In the ever-evolving landscape of financial advisory services, the pursuit of excellence has become synonymous with adaptability, innovation, and a keen understanding of client needs. As we navigate the intricate web of adviser practices, a spotlight on the strategies employed by the world’s leading financial firms becomes imperative.

Delving into the core elements that distinguish the best in the business, FAnews spoke to Jaco van Tonder, Advisor Services Director at Ninety One, to explore the nuances of what makes an advisory firm truly exceptional in today’s dynamic and competitive market.

Metrics, methodologies, and mindsets

When looking at what the best global firms are doing, there are several interesting trends, according to Van Tonder, in the international advisory community: 

• Many firms are focussing on the transition of generational wealth from the Baby Boomer generation to their beneficiaries, and how to minimise asset losses through the inheritance process.
• Wealth advisers are experimenting with different advice fee models – the days of only charging a percentage fee on assets are running out as younger wealth clients look to pay for advice on a retainer or hour-billed basis.
• The first generation of modern wealth advisers (who charge advice fees and not upfront product commissions and built up their wealth firms over the past 30 years) are now approaching retirement age, many older advisers are reviewing the succession plans for their practices.
• Many firms are beefing up their investment processes and appointing Discretionary Fund Managers to help with this.
• Wealth firms are reviewing their investment processes and strategies for a higher inflation/interest rate environment.
• The need for improved operational efficiency has adviser firms investing in technology to streamline operational processes and interfaces with product suppliers. 

Focusing on growth

Advice books, according to Van Tonder, face steady outflows by their very nature – payments of income, redemptions from existing investments, death of a client etc – therefore all adviser firms need an element of growth to make up for these outflows. 

“Advice firms need a certain critical mass to deal with increasing business and regulatory overhead costs, as well as increasing investments in technology for their firm – these ongoing costs and investments increase the minimum size for an advice firm to be financially viable. Client investment preferences are shifting too, with direct offshore investments making up a more important proportion of client assets – advisers need to grow and develop the skills and expertise to advise on these markets,” he said. 

In difficult markets like we are currently experiencing, Van Tonder said focusing on growth forces a firm to adopt a positive mindset and look for the silver linings. Now, more than ever, client asset growth is needed to stop an adviser from developing a cost-cutting mindset. 

“For advisers, the key measurements of a great advice business include fee schedules correctly set for the value proposition for clients; a segmented client base with different value propositions appropriately structured for different client segments; a well-managed, appropriately sized cost base – the international benchmark for a vested advice business is to have an operating margin (i.e. total operational costs divided by revenue) of around 60%, and, depending on your advice model, a ratio of between 100 and 200 clients per adviser. Also important is some measurement of success in the area of inter-generational client retention (i.e., retaining assets of beneficiaries on the death of the principal client),” said van Tonder. 

Tech integration and cost efficiency

In contemplating the vast array of challenges, a crucial question emerges: what problems should we endeavour to solve? 

According to Van Tonder, the integration of client data from product providers into the advice practice’s CRM and financial planning tools is important. “The lack of tech and data integration results in many manual processes in adviser offices. This, in turn, makes the advice firm’s costs much less scalable as the firm grows.” 

Van Tonder advised to “reduce the cost of delivering advice to investors who do not have large lump sums to invest yet. Because of the high cost of delivering advice, smaller investors struggle to obtain financial advice. And robo-advice has failed as a potential solution – advice requires a human touch.” 

Effectively, he said, avoid client behaviour that works against long-term financial planning principles. 

The value proposition of the future

The client value proposition of the future represents a dynamic and forward-thinking approach to meeting the evolving needs and expectations of clients. It goes beyond traditional offerings to provide a holistic and personalised experience that adds significant value to clients’ lives. The building blocks of this future-oriented proposition involve a combination of innovative technologies, client-centric practices, and a deep understanding of individual preferences. 

Van Tonder said, “The value proposition of the future should be tech-driven, delivering advice insights to clients on their entire portfolios across all their product suppliers. The proposition should tie in with the advice strategy but remain cost-effective to deliver. Advice propositions should also be able to deal with the increasingly global nature of clients’ financial affairs – e.g., high levels of offshore exposure in portfolios and dealing with advice to beneficiaries who have emigrated. And lastly, the advice proposition should effectively incorporate the learnings from behavioural finance in the client management process.” 

The important role of advisers

In sharing his final words with advisers, Van Tonder said, “The Two-Pot System is likely to result in an underfunded retirement as many people access their savings pot. Advisers will have an important role in educating people as to the consequences and helping them plan for emergencies using more appropriate investments.” 

Writer’s Thoughts

The insights shared highlight that embracing technological advancements, rethinking fee structures, and focusing on inter-generational wealth transfer are not just trends but essential components of a resilient and client-centric advisory practice. As we look to the future, the challenge for financial advisers will be to seamlessly integrate these elements into their business models. Do you agree? Please comment below, interact with us on Twitter at @fanews_online or email me – myra@fanews.co.za