“In the U.S., they introduced a fiduciary requirement to put your client first, but if you go back 15 years, the U.S. would normally be 10 years ahead of the world,” said Jacqueline Lockie, the head of financial planning at the Chartered Institute for Securities & Investment, a global body headquartered in London. “A lot of regulators around the world are now looking to the FCA [the U.K.’s Financial Conduct Authority] to see what they are doing. RDR really has had a positive impact on the U.K. advice market by helping the public see how they are paying for the advice they seek.”
In South Africa, one key question being examined is, “Do you receive financial advice from an ‘adviser’ or an ‘agent,’ and what exactly is the difference between the two?” Once the RDR legislation is enacted in South Africa, registered financial advisers (RFAs) will be the only ones able to offer financial advice. According to the current version of the RDR, an RFA can be an individual or a company, but in both cases, its ability to provide professional, independent financial advice will have to be verified by an external source.
At the heart of the reform in South Africa is a set of rules on how customers should be treated—aptly called “treating customers fairly” (TCF). One of the rules (No. 4) is interesting to note: “Where advice is given, it is suitable and takes account of customer circumstances.” This seems so obvious that it’s hard to understand how financial professionals operate without doing so. Yet many do. That game is disappearing.
Expanding Your Range
In his 2005 book A Whole New Mind, Daniel Pink presciently states that the “value propositions of the future would be seated in the right side of the brain.” For financial professionals, this means that if key value propositions can be replicated by software, algorithms and artificial intelligence, then they are at the mercy of the market and what it is willing to pay—which is increasingly less each year. Commoditization relies on pervasiveness and standardization to flex its muscles. Once a program can achieve what advisors have been doing for their clients, the advisors are now at the mercy of the going price of the technology. Asset allocation, rebalancing, fund selection and comparative research are a few obvious examples of irreversibly eroded value propositions that once paid the bills for planners.
Exactly what is meant by a “right-brain oriented value proposition”? I’ll offer three examples of what might fill that void in our current quest for a more substantive value proposition:
A. Comprehension of Context
I’ve read from more than one brain researcher that the most immediate curiosity of the right brain when faced with any proposition or input is: How does this apply to me? How does it fit into my situation? I often ask financial planning audiences, “Have you ever prepared what you believe to be a comprehensive and applicable plan for clients, only to see them fail to act upon it?” Every planner is familiar with this frustration.
My suspicion about this particular phenomenon of inertia is that the plan is not properly anchored in your clients’ story. Knowing their numbers isn’t enough. Clients don’t feel the plan until they know you have heard and comprehended their story, which should form the core of the plan itself. Developing a plan based only on numbers and facts is like having all the bones in place, but the sinew, organs, blood, skin and bones never come to life. In similar fashion, the client’s background—the current and unfolding stories—are the vehicle for bringing his or her plan to life. To expand your range, you need to gain a broader understanding of your client’s biography.
B. Narrative and Understanding