We recently commissioned XY Adviser to conduct some research that we believe will help your advice business. We wanted to find out how COVID-19 had affected financial advice businesses throughout Australia and, perhaps more importantly, how advisers could use this information to ensure their business is best prepared for future Black Swan events.
Below is a summary of their findings. We hope you find this useful. If you would like to discuss the research in more detail, please contact your usual Allan Gray relationship manager.
- Advisers grew their client bases through 2020, but the focus was predominantly on servicing existing clients not prospecting for more.
- Insurance has not been a major concern for advisers’ clients, despite COVID being a health risk.
- Help with making cash flow decisions was considered valuable by clients, but so was help with other aspects of clients’ lives other than money.
- Investment advice was the most valuable service to clients during COVID.
- During future Black Swan events, focus on maintaining communications with your clients. Investment advice is key, but you can also check in on clients’ personal wellbeing.
When Black Swan events occur, the question isn’t ‘will they happen again?’, but rather ‘what did I learn to help my clients when another one occurs?’. In early 2020 top-down regulatory change was already a pressing concern, but advisers barely had time to react. When COVID-19 took over the world, financial advisers were left with a new problem to solve. A pandemic had arrived, with volatile markets to follow.
We asked 100 financial advisers across Australia what their clients found valuable during the pandemic. Where did clients find value in an ongoing financial adviser relationship? In a time of upheaval, was lifestyle coaching more important than investment advice? Or was cash flow more important than insurance? Ultimately, we wanted to know how advisers could tackle the next Black Swan event with more precision, by collecting empirical evidence on what their clients would value the most.
Our survey said…
To begin with, we asked the question ‘did your client base grow during the height of the pandemic in 2020?’ The good news is almost unanimously across every category of respondents, advisers grew their client base during the COVID pandemic. The only exception to growth during this period was respondents from smaller practices with under the industry median of $40,000,000 in funds under management (FUM). This dimension of advisers had the largest percentage of respondents experiencing negative growth during COVID. On the flip side, larger financial planning practices reported the most advantageous growth position during COVID, with almost no respondents saying their business shrank during the pandemic.
We then went on to ask a list of questions regarding the different type of decisions advisers were helping their clients make during this pandemic. We wanted to know where clients saw value from their advisers, so we asked the advisers whether investment, insurance, cash flow, or personal wellbeing was considered the most valuable advice by their clients.
Insurance is not a major concern
Let’s start with insurance. Considering the cause of this Black Swan event was medical in nature, it was somewhat surprising to see the results. To begin with, not a single respondent answered in the strong affirmative as to whether their clients considered insurance decisions valuable during COVID. Almost across the board, the vast majority of responses to whether clients found insurance advice valuable or not was answered ‘neutral’. The biggest discrepancies were in the employed or self-employed realms, with employed advisers perceiving insurance advice during COVID the least valuable and self-employed advisers considering it more valuable than other groups of respondents. Beyond that single differentiation, the rest of the responses were almost identical.
Cash is (almost) king
Almost unanimously advisers thought that cash flow decisions were considered valuable by clients. Considering the concerns with unemployment that occurred during the height of the pandemic, providing confidence to clients with their immediate financial situation was highly valued. Regardless of the type of adviser, there was an overwhelming positive response to helping clients during a stressful time in their life with cash flow decisions.
From adviser to life coach
Another area of advice that has become more common in recent years, is the idea that advisers can play a larger role in their clients’ lives beyond solely money decisions. In this case we asked advisers whether their clients considered personal wellbeing advice as valuable during the height of the pandemic. Again across the board, advisers found that their clients highly valued this type of service.
An adviser’s bread and butter
And to the most valuable decision making activity advisers provided to their clients during COVID – investment advice. Several categories of advisers considered investment advice a ‘very valuable’ service during COVID. None of the respondents answered anything less than a neutral response, with the vast majority of respondents across all categories considering investment decisions the most valuable service.
During a Black Swan event, when tensions are high and uncertainty is the only certainty, having an expert to rely on to make quick and rational decisions is where advisers thought their clients received the most value. Breaking it down a little further, the more experience an adviser had, the more value their clients received from investment decisions. When asked how valuable has advice on investment decisions been to your clients during COVID, the answers from advisers with over seven years’ experience were split between just two categories: ‘valuable’ and ‘highly valuable’. For advisers with fewer than seven years’ experience 28% were ‘neutral’. Perhaps more experienced advisers have more experienced clients? There is also an argument that says more experienced clients have previously experienced the negative outcomes of Black Swan events. But regardless the responses were very clear: the more experience an adviser has, the more value was provided to their clients in the form of investment advice during COVID.
Focus on your followers
Once we had an idea of what clients valued the most during COVID, we asked about adviser resilience. Are there quantifiable differences between advisers that create growth during difficult times and those that focus on maintenance? We asked: “how have you split your time between prospecting and servicing in 2020?” The majority of the answers showed advisers were mostly focused on servicing existing clients. Now, it is hard to attribute all of these responses to COVID. There are a number of reasons why advisers focused more on servicing this year. For example, regulatory changes have created uncertainty for clients and that must be considered when looking at the responses. Most more experienced advisers in larger practices with private licences considered focusing on servicing their existing client base the most important thing they could do during the pandemic. Advisers with more established client bases focused on keeping their existing clients well informed, compared to advisers with less experience in smaller practices not taking their eye off client acquisition during COVID.
We compared this behaviour with the responses to how advisers approached servicing and prospecting in previous years and there is a clear shift towards servicing during COVID. Contrary to the current environment, in 2019 less than a third of the respondents were mostly focused on servicing existing clients, with most of those advisers coming from larger practices. The vast majority of advisers preferred to prospect and grow their client base when instability in the market is more constrained.
It seems that during a Black Swan event, where stability at a systemic level is under threat, the focus tends to be on providing extra service to the current client base. And it also appears clients value the extra service during uncertain times. Conversely, a focus on client acquisition didn’t always result in the desired outcome. There appears to be at least a loose connection between those who aimed to provide more value to their existing client base during COVID and those who experienced the least amount of client loss.
What can you do next time?
From all these results, what takeouts are available for advisers? What can advisers glean from the experience of other advisers during a Black Swan event such as COVID? Well it appears, at least to those advisers who answered this survey, focusing on servicing the existing client and delivering more communication is the most valuable use of your time. And while insurance would seem to be an important aspect of financial advice during a medically-induced Black Swan event, rather it was both the short and long term financial decisions, mixed in with the relationship-related personal wellbeing questions, which were the most important.
In a lot of ways, it comes down to showing how much you care for your clients and their outcomes when stressful moments happen. Pick up the phone. Write an email. Keep your clients well informed. Ask them how they are, not just from a money perspective. If you are making an investment decision for them, let them know why. If their employment circumstances change, invite them to discuss with you changes in their current expenditure to stay on top of things. Ultimately the job of the adviser is to be the calming influence during the storms of upheaval. And it appears clients thoroughly appreciate the effort.