Peter Panigiris, BDM, Midwinter Financial Services

Client referrals were once the lifeblood of the advice industry – but times have changed.

Vertically integrated institutions are selling their advice arms after regulatory changes have curtailed traditional cross-selling business models. Thousands of advisers have left the industry in the wake of that decision, leaving a new generation that has yet to build up their own referral-generating networks.

It is accelerating a global trend towards marketing and business development as the key strategy to win new clients and grow practices.

The shifting environment: from referrals to marketing

Not too long ago, client referrals were a major, stable source of income for financial advisers.

While they’re still important, times are changing.

One recent US study found that external business development and marketing strategies have already become the dominant source of new adviser business over traditional referrals.

Even among ultra-wealthy investors, where referral networks dominate, about one-third of high-net worth individuals (with investable assets of US$1 million or more) now choose their wealth manager based on personal research leading to direct contact, according to the Capgemini World Wealth Report 2018. That number is starting to rival the level of referrals (44.4%).

It’s a similar story in Australia. Advisers using Midwinter’s AdviceOS financial planning software say marketing and business development has become crucial to win new clients.

Investment information has become democratised thanks to the internet, making it commonplace for clients to do their own research before selecting an adviser.

An estimated 2.6 million non-advised Australians intend to seek help from a financial planner over the next two years – up from 2.1 million in 2019, according to Investment Trends.

They represent an untapped market for those advisers savvy with more sophisticated marketing tactics.

A greater need to show value

However, there is also a caveat. Potential new clients who make contact through non-referred channels often need more of a nudge to become long-standing clients.

More than 80% of clients want financial advice, yet half remain on the sidelines, according to EY’s 2019 Global Wealth Management Research Report. Locally, ASIC suggests about one in five Australians who wanted advice in the past 12 months never proceeded. It does not help that the advice industry is still beset by poor trust levels, according to the regulator’s survey.

While high-quality, helpful marketing information can help rebuild trust and prompt people to take the next step and see an adviser, these new clients are still less ‘sticky’ than referred clients.

Around 90% of consumers say they trust traditional advertising far less than recommendations from friends and family, according to an extensive global survey by Nielsen.

These potential new advice clients need to see the value of advice immediately to reinforce that they’ve made the right decision.

Use technology to build trust and show value

The best advisers have more than technical skills: they listen and understand the underlying needs of new clients. Technology provides a foundation to create engagement and build the trust that clients sorely need in their early interactions with a new adviser.

At Midwinter, we recognise that advice is about more than selecting products and generating outperformance; it’s about helping Australians reach their personal goals.

This requires digital tools that can tell a story, flesh out potential solutions, and increase engagement in a scalable way.

For example, the MultiGoal tool in AdviceOS allows advisers to run a real-time goal prioritisation session with a client, and quickly produce an SoA after their first meeting. It enables advisers to quickly compare the impact of different goal prioritisation scenarios, such as consolidating funds or saving more for retirement, and effectively educate their clients on these trade-offs.

Human-centred design – and the ability to communicate concepts in everyday language rather than industry jargon – is crucial if the message is to get through.

These capabilities allow an adviser to quickly engage with new clients and demonstrate the value of advice from the outset, helping turn them into long-term, loyal clients.

AdviceOS also has built in marketing and CRM capabilities that can help an adviser to maintain engagement and market their services, creating a virtuous circle.

While client referrals remain valuable, marketing and business development activities – supported by technology – are increasingly the driving force to build successful advice practices.

Peter Panigiris is a Business Development Manager at Midwinter Financial Services. For more information about Midwinter’s AdviceOS, click here or contact Peter and the team on [email protected].

This article originally appeared in the IFA.

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