Supporting the client is key to a sustainable business
There are still too many people in financial services who don’t seem to recognise, understand or appreciate that the key to growing a sustainable business is supporting the client.
To survive is not about being the strongest or the fittest; it’s about being the most adaptable – having an open mind and a relentless focus on the changing needs and habits of the client.
You need a clear focus and a clear client value proposition. This is the first of three key ingredients to building a sustainable business.
Value is about creating something tangible that clients recognise and appreciate. This might mean ensuring a client does not run out of money during their retirement, especially as the move from defined benefit to defined contribution gathers pace and the individual takes greater responsibility for managing income in retirement.
But while talking about the critical importance of client value to building a sustainable business, the second key ingredient is the delivery of our service and this is now becoming increasingly important in all businesses. The expectation of the client is being raised due to their interaction with many digital touchpoints in their lives: Uber, Airbnb, Apple, Ebay, Nest, Alexa, Netflix, online banking, online betting, online gambling and, of course, Amazon.
As a result, our clients are becoming much more demanding and technology becomes ever more critical to our business – if we fail to keep up, we will be dumped. What is currently viewed as exceptional will become the norm and we need to respond.
Moving on to the third key ingredient to building a sustainable business, this is the management of risk.
A key risk for all advisers is how the firm sets up its investment service; for example, understanding that the essence of investment management is about the management of risk, not returns. We cannot predict future investment returns and we need to concentrate on getting the basics of an investment right.
Nowhere is the concern over risk more apparent than in pension freedoms, where the FCA has said that 53 per cent of DB transfers are unclear or unsuitable. Our concern is that we know where this analysis leads in terms of financial redress and reputational damage.
Pension freedom is not about opportunity, it is about ensuring a proper process is in place to provide the right solution. The dangers in this area are still to be adequately quantified and there are risks breaking out wherever you look.
This is especially relevant when there appears little or no alignment between the interests of the client, the adviser and the firm, and all three have separate objectives. The client is seduced by the size of the fund, the adviser is focused on the fee and the firm by the ability to increase assets under advice. This lack of alignment is fuelling the problems we now see. To deal with pension freedoms properly requires all parties to be aligned in their desire to achieve the right outcome.
In business the only thing you have is your reputation and you must do everything you can to protect it.
Tim Sargisson is chief executive at Sandringham