Innovation in delivering Financial Advice: Does it have to be this way?
Practice Management & Professional Services & Strategy & Value Proposition

Innovation in delivering Financial Advice: Does it have to be this way?

April 3, 2020

by Tony Vidler  CFP logo   CLU logo  ChFC logo

challenge your thinking“Innovation” and “delivering financial advice” do not usually go together for the majority in the industry.
The way advice is delivered by tens of thousands of professionals tends to gravitate to the same methodology.  There is safety hiding in the herd, right?  
Then the  type of advice delivered by tens of thousands of professionals to hundreds of thousands of consumers tends to gravitate to the same ideas, products, solutions and theories….most people ARE influenced by what most other people are doing, and want to do the same after all.  It’s safer, right?
But why does it have to be this way?  More importantly; has it proven to be “safer”?
And how can an adviser truly stand out as being different if they are just part of a massive herd of similar looking creatures?  
These are questions that financial advisers should be contemplating deeply at the moment.  One thing we are sure of is that merely aiming for safe hasn’t proven to be particularly safe at all really.  That in itself should make us step back and challenge historical thinking and established methodology.
Financial Advice as it is generally practiced today is bland usually.  And as an industry we should be shaken up by the global turmoil in investment markets, trade, regulation, politics…and pandemics.  Can “bland” be a sustainable and valuable business offering in such a world?
I am sure I will get roundly condemned for saying so, but the gravitation to widely accepted solutions and strategies has really led to safety for the industry in the main.  Not necessarily the consumers.  In my mind it is a more advanced version of the belief system that once upon a time led to physicians putting leeches onto patients as a supposed cure for just about everything from the black plague to a concussion…that was the accepted best practice of the time, right?  The safest course of action for the physician at that point in history was to follow the same practices as all other physicians, or be seen as a charlatan.
Now we are at a point in time where insurance policies cannot be relied upon to deliver certainty at a time of crisis.  Capital sums investmented into highly liquid markets disaapear in seconds, with computers trading the market quicker than investors can react to.  Direct investments into properties or businesses just bleed to death a touch slower than indirect investments.  Banks cannot be relied upon to act in depositors interests.  And so it goes on….as far as consumers are concerned.
Those perceptions are getting tougher to defend or ignore.
Let’s take Modern Portfolio Theory mixed in with a bit of Dollar Cost Averaging via Mutual Funds as a quick example (and I know I’ll get sent to hell for saying this).  I have dealt personally with thousands of consumers and probably well more than a thousand advisers during my career, so while my observation is empirical perhaps I do believe I am working with a decent sample size here.  But here is the thing:
I haven’t met anyone who became fabulously wealthy by drip-feeding a proportion of their pay packet into a managed fund and spreading their risks.  Not one person.
…that HAS to make me re-think conventional wisdom doesn’t it?
Sure, there are plenty who have built up a good sized portfolio or estate and are comfortable – but that is a different thing to being truly independent isn’t it?  However, I do know or have met quite a few fabulously wealthy people over the same time and have observed that they typically have not subscribed to the dollar cost averaging idea, or using managed funds, or even the whole MPT thing. They became fabulously wealthy and truly independent by concentrating their risks.  By focussing relentlessly on rental property investment for example, or building a business, or becoming superb equities investors….the examples are endless, but the common thread is the same:  They did something different to the conventional thinking.  As a result, they built extraordinary lives for themselves.
I have observed the same pattern with advice businesses – and been absolutely guilty of it myself.  
We find out what the rules of the game are (best practice standards, plus the rules and regulations applying to us), and look at how the industry is comfortable with generating revenue (what is the “norm”), and then try to find the consumers who like safety and hiding in the herd and turn them into clients.  We do that with policies and contracts that ensure a future contractual income for the practice (hopefully) in order to create safety for who?

So the standard business formula for an advisory firm looks like:

Obey Rules

+ Charge acceptable amount in acceptable way

+ Safety-seeking Consumer


= Ongoing Income

A couple of observations before I go further though:
  1. the above model will be a workable business if it can satisfy a very large number of consumers
  2. it works for shareholders and stakeholders of the advisory firm
  3. it is safe for a while probably – relatively speaking – but is fundamentally “transaction-based”
So it has its merits for some, and is a viable method of building an advice business which can profitably meet the needs of its constituents for some time probably.  How long though is arguable.


Is this the highest professional aspiration for the hundreds of thousands of quality human beings working in financial services?  Is that work worthy of them?  I think not.


Will consumers continue to be content with bland, “run of the mill”, generic solutions that everyone else in the market offers?  I think not.


The most interesting, challenging, demanding, lucrative and valuable clients an advice firm could have do not gravitate to that type of solution.  They can get that sort of solution online, and a damned sight cheaper than going to see a professionally trained personal adviser.


To begin figuring out how to innovate in delivering financial advice as a commercial service we do have to ask the basic question of every aspect of our business:

“Why does it have to be this way?”


There are often reasons – such as regulations – that prescribe a certain thing must happen in a certain way.  For instance; we have a rule which says advice must be delivered in writing, so delivering advice in a written format is “must”.


But to innovate we need to move beyond what is a “must” and figure out

“How would it work ideally?”

challenge your thinking
We might then come up with an answer such as “for our target market clients advice is not a “point in time plan which is redundant in 2 months time” – it is behavioural coaching that takes into account the rapidly changing circumstances of their life”.


That might mean that our “advice” is in snippets…small parcels of information and guidance that deal with with key decisions week to week, or month to month.  High one-to-one contact and delivered verbally – advice on the fly as it were.  Which then has to be captured in some written form to satisfy the regulators later…but that is not a requirement of the consumer, so it is largely irrelevant to them.  But ensuring that the written advice is simply a digital record (even if that is just a screenshot of a whats app conversation) which they can access whenever they want might be the way we should do it.


I am not saying that example is the best or right way to go about it, but it is an example of a different way of thinking about HOW we might go about it – and that is what matters.  We need to be thinking about how we might go about doing things differently and meeting the personal expectations of the clients we serve in preference to simply being seen as “safe practitioners” because we do everything the same way as everyone else in the business.


The “secret” to innovating as an advice firm is to understand three things, and then figure out how they overlap or intersect.  The three things to understand which unlock innovative thinking are:
  1.  What is desirable to the people we serve?
  2. What is do-able with the resources we have and the available technology?
  3. What is profitable?

The first is about focussing upon the end-user – the client. What is it they want?  How do they want things to work?  What do they value?  What wows them? What are their expectations? Basically…..what do they desire?


The second is more technical, or pragmatic, in focus. What is physically possible?  Does the technology exist, or how can it be used?  How could we use knowledge or technology if we were not restricted in how we married them up?  How could we do faster, better, leaner, more personalised, more fun, more useful, more timely….more anything….what is actually feasible in todays world with what we know and what we have or can access?


The final question is the limiting one: can the fabulous concepts be done profitably?  You might have a great and empowering idea that would attract every billionaire on the planet as a client of your firm…such as they get Warren Buffett personally managing their money and talking to them personally each week.  But can you afford him? And still make a dollar for your own stakeholders?  Or maybe you should just hologram yourself into a meeting virtually…..or hey! maybe we should hologram Warren Buffett in?


…but if that technology cost $3,000,000 to implement and the turnover of your firm is $500,000 per year, then maybe it is not a good innovation after all….or maybe it is a good innovation but the cost of the technology is just too steep right now. It is perhaps an idea for the future….


When re-thinking how your business could work, or how it could deliver the type of value that your ideal target market clients want, don’t let the final question regarding profitability stifle you.  Good ideas can be good ideas whose time simply has not come yet – but don’t lose the good idea.  The profitability question really serves as a checkpoint on which ideas to run with now.


To achieve breakthroughs in how a practice works, or perhaps redefine how an entire industry works, requires that we challenge all the basic assumptions to begin with.  It is that challenging of the status quo, asking “why does it have to be this way”, which leads us into innovative thinking and potentially seeing the business future an entirely different way.


The business models for successful financial advice businesses will evolve rapidly in the next few years, and now is definitelky the time to do some serious thinking before we try and adapt.

You might also be interested in this related article:
The 1 Thing You Need To Actually Make Your Strategy Work
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