Bulk mailing of termination letters has become standard practice in financial planning, as the industry grapples with its mass client problem.
According to American financial planner and commentator Michael Kitces, advisers can only build successful relationships with 75-125 clients, reflecting research by British anthropologist Robin Dunbar that the human brain can’t maintain more than 100-150 personal relationships.
This is significantly less than the many thousands of transactional clients some previously had on their registers.
While client numbers have been gradually slipping since the Future of Financial Advice reforms, activity has ramped up in the past three years, triggered by the fallout from the Hayne Royal Commission.
As a result, after 10, 20 and 30 years of loyalty, clients who can’t be looked after cost-effectively are being dumped.
The institutions are leading the charge. They bore the brunt of ASIC’s ire, paying out over $3.15 billion in compensation for misconduct and fees-for-no-service, so there’s little-to-no appetite for flexibility.
Yet, many abandoned clients remain in life insurance, superannuation and investment products originally recommended by their former adviser.
The uncomfortable truth is that C&D clients have collectively contributed to the success of many advice businesses.
Dumping them en masse is a bad look for an industry trying to regain consumer trust.
Furthermore, does issuing a termination letter absolve advisers of their legal and ethical obligations, given they have been collecting a fee or commission for many years?
To quote Winona Ryder in ‘Reality Bites’: “The answer is… I don’t know”.
In lieu of clear-cut answers, professional advisory firms must find creative ways to meet their obligations and manage risk while serving the needs of their clients.
That means taking the focus off affluent and high-net-wealth individuals for a moment to think about everyone else. The industry already has a solution for rich people.
A broader value proposition would enable advisers to help more people, build confidence in the sector, and underpin future growth.
Part of the solution must lie in being able to legally and seamlessly transition clients from the realm of personal advice to the realm of general information.
Over time, as a client’s circumstances and needs change, they should be able to flick back and forth between both worlds, guided by their adviser.
The regulatory framework must recognise that people’s advice needs are constantly changing.
Sometimes life is simple, other times it’s extremely complex but, through it all, many want an ongoing advice relationship.
Positively, Treasury has promised to “look at how the regulatory framework could better enable the provision of high-quality, accessible and affordable financial advice”.
As part of the Quality of Advice Review (QAR), it is also seeking to remove impediments to new forms of advice.
This futuristic language is a welcome sign.
Regulators must be forward-looking.
Regulation should aim to stop the mistakes and injustices of the past from happening again but it must also seek to rectify widespread issues and inefficiencies to allow businesses operate more effectively in the future.
The best outcome from the QAR is a clear path to replacing the current one-size-fits-all approach in favour of a regime that encourages different advice propositions including technology-enabled digital solutions.
Advisers could then maintain a large number of ongoing client relationships. The nature and intensity of those relationships could change in line with a person’s needs.
Nigel Baker, founder, Scientiam; financial adviser, Arch Capital
What political licence did Slomo have for all his jobs? What licence does any politician have? Do they even need to have an understanding of the constitution and be tested on it? mmmmm….
The reality is that 80% of “advice” was always just product sales and building a tail of trail commissions. THank god for FASEA and good riddance to the big licensees
The author is correct that clients should be able to flick back and forth between both worlds, guided by their adviser.
Shame that they can’t under the current legislative environment. ASIC and politicians are getting what they always wanted and the loss making clients are therefore their problem.
No conundrum to see here.
Costs of compliance.
Costs of ASIC
Costs of other entities failures
Costs of keeping life insurance uptodate and affordable
Costs of SOA’s for No change to advice
Mr / Mrs Client, here is your 12 month renewal fee…$xxxx
Clients make their decisions based on whether or not they feel it’s worth it…they either renew or they don’t.
This is why advice is now seemingly only available to the wealthy.
As a financial adviser who used to do 10% pro-hobo work, this is such a shame to see. But we all have families to look after and hills to pay!
C’mon, get real! For God’s sake what does an anthropologist know about looking after Client’s who’ve bought insurance policies and savings/superannuation plans! 99% of those ‘B&C’ Clients, simply bought relatively simple products. Their Adviser stayed in touch with them, year after year, and was always there for them. But they didn’t need highly sophisticated reviews and 60 pages of meaningless gobbledegook, totally irrelevant to their needs, circumstances, or even their interests. Of course they weren’t great revenue earners for their friendly adviser (whom they used to call their Agent). They were never going to respond to their Adviser/Agent’s request (forced upon the Adviser/Agent by ASIC) to complete long-winded Fact Finds and Risk Profiles; they didn’t consider them relevant or necessary. *And from 40 years’ experience as an Adviser, I didn’t consider them necessary either. And so, the otherwise successful Adviser with hundreds of satisfied Clients, gets saddled with the negative experience of so-called B&C Clients’ not completing Fact Finds and IRP’s, and therefore not being able to prepare the totally unwanted SOA, and then having the absurd, indeed immoral, task of ‘terminating’ the associations with those Clients. And losing the results of a dedicated lifetime’s work of building up a Client base. What a brilliantly designed Lose, Lose, Lose formula. God save the public from ASIC and the rest of the bureaucrats. The wreckers!
All I took away from this article is that Treasury is looking at making it easier for “@money with Maddy” to tell us what ETF is a good buy on Insta, Vero and Tik Tok.
No lawyer or medical specialist provides their services for free.
We’re not a charity.
As for the claim in this article about “loyal “ clients. Loyal only until asked to pay.
We sent bulk termination letters to many clients several years ago and haven’t looked back because it was loss generating to service them in compliance with regulations. Our bottom line actually improved as a result and freed up time to better service our commercially viable clients. The termination letters basically said “we are no longer charging you ongoing fees and return responsibility for your financial affairs back into your care….BUT…we are always here if you need us and will charge you fees based on the services you ask us to provide”. I think Hayne referred to this as “Fee for Service”. He wanted us to charge like lawyers and so now we do. We still market to, and engage with these clients, they know where we are and are free to engage our services at any time. Simple!
LOL, so they want exactly what I’ve always provided before pushing those clients out of serviceability through the compliance and as a result the cost to serve basis.
Over recent years I’ve had this conversation with many other advisers that all the new push would do, is price mum and dads clients out of the market, arguably the people that actually benefit the most from personalized advice.
Due to how all compliance officers enforce the fee agreements now (Supposedly inline with ASIC guidance), it’s impossible to keep clients on the books if they are not full service clients. So what exactly are we supposed to do with these C and D clients in the meantime?
Is this a lack of imagination, or working within the new guidelines of this so called profession?
The clients are ASIC & governments responsibility after all didn’t they take on the job of regulating the industry. If that is what caused the advisers to leave whether it be by unrealistic examination, documentation or poorly worded or impossible to meet assumed ethical requirements causing mental stress or distress then it is the governments liability.
IN common parlance “you break it, you fix it”. That’s both the Pub Test and the common persons understanding.
Hold as many Royal Commissions as you want to try and apportion blame but the truth, is the truth is the truth.