The wealth management industry faces some unique and significant challenges as it responds to a tsunami of regulatory change. A core issue it will need to address is the approach it wishes to take when managing client relationships.
Like many others, I tuned in to the Australian of the Year Awards ceremony earlier this year and was totally amazed by the stories of the shortlisted candidates – all totally worthy of recognition because of the challenges they had overcome, often over prolonged periods, and the outcomes they’d achieved.
One thing that stood out more than anything else was their unwavering selflessness and exceptional focus on achieving better outcomes for someone else’s life (often thousands of lives).
This gave me pause to think about how the wealth management industry, and the individuals who make a living from it, would be judged if, somehow, we could magically look at their achievements through the same lens.
How many executives, wealth managers and advisers would convincingly ‘tick the box’ for demonstrating exceptional focus on achieving better outcomes for their clients? This may seem like an unreasonable and disrespectful question to ask, but given the current environment, it’s probably the most important one now and for many years to come.
How those employed within the industry conduct themselves with their clients, day in and day out, makes a huge difference not only to the individual clients they serve but the industry overall. Financial planning businesses (like every other sort) only exist because of their clients, so achieving better outcomes through the way practitioners conduct themselves is essential to restoring consumer trust and confidence. It’s all about promises made and then delivered (or not). Value for money is likely to become a key flashpoint in many adviser/client relationships going forward.
The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry uncovered unequivocal evidence of very serious instances of misconduct (possibly even criminality) within the industry and this has no doubt set it back many years due to its negative impact on community trust and confidence. Regrettably, it has unfairly tarred many with the same brush.
The release late last year of the Code of Ethics by FASEA was a critical step in demonstrating a strong resolve to ‘professionalise’ the industry, with a view to reducing the propensity for misconduct and rewarding those who conduct themselves in an ethical manner with a social license to practice their trade. It is scheduled to commence in less than 3 months from now, so no matter what you think about the process or timeline for introducing the Code, it would be very difficult to argue against the need for it based on the evidence of misconduct experienced by so many clients.
Options For Managing Client Relationships
Which brings me back to the Australian of the Year Awards. Senior Australian of the Year, Dr Sue Packer, spent much of her career advocating for the protection of children and I couldn’t help but feel engaged by her acceptance speech during which she described three options for parents when interacting with their children. These very same options are available to the industry when managing client relationships.
Firstly, she mentioned we could do things TO others but suggested caution due to the imbalance of power and poor outcomes that likely result. It’s clear that much of the ‘train wreck’ that unfolded during the Royal Commission arose directly as a result of decision-makers thinking they could do (often unethical) things TO clients and get away with it. The imbalance of power, represented by information asymmetries and financial illiteracy, were obvious, yet those who behaved poorly thought this was OK.
Secondly, Dr Packer mentioned doing things FOR others, noting this approach can be pretty hard because it’s possible to feel like a martyr after a while and underappreciated. Most advisers operate in a for-profit environment, so I’m not suggesting they should take this approach either because, sooner or later, they will find it impossible to survive if they do everything FOR their clients and aren’t compensated for their efforts.
Lastly, Dr Packer suggested parents should always try to do things WITH their children. This is because such interactions can be (and often are) memorable, involve collective effort that achieves good outcomes and help build truly strong and resilient relationships that can withstand challenges as they arise. I often see advisers describe on their websites that they’re in it to build strong relationships with their clients and that’s a great mindset to have, but it’s worth asking the question how many truly work WITH their clients? Delivering on promises made by working WITH their clients while clearly demonstrating value for money.
As we await further details about the Government’s legislation to animate the Royal Commission’s recommendations, it’s worth spending some time thinking about your approach when interacting with your clients. Do you do things TO your clients, FOR your clients or WITH your clients?
The choice about which of these approaches you use to manage client relationships is in your hands and the implications are profound.