Stop focusing on process and proposition 17 November 2015

Stop focusing on process and proposition

The introduction of the RDR by the FSA perhaps forced financial advice firms to profoundly review how they communicated with clients. Pre-RDR, the cost of providing advice or planning was arguably hidden in provider product charges. This falsehood embedded the belief for the recipient at least that advice was free of cost.

With the ability of providers to make payments to firms removed by the regulator, firms were required to ask the client for payment, and for the first time they asked, “what am I paying for?”

Rather embarrassingly, the realisation that advisers had not communicated this information previously, or at least not in an eloquent way, caused concern within the profession.

Surprisingly advisers couldn’t answer this communication brainteaser. The response was provided by trade bodies, professional bodies, software vendors and gurus who cleverly came up with “find something tangible and communicate it through your promotional mix”. The value proposition was conceived.

The change from a sales orientation to offering a value-led proposition (a term that makes many cringe) led to a shift in improving internal processes. The strategy centred on utilising the ISO22222 British standards financial planning process, together with cashflow modelling and wealth management propositions.

Financial planning is perhaps more palpable than purely providing products through sales-based advice. The Institute of Financial Planning (IFP) benefited from growth in membership in the short-term. Mainstream firms merely misappropriated the ISO22222 repeatable process and flunked actually getting accredited or attaining certified financial planner status through the IFP. Numerous planning firms encouraged their advisers to achieve chartered status, falsely discerning this would generate opportunities.

In terms of wealth management, financial advisers setting up investment committees and instantaneously transforming themselves into skilled fund selectors (assisted perhaps by taking an exam or signing up for analytics software) has been frowned upon my many fund management professionals – but bizarrely not by the FCA. Many firms that profess portfolio management skills peculiarly fail to publish their investment portfolio yields.

The principal problem with implementing improved internal processes is it only provides strengths or moves weaknesses to strengths. Profitability is possibly improved; nevertheless no amount of internal enhancement will deliver what firms desperately need – growth. The focus on an internal strategy is perhaps responsible for small firms declining or at best remaining stable. Achieving chartered status, certified or possessing a proven repeatable process through gaining ISO22222 accreditation creates no opportunities for growth. They are merely internal strengths.

What is the answer to growing any business? The firm must find opportunities. Therefore it is necessary to examine the micro and macro environments. Investigating the micro environment involves scanning (customers, suppliers, competitors and key stakeholders including the regulator) and ought to be conducted on a weekly basis with the data fed into a marketing information system. More significantly the macro environment where the substantial opportunities and threats exist should be examined quarterly. The audit is based on the ‘Pest’ framework: political, economic, social-demographic and technological factors.

With the marketing audit metrics collected, real-time alterations can be applied to the marketing mix in-line with changes in the external environments. The marketing mix is a mistreated term – it is used to describe anything remotely promotional, for example social media or advertising. In reality the mix comprises seven core elements: product, price, place, promotion, people, physical evidence and process.

The marketing mix contains the fundamental tactical tools that implement the firm’s strategy. The strategy is derived from a Swot analysis (strength, weakness, opportunity, threat) and the data for the Swot is resultant from the marketing audit. Auditing the marketing environment is critical for micro-planning firms. The evaluation of the internal environment including auditing governance and core-competences to access its strengths and weaknesses is imperative.

Focusing internally will provide increased profitability to grow organically the firm must audit its external environment, identify its opportunities and alter its marketing mix to implement its strategy.