Pension freedoms and auto-enrolment are greatly increasing the numbers of people who should be seeking financial advice but, says Bob Champion, this may involve advisers offering a different service model.
Those of you familiar with marketing will recognise the above terms. An ‘outside in’ organisation is one that is driven by customer needs and responds to those needs. An ‘inside out’ organisation is one that begins with the product or service and then convinces the customer it is what they want.
The theory goes that the most successful organisations are those that are ‘outside in’. They respond to customer needs and demands and continually provide the customer with what they want. That is why we are always being asked to conduct customer surveys. The product or service provider wants to understand their customer more. But what if a customer does not know what they want?
One of Steve Jobs’ famous quotes is: “It’s hard for [consumers] to tell you what they want when they’ve never seen anything remotely like it. Take desktop video editing. I never got one request from someone who wanted to edit movies on his computer. Yet now that people see it, they say, ‘Oh my God, that’s great!’”
Understanding your target customer is important. Driverless cars will appeal to those who use a car as a convenience to get from A to B but do not enjoy having to drive. Yet they are the last thing a car-driving enthusiast would want. What appeals to one group will be the last thing another group will buy.
A classic ‘outside in’ case study is the fashion chain Zara. Zara knows its customers want to be seen in the latest catwalk fashions before their friends, at a price they can afford. The whole structure of Zara is established with that in mind.
Financial advice has a number of problems with ‘outside in’. ‘Outside in’ works when the consumer is well understood by those who provide goods and services, and the consumer knows what it is they want. The Zara consumer knows what it is they want and Zara has the means to understand that and deliver.
Most consumers who regularly engage with financial advisers are the same. They understand and know what it is they want from their financial adviser.
Pension freedoms have greatly increased the numbers that should be seeking financial advice. Auto-enrolment will, eventually, increase those numbers further. However are these consumers the same as the existing consumers of financial advice?
A regular Zara customer knows they are more likely to get what they are looking for from Zara than other competitors. Your satisfied customers are more likely to return than look elsewhere.
But is that offering what the new financial advice customers want? If their pensions and other investments are not sufficient to offer the retirement they looked forward to, are you selling bad news?
New type of client
Consider a prospective new type of financial advice client. They have a pension fund of £31,250 and require an income of £5,000 a year on top of their state pension. They can take their tax-free lump sum of £6,250, live off that for just over a year, and then use the balance to buy an annuity that could provide around £1,300 in income. A shortfall of £3,700 a year then. How much would you charge for giving this bad news?
Their house is valued at £300,000, however, and there is no mortgage. Could they draw down the pension fund over six to seven years, then call on the housing wealth by either downsizing or using equity release? Either way in future a sum could be available for investing. £100,000 released then may be able to generate £5,000 a year for more than 20 years.
This is much better news and probably what the client wants to hear. If this is what the mass-market consumer wants from financial advisers, what are they prepared to pay for such advice? For advisers the question becomes about how to create such service models and how to make money from the services the consumers want.
If the advice gap is to be closed this is the sort of service proposition that may succeed. To enable it to develop, a large amount of analysis is required into what consumers have, what they expect from a financial adviser and what they are prepared to pay for such services. Then ‘outside in’ propositions can be developed.
Bob Champion is chairman of the Later Life Academy
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