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How Valuable is Your Financial Advice?

Is your financial advice valuable?  Would clients pay more for your advice?  Are you providing better advice than your peers or competitors?  Is there a way to measure how valuable your financial advice is?

Which do you spend more time on:

  • Selling financial products or
  • Providing financial advice?

We look at how valuable your financial advice can be?


 

No. 1 Sales or Advisory

Which is more valuable to your clients:  Being sold financial products and solutions or being advised on products and solutions?

We examine the possible communication styles in sales and advisory:

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Low Quality Sales: “Everyone is doing this now.  If you don’t do it, you are missing out on saving a lot of money or earning much more.”

High Quality Sales: “The Fed is increasing interest rates, China GDP growth is rebounding, capital is flowing into hot sectors … … you might want to consider setting up an investment portfolio and getting your personal financial plan on track early.”

Low Quality Advisory: “At this life cycle, you already have the financial assets and plan in place.  After our review and understanding of your profile and financial circumstances, with our in-house calibrated financial analysis, solutions and recommendations, we suggest you review our newly proposed solutions that is highly customised to your financial needs.”

High Quality Advisory: ” The global financial markets and economic trends are uncertain.  And given the current financial situation and your personal life’s goals and aspirations, we have a few proposed financial solutions for you.  In order to have a flexible financial plan that meets your changing lifestyle and financial circumstances, we will need more data and information from you alongside the way.  This will help you realign the financial plan and portfolio solutions in accordance to your needs, and importantly alongside an ever-changing global financial & economic landscape.

Disclaimer: The above is a simple illustration to what may constitute a sales or advisory approach.  There might and would be overlapping approaches.

Question 1: Would either sales or advisory provides a better financial outcome to your clients?

Question 2: If the financial outcome is always positive or much better than others: Would the quality & manner of sales or advisory matter?

 

No. 2 Material Advice & Non-Material Advice 

Portfolio
Portfolio

Almost all financial solutions have a material impact – resulting in more or less money.  Advisory that has a material impact, is always valuable.  Spending less or having more money is always positive, until the peak of marginal utility is reached (where more money doesn’t make a difference to one’s happiness).

Buying into risk management solutions such as insurance or options requires a small capital outlay, that will have no positive financial impact, therefore is a cost, unless the risk-related event occurs.

Getting into investments to grow the assets and generate returns have a larger capital outlay and might generate positive financial outcome, but have an impact on the capital value.

If your advice always end up with a positive outcome, then your advice is clearly valuable.  But if everyone’s advice similarly ends up with a positive outcome, then your advice is the same as everyone’ else.

Question 1: Are you able to always advise on a positive financial outcome?

Question 2: Is quantitative advice more important than qualitative advice?

Question 3: How do you measure the weight of advice?

 

No. 3 Cost or Value

Is there a way to measure the value of advice, other than just measuring the financial returns or savings?

Cost & Value Advisory Model

We classify advisory into Cost & Value-Based Model.

Type of Advice Possible Impact
Cost-Based I Cost of not doing it
Cost-Based II Dollar Value: Savings or Gains
Value-Based I Time, Knowledge etc
Value-Based II High Value Risks, Systemic Risks
Value-Based III Forecast, Trends

Source: Caproasia Intel 2016

Cost-Based Advisory Model provides primary advice that results in direct savings or gains.  For example, not placing money into higher yielding fixed deposits results in loss of income.

Placing into a 5 Year fixed deposit that was withdrawn after 2 years with a high penalty and possible loss of interests earned is a Value-Based Advice.  This could had been better managed or prevented with adequate financial knowledge.

Question: Which is more valuable: Value or Cost-based advice?

 

No. 4 Clients’ Knowledge

” A PERSON WHO HAS NO KNOWLEDGE WOULD VALUE YOUR ADVICE.  A PERSON WHO HAS SOME KNOWLEDGE AND EXPERIENCE MIGHT NOT VALUE YOUR ADVICE AS MUCH “

If you talk to a billionaire who has a team of financial experts, your financial advice might be less important.  If you talk to a billionaire, who has little knowledge in the financial industry, your advice is more valuable.

A Central Banker or CEO of a Bank could have restrictions to buying stocks and doing active investments, thus a Financial Advisor, Private Banker or Hedge Fund Manager would be valuable to them not just in being able to invest, but also in them having no time to manage their personal wealth.

A less-travelled client might have no knowledge about foreign exchange, travellers cheque and sending children abroad for travel or study, any advice on foreign exchange, remittance and planning for a sum to be paid for overseas tuition fee might be very valuable advice.

Thus, how valuable your financial advice is, varies from every individual client.

 

No. 5 Customised Advisory

Financial Simulation
Financial Simulation

Almost all financial products are customised:

Example of Customisation:

  • Price of Investments
  • Time of Entry
  • Duration of Investments
  • Time of Exit
  • Age (Especially for Insurance or Loans)

Since every parameter that affects the pricing can result in cost savings or more returns, most financial transactions are customised for each client.

For example, should a capital of $100,000 be invested into a Unit Trust in 1 trade or over 2, 3 or 20 trades?  What impact would that have?  What would be the financial impact?  Would too much time be spent on the processes?  Would that impact the fee of the advisor and the financial institution?

Question: Would there be a conflict of interest in advice?

 

No. 6 Vested Interests versus Independent Advisory

Which is more valuable: Vested Interests Advisory or Independent Advisory?

A bank or financial institution that promotes its own products have a vested interest in its sustainability, branding and reputation.  An Independent Advisory would review all banks and financial institutions and select their optimal products and solutions.  Both have their advantages and disadvantages.

Some clients value the strong infrastructure, from product creation to the financial product sales.  It is a one-stop center where they are able to access all they need.  Some clients value independent advice, to be able to review multiple brands and products, and being able to access an optimal range of products and solutions.

Question: Which has a higher premium on advice: Vested Interests or Independent?

 

Are you now able to value your advice?  Can you now charge higher fees for your advice?  How do you create your advisory pricing policy?

More Questions

  • Do you want to provide the best advice?
  • Is the advice that earns the most the best advice?
  • Is good financial prudence the best advice for life?
  • Or do you want to prove that your advice is better than others?
  • If the solution that works the best, works, would advice be important then?
  • Would your advice change as the value of transaction increases?

 

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For content usage and citations, kindly provide a backlink or whenever possible – Source: Caproasia Online.