the firm.

Step two – Understand segments

Now that you have a rough idea of the revenue in each segment, you’ll want to understand how the characteristics of the clients in each segment influence the profitability of that segment. Specifically, you’ll need to know the cost of delivering the promised service to those clients. It might turn out that Segment two clients would become more profitable if it costs proportionally less to service them compared to your best revenue generating clients.

You can now develop a series of questions that will allow you to develop a sense of the characteristics of each segment. You may wish to engage a data provider who can provide insight to your customer profiles based on market data and postcode.

Demographics

Describe the demographic profile of this segment.Are there any common characteristics such as age, gender, location, occupation?

Are there a few sub segments that you would allocate these clients on to: • Wealthy retirees • Baby boomer pre-retirees • Fast saving Generation X

Describe a typical member of each sub segment.For example: • What are their interests? • What is their income and expenditure pattern?

• What type of investor are they?

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Opportunity

Is the sub segment growing or declining?

Are revenues from this type of client likely to rise or fall in future?

What competition will we face in this sub segment in future?

Out of 10, how would we rate our ability to improve our proposition to each sub segment?

Gaining a deeper understanding of the various sub segments makes it possible for the business to get a sense of the contribution each segment makes to the business. It may also become evident that the business is also under or over serving some customers, based on their value to the business.

Before moving on to a discussion about what to do with the new insight, it is worth capturing and summarising your findings. The segmentation exercise may have been very straightforward, or it may have left you with more questions than answers.

If you are still unclear about the segments in your client list, it may be worthwhile engaging professional help from marketing firms which can help interrogate data and suggest appropriate strategies. In some cases, embarking on some client research may well yield some very useful insights.

Client behaviours

What products or services does each sub segment typically need?

How does each sub segment typically interact with us?

Is the servicing cost of the sub segment high, medium or low?

What percentage of total staff time would we estimate the sub segment uses?

Does the sub segment create any specific demands on the business?

Does the sub segment create any specific risks for the business?

Out of 10, how would we rate how we meet the specific needs of the sub segment?

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Step three – Categorise findings

To inform your ongoing priorities and discussion, consider categorising your clients using a straightforward matrix like this one.

Valuable – at riskCurrently under risk of losing to competition.

Action: Lessen reliance on these customers, or improve ability to serve at acceptable cost.

High priority – key focusMost important to our business. Produce high proportion of revenue and we serve them well.

Action: Ensure continued service excellence while attempting to reduce cost.

Low value – low priorityLow-value revenue generation, or expensive to serve.

Action: Reduce service promise, or consider withdrawing service.

Low value – need to nurture Easy to service at an acceptable cost, but not at a very high value.

Action: Seek to increase revenue and nurture the relationship

High

Customer Loyalty

Value(CLV)

Low

Low Ability to provide excellent service at acceptable cost High

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• How can we reduce the cost of servicing these clients without impacting on the service experience?

• How can we attract more of this type of client?

• How can we turn these customers into advocates?

Valuable but at risk • Do we understand why these clients are difficult to service?

• Do we understand what these customers think about our service?

• Do we know what these customers say about us?

• Do we need to provide a better service for the fee being paid by the client?

• What would be the impact of losing the client to a competitor?

• How can we make it easier to serve this client without increasing cost?

• Can we reset the client’s expectations of the service they receive for their fee?

Clients we should nurture • How can we obtain higher value from these clients?

• Do we have other services we can offer these clients?

• Are these clients useful as advocates?

• How do we avoid increasing costs as we increase services to these clients?

• Can I offer the current service at a lower cost?

Low value – low priority • Are we sure these clients are adding little or no financial value to the business?

• Are we contracted to provide the service for any period of time?

• Will the client be willing to pay a minimum fee for service?

• Does the client add value in any other way, e.g. lead generation, advocacy?

• What is the impact of withdrawing services from this client?

Step four – Determine focus

Set against a background of market developments, regulation and demographics, understanding your client segments can help to guide decision making regarding your business focus.

Future business success may rest on your ability to attract and retain the right type of client, offer a compelling proposition and charge an ongoing fee that the client regards as appropriate.

To inform such decisions, consider asking key questions about each category of clients. For example;

High priority focus • How do we make sure everybody in the business understands the importance of these customers?

• How do we make sure these clients continue to fully appreciate the service they receive?

• How can we make sure these clients are aware of all of the services we offer?

• How can we make sure these clients feel special?

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Achieving profitable growth What next?

What next?

With a firm grasp of which clients create the most value for your firm, you can focus on the next critical component of building a successful fee-based advice practice: ensuring that you keep those clients loyal. Loyalty rests squarely on delivering consistent outcomes in line with your client promise.

Keeping an existing client costs a lot less in time and resources than it does to get a new one. As we have seen, profitability rests on repeatable, low-cost sources of revenue. This requires that you focus as much on retaining clients as you do on getting new ones – and retaining clients means always keeping your promises.

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2. Ensuring client loyalty

Whether you are just starting out or have been operating for years, the same question applies:How can you be sure that your client willvalue your service and be prepared to payongoing fees for it?

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Contents




Valu

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A valuable business

56 Profitability requires client loyalty 58 Understanding what clients value 62 Improve client loyalty through feedback 66 Step 1: Understand why you are seeking feedback 72 Step 2: Decide an approach 74 Step 3: Gathering feedback 80 Step 4: Analyse results 84 Step 5: Use results to improve 88 Step 6: Measure improvements 90 What next?


Profitability requires client loyaltyKeeping an existing client costs a lot less in time and resources than it does to get a new one. As we have seen, profitability rests on repeatable, low-cost sources of revenue. This requires that you focus as much on retaining clients as you do on getting new ones – and retaining clients means always keeping your promises.

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Ensuring client loyalty Profitability requires client loyalty

Engaging with clients’ needs

Creating a profitable fee-based advice practice requires more than increasing the amount of assets you manage or the number of clients you advise. Truly successful practices focus on helping their clients determine what is right for them and doing the right things to help them achieve their goals. In other words, successful practices have mastered how to match their skills and knowledge with the needs of the client to ensure they deliver on the promise made to clients.

Whether you are just starting out or have been operating for years, the same question applies:

How can you be sure that your client will value your service and be prepared to pay ongoing fees for it?

Changing market environment

As the regulatory and competitive arena develops, many advisers will face increased competition for their best clients. This competition could come from fellow professionals or new types of competitors with significant marketing resources and client insight.

Clients are increasingly savvy and aware of the choices in the market. More than ever, advice practices need to articulate the value they bring to clients and demonstrate confidence for the fees being charged.

Clients live longer these days, and therefore need planning advice well into their later years. Many older clients now worry as much about their wealth as they do about their health.

Increased consumer awareness, more choice and more competition can drive fees down even as clients demand more and better service. How can advisers ensure they can afford to deliver when having to promise even more to clients?

Understanding what clients valueClient loyalty is no longer enough if you want your practice to thrive. Research in other markets, such as the US, that have already moved to a fee-based model, suggests that actively engaged clients produce more revenue and profits for firms than those who are merely content.

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Ensuring client loyalty Understanding what clients value

Loyalty built on trust

Some clients may come to you with a specific, well defined need, such as advice on their existing pension, or life cover in case of early death. Other clients may lack clarity on what they really need but feel anxious about their finances.

The only thing you can be sure of is that they will be hoping they have found somebody they can trust to advise them.

As we explored in the first section, Building a successful fee-based advice practice, the key to growing a valuable business is having a profitable business. This in turn depends on having loyal clients prepared to pay for your services for the long term. Their willingness to do this will depend on the value they attach to your services and your firm’s ability to keep its promise. Meeting your client’s goals is a central promise, whether they understand their own goals or not.

Keeping promises

Whether you intend to or not, you make promises to your clients all the time. Both explicit and implicit promises are inherent in your marketing material, your initial conversation and every other way the client interacts with you.

Of course, you may not use the word ‘promise’ with clients as it may be misleading. But regardless of whether you use the word or not, your clients will perceive a commitment to do what you say. Consider the following:

‘At ABC Wealth Management, we pride ourselves on using our significant experience in Investments and estate planning to produce the most appropriate portfolio to help you meet your goals’.

People tend to hear the positives and ignore the negatives. So in the above scenario, a client looking for the positives in your very balanced propositional statement may well have heard ‘you’ll meet my goals’.

Making deliberate promises

The most successful financial-planning practices ensure that they make deliberate promises to clients, rather than implied or unintended ones. They know clients will hold them to their service promises, whether they meant to make them or not. They don’t leave their promise to chance and they don’t assume that clients understand them. They have discovered that retaining satisfied loyal fee-paying customers over the long term rests squarely on keeping their promises.

They focus the promise on the client and on their desired outcome, not the perceived capabilities of the firm. How many brochures have you seen extolling the investment expertise of the firm? That may be an important part of the ultimate delivery needed by the client, but the firm is promising to deliver a certain outcome. If you ask your clients what you have promised them, what will they say? Do they believe that you’ve promised them investment outperformance, an outcome which you don’t actually have final control over?

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Ensuring client loyalty Understanding what clients value

Accidental promises, made in good faith but poorly delivered, can severely undermine the trust between client and adviser such that client loyalty cannot be guaranteed. This in turn will have an impact on loyalty and profitability and ultimately business value. For more on this topic, see the previous section, Achieving profitable growth.

To maximise trust with clients, only make promises you intend and have the capability to keep. For an in-depth look at how to make promises to clients, see the next section, Defining a compelling client promise.

The most successful financial-planning practices ensure that they make deliberate promises to clients, rather than implied or unintended ones. They know clients will hold them to their service promises, whether they meant to make them or not.

Improve client loyalty through feedbackLoyal clients are a function of a well-defined promise to your clients, which is met with service excellence delivered by committed people.

How do you know your clients are enjoying the benefits you promised them, and for which they pay a fee? There is only one way to be sure and that is to ask them.

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Ensuring client loyalty Improve client loyalty through feedback

Don’t ask, don’t know

Client loyalty is critical to ensuring future revenue flows into your business and therefore the profitability and value of your business. Loyal clients are the function of a well-defined promise to your clients, which is met with service excellence delivered by committed people.

How do you know your clients are enjoying the benefits you promised them, and for which they are pay a fee? You could assume they, but just because a client hasn’t left yet isn’t the same as knowing they value your service. Could you achieve an even deeper relationship with your client? Do your clients value you enough to recommend you to others?

There is only one way to be sure and that is to ask them.

The benefits of feedback

Gaining client feedback can be a powerful tool in helping your business focus on improving how you do things, which in turn will lead to better client relationships. It helps provide direction for the business and clues to obtaining that competitive advantage.

Client feedback can: • Help you understand what your clients, in the various segments, really value and want from your business.

• Tell you the expected level of service that satisfies the client, but is within your operational budgets.

• Give you a way to test new service offerings to your clients, or to new client segments.

• Show you whether improvements to your service have improved client loyalty.

Firms which successfully seek out and act upon client feedback tend to have clients with a higher loyalty factor, higher fee propensity and positive referrals. All of these lead to improved longer-term value for the business.

Using feedback to improve business value

There are six important steps to gathering and using client feedback:1. Understand why you are

seeking feedback2. Decide an approach3. Gather the feedback4. Analyse the results5. Use the results to improve

your service6. Measure improvements

The following sections explore some options for tackling each step, using examples or suggestions. Any client feedback process should be tailored around your own service offering to your specific client segments. Adopting a bland generic approach may not deliver the specific results your business really needs to know.

Understand why

Decide an approach

Gather feedback

Step

by

step

Analyse results

Use results to improve

Measure improvements


Step 1: Understand why you are seeking feedbackBefore launching into a feedback process, step back and ask yourself why you are seeking feedback in the first place. As with many things, you reap what you sow, so the more time taken to understand your research objectives, who’s involved and how you will conduct the research will pay dividends later.

Understand why

Decide an approach

Gather feedback

Step

by

step

Analyse results




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Ensuring client loyalty Step 1: Understand why you are seeking feedback

Feedback can hurt

First get ready for the feedback, the good, the bad or the ugly, but ‘feedback is the food of kings’. Many firms can attest to the improvements made on the basis of good feedback.

Feedback can be hard to take, especially if it’s focused on a single aspect of the business. Sometimes the hardest feedback can be the most beneficial, but the business needs to be open to honest feedback.

If your clients take the trouble to give you feedback that will help improve your service and relationship with them, then make sure you really want to listen before you ask.

Examine your motivation and readiness

Before you start, check some basics to see if you’re ready for the next step. Score yourself on the following checklist: yes, no or maybe.

Consideration Yes No Maybe

Are you clear on the specific objective of your client research?

Have you done this type of exercise before?

Have you considered the costs and benefits of customer research?

Are you clear on the client segments you will be researching?

Have you considered the various methods of gaining customer feedback?

Do you have the skills in your business to conduct the research?

Are you committed to making changes on the back of your findings?

Have you worked out how to capture and analyse the findings?

Have you considered how your clients will react to your request for feedback?

Have you considered how your staff will react to feedback?

Have you developed a communication plan?

If you score mostly ‘yes’, then it looks like you can press on. If you scored a lot in ‘maybe’ or ‘no’, then you might wish to pause and consider your approach to this exercise. You may only get one chance to persuade your clients and staff of the benefits of the exercise. Taking time out to prepare properly is crucial.

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Focus on your promise

Remember, you’re making a promise to your clients. Whether you intended to or not, whether implicit or not, your clients expect you to deliver on your promise in return for the fee they pay you. The key to understanding client satisfaction and degree of loyalty is to focus your search for feedback on whether or not you are meeting their expectations.

An initial focal point for your research is the promises you make to your client. In the next section, Keeping your promises, we discuss how to systemise the delivery in a way that ensures service excellence every time you interact with clients. For example: • Prospecting • Initial engagement • Understanding needs • Proposing solutions • Take-on process • Financial and life-planning process • Review process

Remember, your brand is not what you say about yourself, it is what your clients actually experience. Each of these steps, or your business equivalent, should be systematically planned to ensure that they are consistently delivered to the standard you set for yourself and you have promised your client. Understanding who is responsible for each step, when it should be delivered and to what standard are the keys to service excellence.

Start by mapping out processes by listing each of the critical touch points, and the benefit they’re meant to deliver for the client. You can then focus your feedback on discovering if the client receives and understands the benefit of each process.

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The impact of feedback on stakeholders

Gathering feedback gives you a chance to demonstrate to your various stakeholders, such as your clients, staff and suppliers that you care about your business and delivering on your promises.

But you need to consider whether some of your stakeholders may think differently about your intentions. For example, will staff see the feedback as a potential threat? Will clients see this as a cynical sales approach?

Take time to note the possible concerns and benefits for each of your stakeholder groups. This will allow you to develop a communication plan that allays any concerns and emphasises the benefits of your research.

When you’ve considered each stakeholder’s possible concerns and questions, develop a plan to communicate the objectives of the research and how fully participating will help them achieve more of their aims.

For example:

Stakeholder Concerns Benefits

High-value clients

Are you thinking of reducing your service?Will my fees be going up?

We want to make sure we are delivering on our promise to you.

We want to make sure you are aware of the full services we offer.

Mid-value clients

Are you just trying to sell me more?

We want to make sure you are getting value for money and understand the full range of services we have to help you.

Low-value clients

Are you thinking of withdrawing your service?

We want to understand why you don’t use us more.

We want to understand why you have moved some of your investment away.

Prospective clients

Is this a clumsy approach to get us to like you?

We’re keen to understand how our service needs to change to attract you as a client.

We want to make sure that your requirements are something we can promise to deliver.

Former clients Is this an attempt to win us back? We always regret losing clients and wish to avoid it happening again. Although painful, we’re keen to understand what we could have done to keep your business.

Staff Is this a way of catching us out so you can dock our bonuses?

We want to make sure that what we do for clients adds value and is appreciated. That will lead to us all having more fulfilling roles.

Suppliers Are you thinking of cancelling our contract?

We need to make sure that our client promise is being met, by everyone involved in the process. That way we all prosper.

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For example:.Q Do we have specific problems we are

trying to solve?.Q Do we have specific client segments

that we wish to research? If so, why?.Q Have we seen particular trends in our

business that worry us?.Q Do we see opportunities we’d like to

understand better?.Q Do we know where we add value and

where we don’t?.Q Do we know what our clients value,

and what they don’t?.Q Do we know what would cause

our clients to leave us for another service?

.Q Do we know what our clients say about us when we’re not there?

Documenting this ‘purpose’ will help you decide on your approach for seeking feedback.

What problem are you trying to solve?

Before you set off, full of enthusiasm and with a plan of action, you’ll need to think about what problem you are trying to solve.

Are you trying to address specific issues in the business such as asset retention or client retention? Are you looking for the root cause of this specific issue? Or are you looking for a more general understanding of the level of engagement with your clients?

For those interested in their business value, as discussed in the previous section, Achieving profitable growth, you may be keen to understand the Customer Loyalty Factor that drives your business valuation.

Sit down with your staff and discuss what you really want to find out from the research. Write down some specific objectives that you could use when assessing the feedback.

Gathering feedback gives you a chance to demonstrate to your various stakeholders, such as your clients, staff and suppliers that you care about your business and delivering on your promises.

Step 2: Decide an ApproachNow that you know why you’re seeking client feedback, you can decide how to gather it.

There are various methods of seeking client feedback, each with its own set of advantages and disadvantages. The quality of the feedback may depend upon the methods chosen, so it’s worth thinking about the approach that best suits your firm’s circumstances.

Understand why

Decide an approach

Gather feedback

Step

by

step

Analyse results




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Ensuring client loyalty Step 2: Decide an Approach

Selecting an approach

In selecting an approach to gathering feedback, you will need to consider several things:

.Q What is the cost of this research method?

.Q What will the quality of the information be like?

.Q How much time will the approach take?

.Q What skills are needed to conduct the approach?

In terms of results, which method will give you the answers that are the most:

.Q accurate?

.Q up to date?

.Q detailed?

.Q relevant?

Different approaches, different considerations

Here are some methods to consider, together with their pros and cons.

Approach Pro Con Cost Quality

Face-to-face interview, structured or unstructured

Gathers real experiences and enables specific issues to be identified

Time consuming and some clients may not wish to criticise individuals

Requires skilled interviewers

High High

Email or post survey –structured questionnaires sent to selected audience

Can be tailored to specific themes or audience and conducted on a rolling basis

Can seem impersonal, difficult to probe emerging points

Potentially low response rate

Low Low

Telephone surveys – a one-on-one interview

Can be tailored, with structured deeper questioning on certain responses

Requires skilled interviewers able to follow a process but probe when prompted

Medium High

Client council – a managed group client discussion on topical subjects

Group discussion can illuminate consideration points

Clients need to feel comfortable expressing opinions in a group, requires careful management

Medium High

Focus groups – clients, prospects or general groups

Useful for testing ideas and current or proposed approaches

You get a variety of interesting responses

Participants may lack knowledge of your business/approach, requires careful coordination

Outspoken individuals can dominate or drown out other participants

Medium - high

High

Using a combination

You may wish to use a combination of techniques with different client types, such as spending more time and effort on

one-to-one interactions with high-value clients, while using lower-cost approaches with less-valuable clients. The importance of the outcome should determine which approach you choose.

Step 3: Gathering the FeedbackAs we have seen, you can obtain client feedback in a number of ways. It’s worth considering how best to prepare for the feedback exercise to ensure you get the feedback you need. Each approach requires different preparation.

Understand why

Decide an approach

Gather feedback

Step

by

step

Analyse results




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Ensuring client loyalty Step 3: Gathering the Feedback

Designing a questionnaire

The questionnaire will depend upon the objectives of the exercise and how it’s used. There are three general possibilities: • Structured questionnaires. • Semi-structured questionnaires. • Unstructured interviews.

Unstructured interviews

Unstructured interviews are best undertaken by trained interviewers who will stimulate an in-depth discussion on a given topic. • Can uncover a range of factual and emotional responses.

• Are ideal for discovering real insights into your business.

• Require a great deal of skill. • Results can be difficult to analyse.

Example questionsQuestion 1:How often has your Relationship Manager conducted a review with you in the last year?A. WeeklyB. MonthlyC. QuarterlyD. YearlyE. Never

Question 2:How would you rate your annual review pack?A. It told me everything I need to know and reassured me I will meet my goals.B. It gave me a good feel for my investments but I don’t understand if I will

meet my goals.C. I was unclear on what the pack meant.D. It left me confused or concerned.E. I did not receive a review pack.

Structured questionnaires

Taking a structured approach allows you to gather quantitative data across a range of topics and respondents with little need for direct interviews. • Can be done by post, email or telephone. • Can be low cost. • Results can be easily tabulated and analysed.

• No ability to probe when needed.

Example questionQuestion: Can you give us your view of the quality of financial advisers. (Interviewer: Probe reputation, brand, price, qualifications, services, access).

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Semi-structured questionnaires

Taking a semi-structured approach allows a mix of open and closed questions. • Can be used in postal/email, telephone and face-to-face interviews.

• Provides a greater opportunity to probe certain responses.

• Can uncover more behavioural information.

• But will be harder to analyse due to the qualitative answers to the open questions.

Example questionsQuestion 1. Can you tell me what is most important when choosing an investment adviser?(Note to Interviewer: If ‘experience’ is mentioned, ask: How do you judge an adviser’s experience?)

Question 2.Which particular aspects of our service do your find most valuable?

The importance of setting

Your questionnaire must complement your approach and most importantly, get results. Here are some things to consider when you design your own questionnaire. Remember that the type of questionnaire you use will significantly influence how you analyse your data. If you conduct many in-depth interviews, the analysis may become quite complicated.

In general, don’t: • ask respondents to do or remember the impossible.

• use complicated or misleading language.

• lead your respondents with loaded or biased questions.

• use a confusing or illogical layout that could dissuade people from completing the survey.

Telephone surveys. • Keep questions simple. • Keep interview length short. • Develop an introduction outlining the purpose.

• Simplify the wording: clear, concise and jargon free.

Face-to-face surveys (individual or group). • Make the interview interesting to keep people’s attention.

• Consider using visual aids. • Develop an introduction outlining the purpose of your research.

• Combine open-ended and closed-ended questions.

• Continually probe using ‘how’ and ‘why’ questions.

• Make your survey flexible, use as a guide.

Self-completion surveys (mail, internet). • Make it straightforward. • Simplify questions to be unambiguous. • Keep questions ‘closed’ so that they only require tick boxes.

• Explain the purpose of the survey to respondents.

• Include a covering letter explaining the purpose of your research.

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Try to ensure the approach reflects your business and the audience. Remember, a combination of techniques may best suit your needs.

Focus groups

Focus groups need to be well managed and require a skilled interviewer. Their job is to prompt discussion, then identify emerging themes in order to probe those that add depth to your understanding. Don’t be afraid to let the conversation wander, but stay ready to pull it back on track if needed.

A skilled interviewer can ensure that feelings, as well as facts, emerge from the discussion. A focus group has a beginning, middle and end. You need to prepare and plan for each stage in advance.

Beginning: Set the stage. • Explain the purpose of the session. • Discuss ground rules. • Explain the confidential nature and uses of their responses.

• Explain why they were invited (e.g. they represent your most valued clients and their feedback is important to getting better at serving them).

Top tips for different research approaches

• Explain why you’re taking notes. • Consider an icebreaker to get people involved and motivated.

Middle: Gather information. • Develop questions that are open ended and well conceived before you begin

• Ask probing questions, such as ‘why do you say that?’

• Keep people on track and focused on the key discussion areas.

• Capture points clearly and accurately, you will probably need help to do this effectively.

• Try to prevent individuals from taking over the discussion, making sure that everyone has their say.

End: Summarise the key points. • Ask each participant to briefly state their most important point or issue of the session.

• Sum up your impression to ensure that you have accurately represented their views.

• Thank the group for their participation and explain how you will use the data.

• Give them a small gift as a token of your appreciation.

Client councils

Client councils can serve a similar function to focus groups, largely using an unstructured questioning approach managed by a good facilitator. With councils, the same group meets more frequently to discuss selected topics.

You’ll need to decide who to invite from your various client segments, or perhaps consider running different client councils. For example, you may wish to invite outspoken clients, those whose opinion you really value.

Take care that the opinions of a few don’t override the entire group. Some participants may be shy. Also think about mixing your loyal supporting clients with those that you find more of a challenge. This might make for a useful discussion.

To avoid your client council becoming a pointless talking shop, be specific and structured in your planning. • Detail the structure of the council to those you invite. Tell them how many people are on the council, who else has been invited, how often the council will meet and the purpose and outcome you expect from the meetings.

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• Consider sending out a specific note to council members on the discussion points. This will give them time to think them through.

• Focus on the benefits to the council members. Why would they want to give up time to be a council member? Do you provide any hospitality when running the meeting?

• Make sure you follow each council meeting with a note of the key points to emerge. Members will want to know that the conversation was worthwhile and meaningful.

Face-to-face interviews

Make sure you are fully prepared before launching into the client interview. • Make sure you’re clear on the purpose of your research and can explain it to the interviewee if asked.

• Confirm that the research is confidential or ask permission to quote their feedback.

• Be able to explain why you’ve asked to interview them

• Plan your time available wisely to make sure you have enough time to cover the entire interview.

• If using a semi-structured interview, remember to probe on attitudes and feelings as these will add depth to your research findings.

• At the end, thank the interviewee and summarise the key points.

• Remind the interviewee how the feedback benefits them.

Post or email surveys

Post or email surveys can be a cost-effective way of gathering feedback from a large number of respondents. An administrator can easily manage the process and therefore you won’t have to use a skilled facilitator.

However, the quality of feedback depends on the effort put into the questions. The more precise and thorough the questionnaire, the more specific the responses and analysis will be. Post or email surveys offer no opportunity to probe respondents’ feelings or responses, so it is important to design questions in as many areas as you need.

• Ensure you target the audience whose opinion you seek.

• Consider asking a large number of clients, as many may choose not to answer your survey.

• State the benefit to them of completing the survey, such as improved service. Or you may want to use a small incentive, such as a charitable donation.

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• Make the survey easy to complete and not too long.

• Pre-empt the survey with a letter/email to your clients letting them know that they will be receiving the survey and you would appreciate their time to complete it.

• Remind your client the research is confidential and you’d appreciate their honest feedback.

• Make the survey easy to return, perhaps send a postage-paid, addressed envelope.

• Check response rates at periodic intervals and send gentle reminders for completion.

• Send thank you notes to those who completed the survey.

Telephone surveys

Telephone surveys require the same degree of thought as postal and face-to-face surveys in relation to targeted audience, length and breadth of survey, and benefits to respondent. But a few tips are worthwhile. • Don’t ring clients without warning; let them know you plan to survey them.

• Call them at a suitable time, preferably booked. Be sure to check if it’s a convenient time when you call.

• Always introduce yourself and state the purpose of the call.

• Make sure the interviewer can speak clearly and plainly on the telephone.

• Don’t sell yourself, this is not the time for a cheap plug of your business.

Step 4: Analyse resultsNow you get the reward for all your hard work and planning. You can start to collate your results into a format that will allow you to consider the impact on those areas important to you. Hopefully you will be able to answer the questions you had at the start of the exercise.

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Ensuring client loyalty Step 4: Analyse results

Analysing quantitative data

If you used structured questions you will find it relatively easy to collate the answers. Tabulate the number of responses to each question together with the scores. In this way you can see the percentage of respondents for each question.

You may wish to analyse any differences between client segments or profiles. For example, do different age groups think differently? Do different advisers get different results?

If this survey is a continuation of previous surveys, you can plot progress over time to see your improvement (see Step 6). Use graphs or pictures to bring the data alive when sharing it with others.

Analysing qualitative data

Understanding qualitative data collected using unstructured questions poses a greater challenge. It needs a considered eye to look at the results and spot themes or trends.

Drawing conclusions

When you embarked on your feedback programme, you probably had some very specific points you wanted to focus on. For example, you may have wanted to

test a new proposition, or understand your client’s sensitivity to your fees. If so, the results should reflect the more specific nature of the questions you would have asked and the conclusions should be fairly apparent – even if that means you’re only certain about your client’s uncertainty.

If your research was broader – perhaps to discover your client’s general level of engagement – you will need to draw out the key messages and themes and understand what they mean for your business.

Analysis tool Action

Group discussion Use a group to discuss what they believe the feedback really means. Encourage the group to think about what they see as positive, but also to challenge anything they thought was negative.

Category Give each piece of feedback a label – such as Quality, Quantity, Cost or Time – and collate it into these categories. Then explore each category looking for trends.

Impact on promise Much of your survey focused on your client’s experience relative to the promise you made them. Allocating feedback to some aspect of promise delivery (such as an individual process) might help.

For example, feedback relating to client reviews can be collated and analysed for good and poor feedback in relation to that part of your promise.

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Ensuring client loyalty Step 4: Analyse results

Key process deliverable Feedback Impact

Our client engagement pack lets our client know what we do and what we don’t do.

The majority of clients felt we offer a good service, but did not understand what ‘life planning’ meant.

Clients don’t understand how we plan the finances in the context of their goals and may not commit to our process.

Our representatives are courteous and professional.

72% of respondents rated us as excellent, although one Business Development Manager received poor ratings under ‘too salesy’.

While good, we need to reinforce the impact we have at initial client meetings. Some retraining is needed for some.

We explain all fees and charges.

90% of clients understood our fees and charges, but 35% thought them too high.

We need to consider the pricing point of our fees to some clients or risk losing them.

All clients have an annual review.

The majority of clients received an annual review, although 28% thought the update irrelevant and 43% thought it was just a summary of their investments.

Clients don’t understand the significance of the annual review in monitoring their plans. We need to retrain our BDMs on the importance and conduct of the review.

It might be worth plotting the key themes against a set of Key Performance Indicators. In our other sections in this guide, we have talked about the need to automate and systemise those elements of your service delivery that are critical to clients. If you have done this, you can use this feedback to score your business against each critical deliverable.

For example:

You may wish to analyse any differences between client segments or profiles. For example, do different age groups think differently? Do different advisers get different results?

Step 5: Use results to improveYou may choose to ignore some feedback, but the point of the exercise is improving your business in a way that leads to higher client loyalty and thus greater profitability. In order to use feedback effectively, you need to prioritise the feedback and develop an action plan.

Understand why

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Ensuring client loyalty Step 5: Use results to improve

Prioritising feedback

If you have received a significant amount of feedback, it is important to prioritise and work with your people to make the best improvements you can.

You might find it useful to use a simple priority grid comparing impact against quality, such as this one. Plotting each feedback theme onto a grid like this can help you work out which pieces of feedback to celebrate or tackle.

Important to respond quicklyExploit and reinforce this aspect

of our service

Consider if/when to improve. Keep an eye on

Make a virtue of this service

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Impact on client

loyalty/value

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Poor Results from feedback Good

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Ensuring client loyalty Step 5: Use results to improve

Communicating the results

As part of your ongoing communication plan, you’ll need to think about how you will communicate the results to your key stakeholders.

Clients who participated in the feedback process should be thanked. Where possible, you should also give them details of the findings and what you intend to do about them. This will reinforce the importance of their contribution and encourage them to provide valuable feedback in future.

It is also important to discuss feedback with your staff. As such, best practice firms never use feedback as a weapon, but only as a way of engaging your staff in improving your processes. Nobody likes to think that their contribution is wasted or not valued, so they will be keen to understand where they can help improve client outcomes. More often than not, they are also in the best place to know what to do about it – the boss doesn’t always have the best ideas.

Of course, if there are tough lessons to be learned, don’t beat around the bush. Best practice firms don’t hold back the brutal facts, especially if they are eroding client loyalty and thus business value.

Involve your people in decision making

Involving your people in the decision-making process will improve staff engagement. Getting their ideas on how to improve the situation means you stand a better chance of getting the ideas implemented.

When you have settled on a number of improvements, make sure they are planned into the business. Give each improvement an owner and incentivise them to deliver on the improvement.

Of course, if there are tough lessons to be learned, don’t beat around the bush. Best practice firms don’t hold back the brutal facts, especially if they are eroding client loyalty and thus business value.

Step 6: Measure improvementsNow you need to monitor the changes you’ve made to see if they produce the desired outcome. You may have a very specific outcome in mind, perhaps improving a specific part of your client programme. If so, it may be easy to notice the impact the changes are having.

If the changes are wider, you may need to put several monitors in place to check progress. Perhaps random sampling of clients may help provide some interim feedback.

Understand why

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Ensuring client loyalty Step 6: Measure improvements

Continuous improvement

As you improve your business, your competitors will respond by improving theirs. As a result client expectations will continue to rise. To remain successful you will need to improve your client experience by constantly monitoring delivery.

While feedback can be used ad hoc, using it continually will ensure that you can measure and implement improvements over time. Clients like to see a firm that is striving to improve and will never tire of helping you achieve greater success.

Researching the same themes over time will give you in-depth insights into the impact that changes have. You might not always see the impact in the short term, but they will show up over time. It may take a significant number of your clients to complete a whole business cycle, such as a complete year of reviews, or enough clients to experience a new service, such as your estate planning service, for you to see statistically significant results.

A final word

The importance of building and retaining loyal clients cannot be overstated. In a world where ‘fee for service’ is normal, both clients and firms need to understand the exchange of value that takes place.

Advisers have a choice of whether to take on a client or not. Of course, the client has a choice also, and in a world of equally qualified, professional, competitive advisers, it will be your ability to meet your client’s expectations ‘as promised’ that will determine their loyalty to you.

Given that loyalty is the proxy for future fees – and the ultimate value of your business – it is worth concentrating on making a promise you can keep and ensuring your client knows you are keeping it.

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Ensuring client loyalty What next?

With a solid understanding of what ensures loyal clients, we can delve further into these topics. The next section, Defining a compelling client promise, will help you further refine the promises you make to your clients and help map them to your business competencies.

What next?

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Only promise what you can and will do.

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A valuable business

94 Defining your client promise 96 What business are you in? 102 Building trust 106 What next?


Defining your client promiseIn previous sections 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 section we explore how to define a compelling client promise that clients explicitly understand and are willing to pay you to keep.

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Defining a compelling client promise Defining your client promise

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.

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.

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?

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.

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.

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Defining a compelling client promise What business are you in?

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’:

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.

Focusing on clients you can really satisfy

ReviewAsset location

Investment management

Financial planningFinancial counselling

Life coaching

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For example

Life coaching 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.

Financial counselling 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.

Financial planning 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.

Investment management 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.

Asset location 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.

Review 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.

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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, best-practice 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.

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You may actually mean:‘We seek to derive an asset allocation strategy consistent with the client’s long-term 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 section on Ensuring client loyalty.

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 example model opposite.

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.

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 section on Achieving profitable growth.

Building trustThe 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.

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Defining a compelling client promise Building trust

Control over delivery

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.

Remove variability of delivery and avoid overpromising to your

client in this area

Exploit your expertise and emphasise your client proposition

Manage the hygiene factors but don’t overemphasise

Sell benefits of your expertise and make a virtue of your service

High

Importance to client promise

Low

Low

Promise vs control

High

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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 the section on 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.

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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?

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Defining a compelling client promise What next?

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.

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In today’s competitive world, your delivery needs to be flawless if you are to meet your promise to clients, retain their loyalty and keep your business safe.

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110 Why keep your promise? 112 Deliver flawlessly 116 Create positive change 120 Decide what to change 126 Decide how to change 132 Measure improvement 134 What next?

Keeping your promises

Why keep your promise?Keeping the promises you make is the simplest way of earning long-term trust with your clients. This in turn helps to ensure they remain happy to pay your fees for service for many years to come – the basis of long-term profitability. This section discusses the importance of your processes in making sure you keep your promise.

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Keeping your promise Why keep your promise?

Promises and business value

In previous sections we discussed how building a successful fee-based advice practice rests on making a compelling client promise that you are able to keep. Doing so builds trust and loyalty, which in turn builds a profitable client base, which is the source of your business value.

Seeking flawless delivery

Not so long ago, you could build a successful financial advice business if you did the majority of things right. But in today’s competitive world, your delivery needs to be flawless if you are to meet your promise to clients, retain their loyalty and keep your business safe.

Remember, your brand is not what you say about yourself in your firm’s brochure or website, or even what you hope your customers think about you. Your brand is based on what your customers actually experience. Your actions speak louder than words.

This section explores how to achieve the high-quality robust processes required to deliver a flawless experience for your clients.

Deliver flawlessly

Deliver flawlesslyIn a dynamic, client-focused environment, process sometimes gets forgotten. Many think of it only after the sale or as a necessary evil. Some advisers thoroughly enjoy engaging with clients but dread the ‘admin’ that follows. However, flawless delivery relies on robust processes.

Create positive change

Decide what to change

Decide how to change

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Keeping your promise Deliver flawlessly

The importance of process

In previous sections we explored the critical nature of having a consistent, repeatable experience for every client, regardless of which adviser they use. This ensures that your clients feel safe in the knowledge that their plans and aspirations will endure, regardless of staff changes in the business. ‘Systemising’ this experience relies on having a robust set of processes to support it. You shouldn’t leave your client promise, or your client experience, to chance.

Work ‘on’ your business

Spending time ‘on’ your business and not just ‘in’ it, by developing good processes can generate a number of key advantages: • Allows you to work out the best way to reach your and your client’s goals.

• Serves as benchmarks of ‘best practice’, allowing you to measure your delivery against them.

• Helps control business and regulatory risk by reducing the chances of financial or reputational damage.

• Identifies waste which can help reduce costs and increase profitability.

• Helps your people understand their role in delivering your client promise.

Engage your people

Before embarking on process change, you will need to ensure that everyone in the business understands why and that you bring them along with you. See the next section, Aligning your people, which explores this topic further.

You should engage with every one of your people to help answer the following questions:

.Q What do we do well?

.Q What lets us down?

.Q What do our clients think of us?

.Q Do we deliver what we promise to clients?

.Q What do we need to change?

Improving client outcomes

The point of the exercise is ensuring that you continually improve the outcome for your clients. Effective process management involves everyone in the firm understanding the central importance of generating consistent and even delightful client outcomes, and how to achieve them.

Engaging with all of your people also helps you to leverage the talents and knowledge of those most familiar with the inner workings of your firm, putting them in a position to influence positive change.

Using checklists

Successful firms are increasingly aware of the use of process checklists to reduce risk and improve the client experience. This has grown as a result of books outlining the importance of critical task checklists in several high-risk activities, such as surgery, aviation or high-risk construction projects.

You can clearly see the benefits in life-or-death situations, but you can also apply the same principles in business-critical situations.

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In essence – when we travel anywhere, for business or pleasure, the process is controlled. The airline and the airport have worked out the safest and most profitable way of doing it. Having worked out the safest and most profitable way of doing it, why follow a different process? That would just introduce risk or inefficiency.

Of course the experience should be as pleasurable as possible, but the trick is to create a process that delivers maximum efficiency and risk control.

It’s probably quicker for you too and you may be able to choose your seat.

3. You drop your bags and go through security. You don’t get a choice about security because risk, to you and others, is being controlled by this part of the process.

4. You pop into duty free and this increases revenue for the airport. Airports are now shops where the shoppers arrive and depart by plane. You can’t get to your plane without going through the shopping area. To you, it’s convenient and sometimes you can get a deal on duty free.

5. You get on the designated plane and sit in your designated seat. You usually don’t get a choice at this point because of the need to distribute weight around the aircraft.

6. You arrive at your destination after the pilot has followed a rigorous programme of safety checks and safe flight procedures.

Checklist example: going on holidayWe like to think the process is flexible and chosen, but it actually follows a fairly straightforward checklist process that looks something like this1. Book holiday online2. Check in online3. Drop your bags and go through

security4. Pop into duty free5. Board aeroplane6. Arrive at your destination

Sound familiar? You’ve been ‘processed’.

Let’s take a closer look and see what happens and why.1. You book your holiday online

because this reduces cost for the tour operator and puts the responsibility on you for making the correct booking. It’s sold to you as being simple, convenient and low cost.

2. You check in online because this reduces the cost of needing to have staffed checkin desks at the airport.

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Successful firms are increasingly aware of the use of process checklists to reduce risk and improve the client experience.

Deliver flawlessly



Create positive changeAs you set about improving your processes, you’ll need to create an environment where your people positively support and embrace change. Seeking change can make your staff feel threatened or criticised. Creating a positive atmosphere relies on you working in partnership with your staff as stakeholders in your business, to create change, not dictate to them.


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Keeping your promise Create positive change

Ask for their input

Positive engagement can be improved by asking your people to identify the areas for improvement and being genuinely interested in their answers. Likewise, they should be consulted on ways to achieve those improvements.

Change on a personal level

Organisational change requires that people embrace change at a personal level. Some may fear change, others may embrace it. Some will take time to reflect and consider their participation. Many will need to confront change on a very personal level on some pretty basic behavioural levels, as well as deciding if they are able to make the jump. For the good of the business, you should make efforts to support them as they embark on personal change. You may also find that this has rewards all its own.

Create a ‘beacon’

Successful advice practices exhibit a significant common trait. They all have an unrelenting focus on what ‘great’ looks like. They don’t seek to have an ‘okay’ business. Instead, they ask themselves:

.Q How do we make this a great place for our clients?

.Q How do we make this a great place to work?

It’s no accident that business owners who have enjoyed an increase in their business value have done so by focusing on these questions. They create a description of their idea of a perfect business to serve as a ‘beacon’ so that clients and staff have a shared understanding of what the business aspires to be.

As advice practices have modernised, successful firms have learned to ‘corporatise’ their business to assure their clients of consistent and reliable outcomes. This has required that they change from practices that operated like a series of ‘mini franchises’ with client outcomes dependent on whom they dealt with in the firm. Such a change can feel threatening to some, but by creating a meaningful and compelling ‘beacon’ description for the business, the best practices have found that their people find their own way to that beacon.

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Top ten tips for leading change

1. Recognise that change will take time. You will have to overcome familiarity and dependence on established practices, which can lead to anxiety and resistance. Recognise these as natural parts of the change process.

2. Remember the people, as well as the process. Aligned and engaged people are required to deliver your processes. To create a success out of your business changes you will need to engage a number of individuals.

3. Expect false starts and hurdles. These are natural, but you will need to show tenacity and be clear on important points of change that are required. Resistance is a positive sign that people are taking change seriously. Embrace the engagement and discuss concerns and how you can overcome them.

4. Expect productivity to slow when people are transitioning to the new way of doing things.

5. Start with small wins. Don’t expect to achieve the grand plan all in one go. Set some achievable milestones, achieve them and build momentum.

6. Not everybody will ‘get it’ immediately. Take time to explain your aspirations and your goals. Just because it’s clear in your head doesn’t mean it’s clear to others. Likewise, your sense of urgency may not be matched by theirs. Keep reinforcing your ‘beacon’ – the place you want to be.

7. Personalise the benefit. Motivation to change can depend on the person’s perception of benefit. Focus on the positive benefits of change for clients and staff, not the negative consequences. Your people will naturally want to know what’s in it for them. Make sure you have a positive answer.

8. Experience can often be your worst enemy. Sometimes it’s difficult to forget how to do something the ‘old’ way. This can lead to backsliding. Develop novel ways of trying new things and rewarding success.

9. Time your changes. Think about timing ‘nice-to-haves’ with those that you have to make. For example, the business may need to adopt regulatory changes. Is it wise to throw more change on top of an already stretched business? Maybe that’s not the ideal time to change.

10. Be realistic. The change you want will be harder and more complex than you think so you’ll need to set realistic goals.

You can read about leading change in more depth in the section on Aligning your people.

Be realistic. The change you want will be harder and more complex than you think so you’ll need to set realistic goals.

Decide what to changeMost businesses are full of processes that have simply evolved over time. Before leaping into the first opportunity that comes along, consider those processes that are most important to you and think seriously about what you need to change and why.

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Keeping your promise Decide what to change

Getting to ‘great’

By now you should have a clear idea of what ‘great’ looks like as discussed in the previous chapter. This ‘beacon’ position defines what you need to achieve to be a safe and profitable business that delights its clients. You should also now have a clear idea of what you are promising your clients, as discussed in the section, Defining a compelling client promise. These two standards together provide a framework to assess your processes and decide what to change.

Map your processes

You might find it useful to break down your processes into the three typical types: • Those that help you keep a promise to your client.

• Those that keep your business and your client safe.

• Those that increase efficiency and therefore profitability.

These can be further broken down into two categories: • Client facing processes • Support processes

Keeping your client promise requires excellence in both categories of process.

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Client-facing processes

You may have already mapped out your client-facing processes at a high level. If you haven’t already mapped your client-facing processes, take time to understand these. Gather your teams and brainstorm the activities you undertake with clients and group them into themes. For example: • Prospecting for clients. • Contacting clients for the first time. • Making recommendations and giving advice.

• Bringing clients on board. • Managing client assets. • Reviewing client plans. • Turning clients into advocates.

This example comes from a separate guide: A systematic investment advice process, which explores client-facing processes in detail for giving investment advice. This guide is available on our website, vanguard.co.uk or you can order a paper copy from our Adviser Support team using the contacts on the back of this guide.

Statement of Investment Principles

• Categorise and evaluate

• Determine risk/return requirements

• Develop a written plan

• Periodic financial check ups

• Significant life events • Review progress

Know your client1

Monitor progress5 Develop a plan2

Construct portfolio3Implement plan4

• Review of client’s financial position

• History, values, transitions, goals

• Goals-based planning

• Strategic asset allocation

• Sub-asset allocation • Passive/active mix • Asset location • Manager selection

• Best execution • Tax-efficient trading • Automate rebalancing


Building a robust investment advice process Create business value – Manage regulatory risk – Delight your clients


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Identify the granular tasks

Next you’ll need to identify the key elements of each task that make up that process. Again, you should try to involve everyone who touches the process as they are best placed to identify the required tasks.

You will need to detail the tasks to a good level, but not yet to step-by-step actions, which will come later. At this stage you are trying to identify those areas that will give you clues as to where improvements may emerge.

Score your processes

The problem areas, if you have any, might be obvious. If you have sought customer feedback (see the section on Ensuring client loyalty) this may have given you clues as to where dissatisfaction or problems lie. If so, these should be noted, but resist the temptation to dive into action. You should delve deeper to discover if there are any serious issues or root causes to the obvious areas of needed improvement.

Having a sense of how each part of each process influences the client experience and business performance will allow you to plot them onto a score matrix such as the one reproduced here. While not an exact science, it may help highlight areas of specific concern or risk. Engage your teams in an honest assessment of how each item should be scored.

This is where those sticky notes come in handy. Each part of each process can be considered separately and awarded a score in each of the three categories above. From this, it may become clear where the key risks to the business lie (from the totals in the columns) or if certain processes are causing problems in all areas.

Support processes

Likewise, you will need to identify those broader processes that underpin your business. For example: • Marketing • Training • Recruitment • Risk management and compliance • Investment management • Performance management • Strategic planning • Finance

This list is not exhaustive – you might find it worthwhile to have a team brainstorm to identify everything you currently do in the business. Covering a wall in sticky notes can prove useful later on when identifying your processes and putting them into themes.

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Scoring

Score each process and task according to its impact, with a positive, neutral or negative.

Positive The process works well in all instances and is having a positive impact.

Neutral The process works sometimes, but sometimes fails to meet clients’ expectations, introduces a risk or is inefficient.

NegativeIn most cases the process fails and affects client experience, risk or efficiency.

Impact on client promise Impact on client or business risk Impact on business efficiency

Process 1

Item 1

Item 2

Item 3

Process 2

Item 1

Item 2

Item 3

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Set priorities

Plotting each item against its impact on the client promises against its potential risk or impact on business efficiency may help you prioritise how you tackle process improvements. Plot each item into a grid such as this, using its score.

Including all your teams in this discussion will help them take ownership for the problems and work on those items important to the business. Front line people may be tempted to prioritise those items they know will improve the client experience and make their lives easier.

Support teams will be equally keen to ensure that the business is operating safely (and legally) and as efficiently as possible. It may be necessary to moderate between the various business functions to emerge with an agreed set of priorities for the whole team.

Process failures that risk losing clients.

Serious process issues impacting on all parts of the business.

Should be a priority.

Process failures that can be improved when time allows.

Process failures putting the client or business at risk.

High

Impact on client promise

Low

Low Impact on risk or efficiency High

Client promise vs risk/efficiency

Deliver flawlessly



Decide how to changeBy now you should have a clear idea of what ‘great’ looks like as discussed in the previous chapter. This ‘beacon’ position defines what you need to achieve to be a safe and profitable business that delights its clients.


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Improve your processes

Having identified those processes having most impact on your business, you can work out how to improve them. This involves examining two things: • How the process works now. • How an ideal process would work.

Make a process map

A recognised way to map a process is to consider each and every step in the process. As you map each step, you should consider and record any dependencies for that step, or what that step enables (see overleaf for an example).

Examine how the process works

First record how the current process actually works in practice. Be honest and describe how it is, not how it should be. You need a clear and honest picture of the existing situation so that you can: • Understand how you currently do things.

• Understand where training needs might emerge.

• Identify process bottlenecks. • Identify waste. • Identify risks to the client or business. • Identify any client interaction points that are failing.

Again, seek input from your people as they understand the workings of your processes the best. Any defensiveness should be positively challenged with the aim of improving client and business experience. Also remember to seek input from your clients and any other third parties involved in the process, such as outsource partners.

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Is form complete? Book client interview

Ask client to complete risk questionnaire

Return to client for completion

Organise a ‘reality’ meeting with client

Prepare signing pack for client

Organise client signing meeting assessment

Log on to client record

Record risk assessment

Ask Paraplanner to prep draft plan

Execute trades Update client record Set up rebalancing progress Book client return

Organise plan presentation meeting

Enter client on platform

Pass to adviser to prep for interview

Conduct cash-flow / goals analysis

Conduct ‘goals’ interview and record outcomes

Start

End

Is draft acceptable?

Was client able to sign?

KFDs Correct?

Is a viable plan likely with capital, time, risk

budget available?

Ask client to sign terms and agree plan

Obtain KYC form from client

Print APP pack

Determine next steps

Is client using model portfolio?

YES

YES

YES

YES

YES

YES

NO

NO

NO

NO

NO

NO

Ask admin team to organise KFDs + APPs

Investment advice process Start or finish of a process Information flowActivity descriptionDecision pointDocument output

The following symbols are often used to depict each step of the process:

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Identify dependencies

As you build a map of each process, number each dependency and enabling function. You’ll need to find the roots of each dependency, as failure can often be deep rooted and not immediately obvious. Consider these questions:

.Q What enables this step to happen?

.Q Whom do we need to rely on for this step to happen?

.Q What data is needed for this step to happen?

.Q What does this step enable somebody else to do?

At the end of mapping the process, ask those involved in the process, both internally and externally, to verify that the process map is a good reflection of the current state.

Value, waste and risk

The map can then be used to identify three things:

ValueSteps that are adding value to the end result can be marked and recorded as important in any improved process.

Waste Steps that appear repetitive, or as a result of failure elsewhere, should be tagged as wasteful. Those undertaking in-depth process mapping will often seek to identify/estimate the cost of such steps and work out how many times each is experienced (in a typical month for example). In this way, potential efficiency savings can be estimated and inform the business case for process change.

Risk Steps that mitigate or introduce client or business risk should be suitably tagged. Controlling risk is a critical function that should be embedded into process improvements. Risk control should not be an afterthought.

What’s the ‘ideal’ process?

Start with the end in mind. Consider the following questions from earlier: • How do we meet the promise we made to the client?

• How do we manage risks for the client and the business?

• How do we operate as efficiently as possible?

Comparing your current process map with the ‘ideal’ process map will help you identify the key improvements required. This may involve cutting out wasteful steps, or introducing new ones to improve client experience and/or mitigate risks. If you’ve started with your client-facing processes, you will then need to examine how your supporting processes will need to adapt. Organisations are organic with many interconnecting parts. It’s difficult to improve processes in one area without changing processes in others. This highlights the importance of involving people from all areas of the business in process improvement.

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Start from ‘ideal’ and work back

Your current process maps will give you clues about where you can improve your processes. But starting from there may lead to incremental changes that still fall short of ‘ideal’. Better to start from ‘ideal’ and work backwards to understand what it takes to deliver on that part of the requirement.

For each step in your ideal process, ask yourself the ‘how, how, how?’ question.

.Q How can we make sure this step is executed flawlessly?

.Q How can we make sure this step is carried out as safely as possible?

.Q How can we make sure this step is carried out as efficiently as possible?

Asking ‘how, how, how?’ for each step will get you to the root of your requirements.

Requirements versus capabilities

At this stage, consider the requirement against the capability of the firm. As we explored in the section on Defining a compelling client promise, long-term business success and profitability requires that you only make promises that your business can keep. Mapping the requirements to meet your promise may reveal requirements beyond your current capabilities. You need to decide if that requirement should be part of your business, or if your business can master that requirement.

Consider the options

Consider each step of the process and consider what action to take. Action points can include:

Standardise To aid consistency and reliability

Improve Where a minor adjustment to the process will suffice

Re-design Where a more radical approach is required

Stop If it is adding no value

Collaborate If teamwork would help

Simplify If too complex

Automate If suitable technology can be sourced

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Write the plan

After considering all the options, draw up a process improvement plan. This should include the following items: • The process to be improved (title). • The purpose of the process. • What benefits improving the process will bring (internally and externally).

• How you will measure the process improvement (quality, quantity, cost or time).

• The process improvement owner. • The process improvement constituents (those involved).

• Each process step to be changed – including activities, timescales.

• Related dependencies (training, finance, compliance etc.).

Automate where possible

In a client-centric business like financial services, it’s tempting to rely on the adage that ‘people buy people’. This undoubtedly holds true in many cases, but people also buy trust, reliability and results. Therefore, ‘people’ should focus on delivering those moments of the client relationship that are impossible to deliver with technology. Those reassuring words through troubled markets and wise counsel to stick with the plan, should all be the domain of the customer relationship manager. Technology should do as much of the rest as possible. Humans are fallible and imperfect. We’re not great at maintaining perfection in highly repetitive, complex situations – which is the role of technology.

The most successful advice businesses understand what to automate. For example, monitoring asset allocations and, rebalancing client portfolios across multiple clients is a promise often made, but difficult to keep. They deploy technology to do the heavy lifting, leaving the adviser to focus on personal and compelling client discussion and interaction.

As you map your processes, consider which steps are particularly repetitive and/or complex and prone to human error. Target these to see if a reliable technology solution can be deployed. This should improve efficiency, reduce risk and support reliable delivery of the client promise.

Measure

Deliver flawlessly

improvementImprovement can often take longer and will be more challenging than you first imagined. Ensuring that you stay on course and deliver the hoped-for improvements and client benefits requires that you measure and monitor your progress. Remember, only if you can measure it can you really improve it.




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Keeping your promise Measure improvement

Start with where you are

To measure progress, remember to record your current state. This enables you to benchmark what your process improvements deliver. You can use specific measures to monitor progress, such as quality, quantity, cost or time. Alternatively, your improvements may have to come through in more generic results.

In the previous section, Ensuring client loyalty, we discussed how to research your clients to assess client satisfaction and loyalty, the ultimate measure of your success. Do this regularly to see if the process improvements you have made are having the desired impact. Due to the law of unintended consequences, a change in one area may produce an unintended consequence in another area, so watch for surprising results.

Finally, a word on the beacon…

Throughout the process, remember to keep an eye on the end objective. Particularly when managing process improvement, it’s tempting to dive into the detail and lose focus of what you were trying to achieve in the first place. This highlights the importance of having a clear vision and description of what ‘great’ looks like when it comes to your client experience and how you manage risk and profitability for the business.

A valuable business comes from securing revenue from loyal clients. Those loyal clients are the ones who are prepared to pay for flawless execution of the promise you have made them. Therein lies the importance of great processes.

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What next?

With a plan of action in place, you will want to ensure that the human element in your business equation aligns with that plan and actively supports it.

The best advisory businesses have learned to spend time on their people as the foundation stone of their business. Every component of creating a valuable business requires highly motivated and competent individuals who understand, value and support your business objectives.

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5. Aligning your people

Aligned people provide the foundation stone upon which all the other building blocks of a successful business rest.

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A valuable business

138 The importance of aligned people 140 Aligning stakeholder interests 142 Aligning performance 144 Effective incentives 148 Performance management 150 Right people, right roles 154 Leading change 157 What next? 158 Appendix 1 – Performance plan 162 Appendix 2 – Role profile 163 Appendix 3 – Aligning incentives – Example


The importance of aligned peopleThis section is the last, but perhaps most important, step in building a successful fee-based advice practice.

Aligned people provide the foundation stone upon which all the other building blocks of a successful business rest.

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Aligning your people The importance of aligned people

The foundation of business value

A ‘valuable’ business results from loyal clients prepared to pay ongoing fees for your service. You can only build that level of loyalty by consistently keeping the promises you make to your clients. Your ability to keep your promise stems from the judicious marketing of your business (so that what you promise is clearly understood), as well as the organisation of your systems and processes.

All of these rely critically on the most important component of all: your people. Without motivated, engaged and committed people your business will struggle to maximise its performance and ultimately its value to clients and owners.

Talent and motivation

Competition for the most talented and motivated people has continued to intensify as the advice industry has modernised. The best practices have worked out the critical importance of recruiting and managing only the best people. But they also know that it’s much more than that.

In the military, some in the officer corps. assert that there’s no such thing as a bad soldier, only a bad leader. They might be exaggerating to some degree, but such a maxim focuses their trainers’ minds on the positive action that will get the most out of each and every recruit who comes along, rather than focusing on their flaws. Like the best advice practices, military trainers have worked out that success can be achieved only with truly motivated and ‘aligned’ people and rather than blaming ‘unaligned’ people, they look to themselves to find a solution.

Aligned to what?

In previous sections we have stressed the importance of creating a ‘beacon’ – a description of the ideal business. The description should include what the ideal business looks and feels like for clients and the people that work there. Such a beacon establishes a sense of excellence to which everyone in the firm should aspire. Your business should be a great place to be a client and a great place to work.

As the firm sets about managing change, it is easy to lose focus and momentum. Having a beacon description of the business provides a focal point during tough times and when change looks too difficult.

Dealing with change

Change can feel overwhelming or impossible so it’s worth reminding yourself why you are undertaking it, as well as what you’re trying to achieve. If everyone at all levels personally aligns to the beacon, undertaking a successful programme of change becomes much more straightforward. In the successful practices, most people feel aligned emotionally and operationally to achieving the best position for the business and its clients.

Or course, some welcome change and some don’t, which makes the journey a challenging one. This section discusses some of the ways in which best practice firms have ensured that their most valuable asset – their people – delivers excellence for clients and creates value in the business.

Aligning stakeholder interestsOther stakeholders, beyond employees, can have a critical impact on the success or failure of your business. Considering how the interests of all the stakeholders in your business align, or not, is an important step in the alignment process.

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Aligning your people Aligning stakeholder interests

Who are stakeholders?

You should think about all of the different stakeholders and their interests. There might be others, such as outsource partners, but there are basically three main groups of stakeholders: • Clients • Staff • Owners

All three stakeholder groups have to coexist.

Creating and sustaining a valuable business requires a balance in the value derived by all parties. An imbalance will cause stress on one or more of the stakeholders and ultimately cause the business to struggle.

The days when clients could be sold to using a ‘hit-and-run’ sales model are long gone. Even if the client didn’t always get good value, the business itself often had to struggle with nomadic salespeople with large commissions followed by large claw-backs.

In a post-RDR ‘fee-for-service’ world, a firm’s ultimate value will depend upon your clients’ willingness to pay your fees for the long term – as discussed in the section on Achieving profitable growth. Their desire to do so will clearly rest on their perception of your promise delivery. If the business extracts too much value at a cost to clients, this could cause inequity and imbalance. Equally, if employees see the owners getting rich at their ultimate expense, this will undermine their loyalty and performance. Each stakeholder group should perceive equal value in the relationship.

Aligning the interests of clients, business owners and staff is not just about equitable value. An alignment of interests – and minimising conflicts of interests – sits at the heart of building a successful and valuable business. An alignment of interests would also reflect the spirit and intent of the regulation regime that seeks to protect investor interests.

Staff Owner

Client

Value

Aligning performanceTo get aligned performance, you, and your people, will need to know what they are aligning to. Before moving on to consider how you might task your people, manage their performance and reward them, you need to spend time creating the vision, or a ‘beacon’, for your business.

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Aligning your people Aligning performance

Reassure your people

As discussed in the section on Keeping your promise, your people generally understand your business best. Hopefully they’ve participated in creating the beacon vision, as the business will stand a better chance of success if they have.

The most successful advice practices take a considerable amount of time explaining why the business should aspire to the beacon position. Some people will faithfully follow their leaders no matter what, but some will require reassurance and comfort that the journey ahead will not negatively affect them. Spending time discussing the business journey is time well spent. It can accelerate change, especially if people understand the positive outcomes. Don’t skimp on painting an exciting vision of the future and make it real for everyone involved.

Make them accountable

In Keeping your promise, we discussed the importance of creating systems and processes that fulfil the tasks necessary to deliver on your promise to clients. This called for you to break your large processes, (for example, client acquisition, investment management, client review) into their component parts and assign each important task to a member of the team. Then it calls for each team member to be accountable for delivering their part of the process.

Most people have a desire to deliver excellence, if nothing else, purely out of a sense of pride or commitment to promises made to others. Equally, the root cause of poor customer service (and reputation) can often be traced to disengaged members of the team. Every deliverable within the business should be carried out with the questions ‘Am I doing this to the best of my ability?’, and, ‘Is this leading us to service excellence that delivers our promise to clients?’

The best practices have found that the two best tools for alignment are effective incentives and performance management.

Effective incentivesThere’s an old adage that says, ‘You get what you pay for’. Another is, ‘You get what you measure’. Whether for the right or wrong reasons, there is certainly some truth in both of these. This is why ‘reward and recognition’ is such a powerful driver in creating alignment.

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Aligning your people Effective incentives

Push me, pull you

Designing incentive systems that best motivate and guide the desired behaviours of your team can help create alignment and avoid conflicts of interests. Remember that in some cases demonstrating how your incentive programme avoids conflicts of interests can be a regulatory supervisory requirement. A blend of push and pull can work well in achieving this aim.

Pull can be aided by creating a compelling vision of the future state. In outlining the beacon business model, business leaders should be clear on the opportunities this will create for people in the business. It may give them opportunities to learn new skills, promotion or other non-monetary benefits.

Push factors include the more traditional tools such as pay and bonus plans, performance measurement and other rewards. These tools can motivate (or de-motivate) with an appropriate use of assessment, authority, loyalty or fear. Successful practices have worked out how to blend several important factors in creating their aligned incentive programme.

Reward individuals and teams

You should move to assign accountability of key client promise deliverables to individuals or teams. Reward and recognition should take account of individual or team performance, as appropriate. If your outcome largely depends on individual delivery, your incentive system should recognise this. However, if the delivery depends on teamwork, you may wish to consider fostering teamwork with incentives designed to measure and improve it.

Total team reward could provide an opportunity for some to shirk their responsibilities and get a free ride. Equally, team reward may not recognise individual contributions from stellar performers. Therefore, best practice might suggest a mix of team and individual recognition.

Monetary and non-monetary reward

Different types of rewards will motivate different types of people. Simple ‘well done’ sticky notes will delight some, while others will prefer financial rewards. Therefore, use non-monetary rewards in proportion to how motivational the individual might find them. In addition, there may be a limit to the amount of non-monetary rewards the business can offer.

Successful firms look for creative ways of recognising and rewarding their people which are both visible (if not embarrassing to the individual) and inexpensive. This type of recognition, for example ‘spot awards’, where managers give immediate monetary awards, can highlight excellence ‘on the spot’ to increase visibility of perceived best practice.

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Aligning your people Effective incentives

Alignment of incentives with stakeholders

Whatever you decide, it should address personal motivations (security, achievement, glory etc.). It should also support the delivery of those tasks critical to meeting your client promise. If you have people doing things that add no value to the client outcome and therefore the business, you should ask yourself why you support, and pay for, those activities.

As a final test, consider the question of alignment on a broader scale. Are all of the stakeholders incentivised to achieve what each other really wants? This is particularly important to wealth management businesses. What do you do for clients? Among other things, you create and manage wealth for them. Therefore, successful practices often ask this question: ‘To what extent is the reward for the owners of the business and the people in the business linked to an increase in wealth for our clients?’

Is each party happy that, as assets grow, each participates in the growth of the business? Or does one party resent the increase in value that appears to come at the expense of another? Does the share of wealth creation fall equitably to those carrying the risk? Does the incentive programme create behaviours that are in the clients’ and the firm’s best interests? Or do they promote inappropriate risk taking?

See Appendix 3 for a worked example.

Fixed and performance-based rewards

The relevant key performance indicators should drive the mix of fixed or variable compensation for a given task. If it is easy to regularly identify good performance against specific activities, this suggests a variable (performance-based) reward incentive could work best. Remember, you get what you measure and pay for. However, if it’s difficult to identify successes in the short term, lean towards a fixed compensation structure where performance and pay can be assessed over longer periods.

Successful firms look for creative ways of recognising and rewarding their people, which are both visible and inexpensive.

Performance managementAligning the performance indicators and rewards of your people is critical in creating aligned behaviours and avoiding conflicts of interests. Establishing and visibly promoting clear performance criteria helps to encourage accountability and drive behaviours aligned to your client promise.

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Aligning your people Performance management

Plan to perform

Start by giving each member of the team a performance plan that reflects what the business needs them to do. This may define their Key Performance Indicators (KPIs) at individual, team or firm level. The KPIs should be specific, measurable and have a deadline. Avoid meaningless and unquantifiable goals such as ‘help the business grow’ or ‘help improve processes’. See Appendix 1, page 27 for a sample performance plan.

Set the tone

Establishing KPIs for individuals, teams and the business, gives the leadership an opportunity to set the tone and exemplify the behaviours required both at operational and cultural levels.

Achieving the ‘beacon’ business position will require supporting behaviours to be recognised and rewarded. It also requires dysfunctional behaviours to be discouraged. Leaders should start by indentifying the behaviour sets they want to discourage and those they wish to promote. These should form part of the performance plans of individuals and supervisors should make constant efforts to ‘notice’ both.

Supply immediate feedback

Immediate and visible reaction to both desirable and undesirable behaviours signals the importance of your requirements.

Target required behaviours ‘on the spot’ (‘spot awards’, ‘well done’, ‘quick words’). However, only by having consistent conversations at performance review time will you reinforce the commitment of the business to recognising and rewarding the desired behaviours. Over time, your people should recognise that those accountable for their assigned actions and exceeding on their deliverables will reap the rewards.

The best way to deliver consistent performance reviews is by systemising them. Your people, including your managers, should come to recognise the consistency and value of measuring both their, and the business’s, performance. People will learn that the business applies its approach to everyone, fairly and consistently.

Right people, right rolesThe best practices focus on building an aligned team that shares a vision and passion for creating the best business possible. The business may be lucky enough to already have a team of people that have the enthusiasm, drive and commitment to create the beacon business. Most businesses, however, will have a mixture of people who regard the beacon position as desirable and those who think it has nothing to do with them. This section deals with how to get the right people in the right roles.

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Aligning your people Right people, right roles

Identify and address challenges

Not many businesses have the luxury, or opportunity, to start from scratch and assess recruits for their desire to join an ambitious ‘beacon-focused’ business. Most businesses start from a position with a mix of success with areas of necessary change.

You can start by identifying anyone for whom the journey might pose a challenge. You might find this easy as some will object to change loudly and vociferously. Others may not be so obvious, but show signs over time that they are struggling to deliver performance in line with expectations. In either case, you will need to have a frank discussion with them to see if their personal and your business goals can be aligned.

Good person wrong role?

You might have a good person in the wrong role, which might give you the opportunity to move them around and put them in a role they find fulfilling and where they can align themselves with the business goals. It’s not just about having the ‘right’ people, it’s about putting them in the role that gets the most out of them.

Managing performance issues

When there is a mismatch between an individual’s personal motivations and the overall values and direction of the business, this will inevitably lead to difficult performance management discussions. Make requirements clear to the person and reinforce that you won’t reward sustained underperformance – indeed it could lead to further and more drastic actions. Clearly, such conversations should be professionally managed, in line with employment law and the firms’ HR policy.

Remember that in setting the tone and direction for the business, everyone needs to recognise that positive contributing behaviours reap rewards, while negative behaviours don’t.

Developing your people

Losing people and having to recruit new staff wastes considerable time and resources. You should therefore take every opportunity to develop your people into roles where they can excel.

Give each team member a personal development plan which focuses on skills and knowledge. Assess their current level of skill and achieved success against a minimum standard of competency and what you consider as ‘great’ performance. This will give the individual a benchmark and the ability to agree an improvement programme with their supervisor.

Document the knowledge required to successfully deliver in the role and use it to derive a ‘knowledge improvement’ benchmark.

Include both knowledge and skill improvements in the individual performance plan (see Appendix 1, page 27 for an example). You could even use these to form part of their incentive plan to measure performance.

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Aligning your people Right people, right roles

Recruiting new talent

Sometimes you will need to recruit new people when you can’t grow existing people into certain roles. This can take time and resources. It also gives you the opportunity to recruit people that are already aligned to the ambition and culture of the firm. Therefore, the recruitment process should place as much emphasis on attitude as it does on skills and knowledge.

Rather than rushing into recruiting a suitable candidate to fill an urgent gap, take the time to clarify the attitude, skills and knowledge that will lead to success in the role. You don’t want to recruit in haste and repent at leisure.

The recruitment process

You should expend some effort on defining exactly what the business really needs. Create detailed role profiles (see example in Appendix 2, page 32), which can help clarify the attitude, skills and knowledge that you will want to see demonstrated during the interview process. It will also help you refine the search for potential candidates when advertising or briefing recruitment agencies.

You will probably need to define role-specific criteria that allow you to benchmark candidates against each other and against the minimum and desired standards for the role. For each criterion, set a minimum standard to screen out unsuitable candidates. Under-qualified candidates should be excluded immediately – delivery of your promise to customers cannot be compromised.

Sell the firm

To attract the best talent, you will also need to sell the role and the firm to potential candidates. The best people want to work for the best firms, so the recruiter should prepare themselves to paint a compelling vision of why the candidate would want to join the organisation.

Losing people and having to recruit new staff wastes considerable time and resources. You should therefore take every opportunity to develop your people into roles where they can excel.

Leading changeIn the section on Keeping your promise, we discussed the need to create an environment of positive change as the firm seeks to improve its processes (including 10 top tips for process change). Processes, and of course, cultures, don’t change themselves. The successful implementation of anything new in the firm requires the positive commitment and engagement of the people in the firm.

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Aligning your people Leading change

Why change fails

Your people’s willingness to embrace change will vary widely, right down to the individual level. Business leaders need to pay attention to individuals and teams, as well as the collective group.

Here are a few generalised observations about why programmes of change fail.

Misunderstanding A misunderstanding about what the change is about. People sometimes see change as an ‘event’ rather than an outcome.

Lack of substance Change may be presented as a ‘pipe dream’ that lacks substantive reasoning.

Lack of vision The change has no clear vision and looks like change for the sake of it.

Lack of visible benefits Goals and outcomes are too distant with no noticeable short-term differences.

Short-term focus Change is seen as a quick fix to a much deeper problem.

Poor communication Poor communication during and about the change.

Fear of failure People focus on the negative aspects rather than positive potential.

Active resistance People resist based on a negative perception of personal outcomes.

Poor execution Well-intended change, badly managed.

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Aligning your people Leading change

Creating an environment for success

By understanding why change fails, sets the firm up for successful change. Some key areas to consider include:

The role of leadership

Change can be unsettling as well as exciting. The business leadership really needs to focus ‘on’ the business rather than just being ‘in’ the business. The leader needs to create a clear and compelling picture of what is necessary for future success for everyone involved. It should inspire people to achieve the goal, yet be clear on the stark consequences of failure.

In the most successful practices, the best leaders surround themselves with people far more capable than themselves, with the necessary expertise in the required tasks. These leaders see their role as galvanising the call to action and managing the change and outcome required.

Many ‘leaders’ effectively make themselves redundant. This might worry some, fearing that the business could do without them. Others celebrate this, knowing they have built a sustainable business that doesn’t depend solely on them. They know that the people they have nurtured can, and will, continue to meet their client promise.

Communicate • Be clear on the degree of change required, don’t shirk from saying so. Be clear on the required pace of change. Ensure people recognise the difference between enhancement and the business’s survival.

• Paint the full picture. Don’t assume people know what you know and don’t expect them to fill in the gaps. Let them know what has lead to the need for change.

• Explain the ’why’, as well as the ‘how’. • Don’t view the audience as one entity. Ensure you address specific

groups in a way that is important to them. • Be consistent. Stick to key messages and ensure your managers

are consistent in delivery of the message.

Pre-empt resistance

• Anticipate natural concerns and objections. • Understand how changes personally affect individuals. • Deal with rumour and mistrust by communicating facts as early as possible. • Recruit trusted ‘advocates’ of change.

Engage emotions • Recognise that emotion often drives personal reactions to change. • Understand that feelings (first) drive thoughts (second). Appeal to

feelings to influence thoughts. • Appeal to powerful emotions. Use positive, powerful language that creates

a compelling, inspiring picture of the future. Use metaphors and images to imagine the future.

• Personalise the benefits. Paint pictures of how positive change will impact individuals.

Manage the process

• Set short-term specific goals that can be celebrated and rewarded to build momentum.

• Focus on improvement, not blame, even If short-term specific goals aren’t met.

• Plan meticulously. Don’t skip steps that could be important. • Involve the experts in your teams. They know best where the

problems and solutions lie.

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Aligning your people What next?

What next?

Aligned people provide the foundation of success. Without them, advice practices will struggle to deliver on their promises. Failure to deliver on promises will erode client trust and ultimately your fee income. Diminishing fees ultimately means diminishing business value.

All of the steps mentioned in this guide on creating a valuable business are equally important. Creating profitable, deliverable client promises is a must. Systemising the processes in the business to ‘programme in’ consistency and safety is also critical.

Remember that propositions and processes mean nothing without people. Aligning your people to your ultimate goal is the quickest route to a sustainable, valuable business.

Supporting you

To help support you, we offer the content of this guide as a series of workshops, delivered by our Adviser Support team. If you would like to find out more about our workshops, events or other adviser support materials, visit vanguard.co.uk/advisers.

If you have any questions or would like to order paper copies of this guide, please contact the Adviser Support team by calling: 0800 917 5508.

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Aligning your people Appendix 1 – Performance plan

Appendix 1 – Performance plan

Personal Plan

Last Updated: __/__/____Name: Job blogs Department: SalesLine Manager: Next Review: __/__/____ Job Title: Business Development Manager - HNW

1. Competencies

Managing Self – Assumes ownership for his or her own learning and development. Maintains appropriate professional and technical expertise. Acts with a high degree of integrity. • Demonstrates Flexibility and Independent Thinking – Demonstrates willingness to think and act independently.

• Develops Oneself – Takes responsibility for seeking out ways to learn and improve continuously

• Leading the Enterprise – Contributes to the future success of the overall enterprise by playing an active role in shaping the agenda and acting as a steward for the combined interests of our clients and staff.

• Shapes the Agenda and Contributes To the Enterprise – Thinks and acts in strategic terms, contributes to the implementation of strategic direction, and helps to shape future strategic direction. This involves having an organisational mindset and acting in the best interests of the overall enterprise.

Managing Relationships – Demonstrates interest in others and their concerns by creating an environment that fosters mutually positive relationships internally and externally. • Builds Strategic Working Relationships – Builds relationships (both internally and externally) that create win-win solutions for the business.

• Focuses on the Client/Prospect – Understands and anticipates the needs and expectations of client/prospects. Client/prospect refers to individuals within organisations being called upon by the Business Development Manager.

• Interpersonal Insight – The demonstrated ability to effectively read people and situations well, and to use these insights to solve problems and advance relationships.

• Maximises Personal Impact – Produces a positive, memorable personal impact on others, and is able to effectively persuade and influence others.

Managing the Operation – Achieves business results by using resources effectively and efficiently, setting clear objectives, orchestrating multiple activities, measuring progress and monitoring the process appropriately.

• Analyses and Resolves Issues – Applies a logical, systematic approach to problem solving, with a focus on meeting client/prospect expectations and improving the effectiveness and efficiency of operations. Uses sound judgment when making decisions.

• Plans and Achieves Results – Sets and attains challenging goals. Looks for ways to raise standards, improve performance and do a better job.

• Conceptual Thinking – The ability to think and act with a broad perspective when addressing issues and identifying business opportunities.

• Ethics and Values – The demonstrated commitment to working in accordance with our values and principles of conducting business.

Appendix 1 – Performance plan

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Comments on Progress • The jobholder should complete this section with a description of their performance against the measures described above. They should provide examples of their success.

• The jobholder shall pass this completed review to their line manager one week before their appraisal meeting.

2. Personal Objectives

1. Teamwork • Identify, gather and share competitor and market intelligence and needs with sales team and other departments to improve the company proposition.

• Collaborate with sales team – internal sales executives and other regional teams.

• Participate in and adds value to team sales meetings.

• Take ownership of tasks on behalf of the team and seen as a subject-matter expert for the team when required.

• Support colleagues with knowledge and learning to help colleagues grow and develop as an overall strong team.

• Lead/participate in corporate projects and duties when assigned.

• Delivery of assigned team responsibility.



2. Self Development • Develop deep understanding of our shared beliefs and values: culture, key business strategies and priorities.

• Seek feedback from colleagues and customers.

• Complete initial training requirements, i.e. on-line modules, reading, etc.

• Identify areas of improvement, sets a development plan for these areas and benchmarks progress.

• Develop greater understanding of adviser tools, e.g. know your client, attitude to risk, investment process and client review.

• Improve objection handling/ influencing skills.

• Improve personal impact.

Comments on Progress • The jobholder should complete this section with a description of their

performance against the measures described above. They should provide examples of their success.


3. Execution/Targets • Acquire 20 new HNW client relationships during the business year.

• Introduce £25m of new assets under management during the business year.

• Retain 95% of client relationships and 95% of assets under management.

• Deliver 10 client-facing seminars during the current business year.

• Create 2 new professional connections who introduce clients during the current business year.

• Represent our business at the Midlands Business Leaders Group.



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4. Managing Relationships/Business • Develop and build relationship with third parties, e.g. introducers and otherwise; travel and participate in joint meetings and events.

• Raise awareness of our products and related services and deliver key business messages through targeted prospecting activities.

• Understand territory and produce targeted, segmented prospect lists and prioritise sales activities by value.

• Develop a high level of expertise related to industry and marketplace development. Use this knowledge to become a trusted partner to clients and prospects.

• Maintain conversation with a wide audience on a systematic basis; set and deliver clear, ongoing communication plan with clients/prospects.

• Show sound understanding of individual clients and tailor approach accordingly.

• Be able to identify key influencers within specified market/territory and leverage these resources to build awareness of our business.



5. Good Citizen • Develop and leverage internal contacts in other areas to learn more about other parts of our business.

• Identify and suggest any process improvements in own and other areas within our business.

• Manage and document complaints appropriately.

• Conduct business in line with the policy and procedures laid down by the Governance committee.

• Perform in excess of the Sales Team Minimum Standards.



6. Compliance Objective • Fulfil and uphold all the compliance requirements of your role, including fulfilling training requirements.

• Act with integrity and demonstrate the highest ethical standards at all times.



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Jobholder General Comments – Last updated on:The Jobholder should summarise the review period performance here:

Manager commentsThe Line Manager should summarise the review discussion here:1. Observations on performance

against KPIs.2. Priority areas of development for

the next review period.3. Position to bonus/reward position.

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Aligning your people Appendix 2 – Role profile

Client Adviser – High Net Worth (Midlands)

Department Information Dept: SalesDept Name: High Net WorthDivision: UKSub-Division: Midlands Region Purpose Primarily responsible for acquiring, prospecting and advising new High Net Worth clients to the Business.

Responsible for creating a plan with defined activities to achieve success for new client growth, assets under management growth and client/asset retention.

Duties and Responsibilities • Develop and build relationships with High Net Worth clients.

• Travel and participate in joint meetings and events to promote the business with clients and other third parties.

• Raise awareness of the business and our services through targeted prospecting activities with institutions and corporate clients.

• Understand the competitive landscape and produce targeted, segmented prospect lists and prioritise sales activities by value.

Appendix 2 – Role profile

• Develop a high level of expertise related to industry and marketplace development. Use this knowledge to become a trusted partner to clients.

• Maintain conversation with a wide audience on a systematic basis; set and deliver a clear, ongoing communication plan with clients.

• Show sound understanding of individual clients and tailor approach accordingly.

• Identify key influencers within specified market/territory and leverage these resources to build business awareness.

• Deliver thought leadership presentations at industry/adviser events/speaking opportunities.

• Provide peer management and leadership to members of the Sales Team.

• Set goals, develop and manage performance of direct support team.

• Ensure direct support team operates within the business’s cultural and compliance standards.

Qualifications • Graduate or equivalent combination of experience and training.

• Minimum CII Certificate of Financial Planning qualified (or FPC).

• Minimum ten years financial services industry experience with at least five years client advising experience.

• Superior oral and written communication skills.

• Demonstrated executive presence, poise and presentation skills.

• Ability to work independently and adapt quickly/resourcefully to changing situations.

• Excellent relationship management skills. • Demonstrated team management skills. • Thorough knowledge of investments and competitive environment.

• Specific specialist investment knowledge as appropriate.

• Specific knowledge of UK pensions.

Special FactorsMidlands based, frequent travel expected.

Scope • Reports directly to the Head of Sales, Midlands.

• Works collaboratively with the other parts of the organisation, e.g. Core Customer Sales Team, Marketing, Operations and Compliance.

• Manages any budgets advised by Head of Sales.

• Operates within the proposition and compliance framework agreed by the UK Governance team.

Appendix 2 – Role profile

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Aligning your people Appendix 3 – Aligning incentives – Example

XYZ Ltd is a medium-sized advisory practice that has been running for 15 years. The business has grown to a point where it has 3000 clients, 10 sales people and 6 administration staff.

Getting ready for RDR

In preparation for the Retail Distribution Review, Barry, the MD, gave serious thought as to how to prepare the business. He also engaged a professional consultancy to help.

Previously, the firm focused on finding clients with a minimum of £50,000 to invest and who needed tax planning advice. When arranging the advice, typically tax-based planning, the firm used multiple products. The usual remuneration arrangements were:Lump Sum Investments – 4% Initial commission + 0.5% trail commission.Protection – Full initial commission.Mortgages – Procurement fee or £500, whichever is greater.

Advisers are paid 80% of the commission income, with the business retaining 20% to cover operating costs and profit. The administration staff are paid a basic salary, although sometimes a small cash bonus would be paid annually.

Appendix 3 – Aligning incentives – Example

A poor client experience

Barry has identified problems with some aspects of his clients’ experience and has found it difficult to attract and retain staff. The business, while successful in the past, is now struggling to make a profit. Barry cites his difficulties as: • The sales team continue to use a number of providers that Barry wishes they wouldn’t. He thinks it’s because of the higher commission they pay.

• Several of the advisers have threatened to leave and take clients with them, saying that another firm is prepared to pay them 90% of initial commissions.

• Some customers have complained that after the initial discussion with the adviser, they have trouble contacting them for updates.

• Absenteeism has increased in the administration team.

• Two of the best members of the administration team recently left for a rival firm.

• Revenue to the business has turned lumpy.

• The business is just about breaking even, assuming Barry reduces on his own drawings from the firm.

Remuneration and unintended consequences

In discussion with his business consultant, Barry reflected on his remuneration policy and decided that it causes unintended consequences in his business. When commissions were higher, he could afford to pay the rates to his advisers, rebate some initial commissions to his clients and pay the occasional bonus. Nowadays, those things are impossible. The sales team is complaining about the need to bring on even more new clients to make their earnings targets.

The business consultant asked Barry to summarise the ambition for the business, which he did as follows: • Clients should know that we work for them, not a life company.

• My people should spend as much time helping existing clients as finding new ones.

• We should deliver excellent service to our clients, as promised and every time.

• Our people should enjoy working here and feel properly rewarded and appreciated.

• We should be able to attract and retain the best people.

• We should make a healthy profit, have a more stable financial position and grow the value of the business.

Appendix 3 – Aligning incentives – Example

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Client satisfaction equals a valuable business

Barry realised that his own fortunes, through the fortunes of the business, rested firmly on a foundation of client satisfaction. To satisfy clients he had to meet their goals, which requires a safe growth in their assets. Barry came to understand that growth in Assets Under Management (AUM) was the key. So, he set about designing a new structure that rewarded growth of AUM. But he also realised, that his personal goals (profitability and growth in business value) would only happen if the other stakeholders – his sales and admin teams – were equally interested in heading in the same direction.

The new scheme

Sales • The sales team would be paid a slightly higher basic salary based on their experience and standing in the marketplace.

• Each Sales Executive would be given a ‘new AUM’ target each year. It didn’t matter what tax wrapper was used (Bond, OEIC, Pension etc).

• Each Sales Executive would have a client and asset retention target of 95% per year. Losses of clients or AUM of more than 5% would reduce the bonus.

• Barry confirmed that 40% of all future AUM revenues would go to a ‘bonus pot’ every year (40% went to run the business and 20% to profit).

• Sales Executives would earn their share of the bonus pot every three years, on a rolling basis, i.e. 2010’s AUM earnings would be distributed at end of year 2013. To qualify, staff had to be employed at distribution time. This aided retention of key staff.

Administration • The administration team would also participate in the bonus pool in the same way as the sales team. Their share of the bonus pool would relate to their basic salary and would also be deferred on a rolling three-year basis. The bonus would be reduced if the client service teams suffered client or AUM losses greater than 5%.

Staff reaction

At first, staff were nervous. The change felt difficult and the teams thought it was about Barry’s desire to increase the value of the business in order to sell it. Barry had to carefully plan the transition to the new system. He had to make sure that the sales team in particular transitioned to the new scheme, particularly in the first three years. Barry steadily reduced the amount of initial commission being passed through to the sales team. Eventually, this was reduced to 0% on initial commissions when the bonus pool started to pay out.

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The results

After five years of the change, AUM grew to £200 million upon which Barry collects an average of 0.75% client fee (£1.5 million). 40% of this goes to the rolling bonus pot £(600,000), 40% pays for running the business and the remaining 20% is profit.

In a recent interview about his successful transition, Barry said:

“I won’t pretend the change was easy. I had to do a lot of selling to convince the team this was in their interest as well as the clients. But everyone soon realised that in future years they could get a payout from the bonus pot without us having to increase the new client list at all. In fact, making sure we looked after existing clients was more valuable than just signing new ones.

Paying out the bonus pool on a rolling three-year basis also meant fewer people were tempted to leave.

Best of all, we all now focus on the same thing. Every time we do something, we ask ourselves the same thing: ‘Is this in the best long-term interest of our clients and growing their assets?’ We quickly realised that if the answer was ‘yes’, it was a ‘yes’, for all of us.

Recently my team came up with a brilliant idea. They suggested that we invest the bonus pool! Why shouldn’t it grow while they wait three years for it to pay out? I thought this was an excellent idea and asked them how we should invest it. Do you know what they said?

“They suggested that we invest in the same portfolios as those we recommend for clients. Now that’s what I call aligned interests!”

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. The material contained in this document is for educational purposes only and is not a recommendation or solicitation to buy or sell investments.

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.

The value of investments, and the income from them, may fall or rise and investors may get back less than they invested.

Vanguard Asset Management, Limited which is authorised and regulated in the UK by the Financial Conduct Authority.

© 2017 Vanguard Asset Management, Limited. All rights reserved. VAM-2017-03-29-4524

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