The start of a new year tends to be a time for new resolutions. A time to change habits. To set new goals. We do this because a new year always offers the promise of a new beginning. A promise I’m sure we all hope will be true for 2021 after the extraordinary year that was 2020. But it’s always useful before committing to new resolutions, to do some reflection. After all how can we change habits or set new goals if we don’t reflect on old habits and previous goals?
James Clear in his book Atomic Habits outlines that to form new habits, we often make the mistake of setting outcome based goals. A smoker who wants to stop smoking sets the goal: “I want to stop smoking in 2021”. Clear argues that most new habits fall by the wayside because so often we express a commitment that is easy to break. He suggests that an identity based approach to habit change is more effective. The smoker would express this as: “I am not a smoker”. He argues that identity based habit formation is more enduring. It’s easier for someone who does not see themselves as a smoker to say no to a cigarette, than someone who says that they want to stop smoking.
If we apply Clear’s perspective to your world as a financial advisor, any new work habits you want to develop, or goals you want to set would come from how you see yourself as a financial advisor. What type of a financial advisor are you? In other words, how do you identify yourself?
Financial adviser – a confusing label
“Insurance is not bought, it is sold”. The mantra that introduced many financial advisers to their profession, a term I use cautiously, as I believe it is an evolving profession. “Find the scab, scratch it, and then offer the plaster”. A core piece of wisdom passed onto new financial advisers. That way the client will buy the insurance they didn’t know they needed. And how some do buy.
My father retired with at least ten of these policies. He bought them from a financial adviser who he really trusted and liked. Whenever we as children questioned him about his financial position, he would always reply, “Don’t worry it’s sorted out”. He trusted that his financial advisor was looking after him. When my father cashed in his many policies on retirement, he became another one of many people who are woefully short of having enough money to live on for the rest of his life.
My father’s best investment was having four sons. We helped out in various ways to support my parents in their retirement years. Financial support was key, but so too was giving time and emotional support. The burden that the middle-class elderly bear is seldom hunger, more often loneliness.
I know my personal story is not unique. The consequences of financial advice for clients are usually experienced years down the line. But the developers of financial products have long recognized the powerful impact on distributing those products if the benefits of selling them are immediate. High upfront commissions created a perverse incentive to sell more products. Opaque products. Where clients did not even know what they cost. And like my father, were too trusting, or too scared, to ask.
As a result, it is no surprise the financial adviser’s role is confusing. For many clients their role is simply to provide access to financial products. Either through great advice or great sales skills. This confusion is a pity because of the crucial role financial advice can play in promoting financial health amongst individuals and families, everywhere.
Life insurance got its real boost in the Spanish Flu of 1918. The flu mainly struck people in the age range 18 to 35. Many households lost one or both parents. The importance of life insurance to families became apparent. It is no surprise that for much of the 20th Century, the term financial adviser was interchanged with “insurance broker”. Even today, many financial advisers still refer to themselves as “brokers”.
The problem, as a result, is an identity crisis. Which is why it is so important to know what type of financial adviser you are. But this is not the only reason it is important. Because if you have an identity crisis, it means that you are unlikely to have in place what I like to call the Golden Triangle.
The Golden Triangle – your cornerstone
Whatever business or profession you are in, the Golden Triangle is your cornerstone. It is a concept that is self-evident for most businesses. Consider restaurants that have an identity, a menu with prices, and very tangible products. Yet when it comes to a professional service like financial advice, the Golden Triangle is often elusive. The Golden Triangle comprises three key elements:
- Know what value you offer – when it comes to professional services it is often easier said than done. Are you offering technical expertise? Are you a problem solver? Are you a seller of products?
- Clients recognize your value – price is only an issue in the absence of value. The history of financial advice is such that very often the only value that a client sees is in the financial product that is taken up. As a result the value of the financial adviser is often seen as an intermediary rather than as a standalone professional.
- Clients are willing to pay for your value – most professional services charge a professional fee linked to time, service or value add. At the moment few financial advice businesses charge in this way. In fact many financial advisers don’t charge explicitly for their service. Their remuneration is usually linked to whatever financial product they advise on or “sell” to their client. And it often means that they will meet with a client for no remuneration, in the hope that a transaction will be concluded. Clearly, for many financial advisers, time is not money.
A clear identity – your starting point
Industry research emphasizes the importance of having the Golden Triangle in place. A Financial Planning Association (FPA) report on trends in practice management in the US identified the biggest challenges advisers face in their business. Top of the list was: “Being able to effectively communicate my/our value to prospects”.
Second was, “Being clear on the value I/we provide clients”. You can see now why reflecting on your identity is so important. If the professionals themselves are not clear on the value that they provide clients, how can clients know what that value is?
It is little wonder then that the third challenge advisers faced according to this survey was: “Ensuring clients perceive high value relative to the fees they pay”. This is one survey in one country. But it captures the essence of why financial advice is a misunderstood profession. Price is only an issue in the absence of value.
The survey shows that many US financial advice businesses don’t have their Golden Triangle in place. But they are not alone. This is not even a South African problem. It is global, and it is a function of the history of the profession.
Without a clear identity you will struggle to put the Golden Triangle in place, without which you face the risk that your new goals and changed habits become nothing more than wishful thinking.
Having started out as a sales industry, it is no surprise that as financial planning becomes a profession, many advisers will struggle with an identity crisis. As you think about your new goals and habits for 2021, I believe the most sensible starting point as James Clear suggests, is with your identity.
Without a clear identity you will struggle to put the Golden Triangle in place, without which you face the risk that your new goals and changed habits become nothing more than wishful thinking. In next month’s article I will offer my thoughts on what your identity could be as we look at the different types of financial advisors out there.
- Atomic Habits, James Clear, Avery – Penguin Random House, 2018
- Trends in Practice Management: Understanding and Driving Client Value, Financial Planning Association (FPA), Research and Practice Institute, 2016