Director of Sales & Marketing at Praemium
Re-engaging the investor
It’s rough sailing right now for investors and savers alike! Volatile markets and low interest rates are the norm, and investors are bombarded with information about products and services without understanding how any of it relates to them.
And we’re not helping - our industry has been built around “selling”, not “educating”. We regularly promote long-term investing whilst employing short-term sales strategies, and client outcomes often come second to chasing commission. The results are predictable: returns fall short of expectations, long-term goals are not met and clients become disillusioned. And unsurprisingly, offshore advisers have significantly lower AUA than in other more regulated markets.
A study for Luxembourg’s ALFI revealed that Europeans now hold cash savings of around 40% of household wealth (compared to 18% in the US), despite the fact that savings accounts are basically delivering negative interest rates. These savers missed out on around €900 billion of performance between 2006 and 2013 by not investing in the market.
So why can’t we engage these savers?
First, financial advisers tend to concentrate on the wealthiest 10% of the market, leaving the remaining 90% with little or no advice.
Second, many savers know they should invest for their retirement but find the choices confusing. Without help they risk not having the retirement income they need, or worse, running out of capital altogether.
Third, many investors have had at least one bad experience. I estimate that many adviser legacy books currently have at least 30% invested in de-listed funds or products with back-end charges. Clients cannot make good on capital losses or achieve the growth they require, some cannot even access their money. Investors have been burnt by the global financial crisis, been sold poor-performing funds and inappropriate products, seen their performance eroded by high commissions or been annoyed by the lack of transparency.
Significantly, if disillusioned investors could be tempted to return or confused savers invest some of their long-term savings, the industry could see an additional €2.5 trillion in inflows, according to the study.
But it’s a challenge.
Savers have heard the horror stories and vowed never to be a victim. Disillusioned investors don’t want to repeat their costly mistakes. Neither will respond to sales techniques.
Many adviser businesses have accepted the challenge and are changing their business. Most clients leave their adviser, not because of poor performance, but poor relationship management. Forward-looking firms are looking to create alignment with their clients and changing the behaviour of their advisers by:
- Being advisers, not salespeople or investment managers. Start recommending products designed to meet specific client needs, e.g. a strategy with capital protection for the risk-averse investor;
- Setting and managing client expectations. If a client expects and receives a 4-5% long-term annualised return, that client is happy. If a client invests in a product that delivered 15% last year but falls 15% this year, that client is unhappy and may not stay;
- Seeking to educate, not to sell. Investors generally do not care about the details of UCITS, annuities or wrappers, but want to understand how their investments can help them meet goals without costing too much. A good adviser knows how to impart knowledge to gain trust.
- Outsourcing investment management. Today’s profitable advice businesses know that advice need not be expensive or bespoke, or even face to face. They identify needs and deliver advice that is appropriate for the clients’ risk appetite, personal situation and goals;
- Making best use of technology. From portfolio management and reporting, to CRM and financial planning tools, today’s best technology providers can deliver integrated tools that streamline processes and make businesses truly scalable;
- Always having a clear exit strategy should performance fail to deliver or clients’ circumstances change; and
- Sacrificing some upfront commission in favour of steady ongoing fees, aligning their own interests with their clients’.
If you are prepared to make the move away from short-term sales to long-term advice, not only will your business be more efficient but you will start to build long-term value. Most importantly, you will play your part in bringing these disillusioned and nervous investors back into investing.