As a consumer, nothing annoys me more than ill-trained employees slavishly following the orders they have been given.
And nothing increases my blood pressure more that when I ask the question ‘Why do you/I have to do that?’ and getting the answer: ‘Because that’s the rule’. Especially when it is obvious that the rule makes my life and that of lots of other customers more difficult.
The obvious moral of this story, one that is familiar to us all, is that process can be stupid. There is no requirement for the introduction of any new process in business to improve the outcome for customers. Indeed very often we experience the opposite. I say ‘stupid’ because such businesses quickly lose my custom.
Focus on process without reference to ‘What’s in it for the customer? How does this make it better for them?’ is a mark of a business that does not put customers first. Most people introducing processes that benefit their business rather than their customers blag it, of course, and this is an indication of sloppy thinking, laziness or greed.
I agree that financial services business need to implement consistent processes to deliver good outcomes for their clients. But I do not agree that process is good in itself – think of life insurance companies! Nor do I agree with the notion that everyone has to behave like robots in order to be consistent.
Managers running advice businesses have to choose between trusting their employees to give good advice and forcing them to constrain their advice in some way.
Today, the fashion is for constricting investment advice. Restrictive investment processes using narrow-range centralised investment plans, discretionary investment solutions or model portfolios can be seen everywhere.
But experienced advisers know there is no out-of-the-box investment solution that will produce good results for everyone. If there was, we’d all be on Paradise Island.
Designing a set of investment boxes that appear to fit a variety of customer profiles is, of course, a mass-market retail solution that you would expect to find in a bank.
In this case, the constraints are designed primarily to limit the firm’s potential liability to customer claims for compensation for the consequences of poor advice. This is clearly a benefit for the firm but may not be one for the client.
Financial advice is necessarily complex. Financial advisers are highly trained in the technicalities. Clients mostly do not have a clue and are interested only in outcomes. How do you align almost infinitely variable client needs and circumstances with a very wide range of possible solutions?
A corporate manager running a commercial business will answer this with top-down rules and processes. A professional firm will try to answer it by using methods that encourage and pressurise advisers into adopting ‘best practice’ standards. In my opinion the most powerful of these is the checklist.
In the advice process, the checklist can require advisers to work out client needs and the constraints on possible solutions: protection ratios, debt ratios, sensitivity and risk capacity, for example. Often just the calculation of the numbers will point the adviser in the right direction or prevent them going in the wrong one.
A checklist that gives a reading on the client’s capacity for risk is one way to ensure that investment recommendations are suitable.
If you do that, you do not need to apply such rigid limits to solutions – provided you have good processes for regular reviews of clients’ investments.
Chris Gilchrist is director of FiveWays Financial Planning, edits the IRS Report newsletter and is the author of the Taxbriefs Guide, The Process of Financial Planning