30 December, 2010

Successful Fee based practice is a reality

We see planes everyday. It is taken for granted. But for Wright brothers, it must have been a daunting task, then. Even they would not have imagined that their humble first flight in 1903, would kickstart an entire industry… that air travel would become commonplace… that a plane would one day be able to carry hundreds of people, across thousands of kilometers.

Pioneering is always difficult. Pioneers in any field are intrepid souls. They have to be more than entrepreneurs. They should have missionary zeal and almost a maniacal glint in their eyes. Such pioneers are successes. Like Edison, who famously said that he had found ten thousand ways in which a bulb will not work, a pioneer needs to persevere and make things work. Everything is possible.

It is always a question of our perception. Two sales people sent to a remote area in Africa had made the same observation – people there did not wear footwear. One sent a message to his company that no one wears footwear and it is a hopeless situation. The other person sent a message asking his company to dispatch a shipload of footwear as the market was virgin and wide open.

Pioneers get rewarded too, for their efforts. Gujarat has hard water and Nirma saw an opportunity in that. From pretty humble beginnings, Karsanbhai Patel rose up to form a mega empire. Mohammad Yunus ( Grameen Bank ) and Vikram Akula ( SKS Microfinance ) did the unthinkable. They lent to people who were considered unbankable – people who had no credit history, no collateral and from the lowest echelons of the society. The sums advanced were also pretty small - Rs.500 to Rs.5000. Yet the model was a success and benefitted millions who were outside the penumbra of organized finance. They did what the government should have done, but did not. SKS Microfinance did it at a profit. For both these institutions, the NPAs was less than 1%!

Opportunity inherent in any situation is not recognized most of the times, when it presents itself. Problems are seen in their place. But opportunities abound everywhere, if only one is willing to court them. What is required is the courage of conviction to make them work. The problem in most cases is unwillingness to change and lack of new ideas to solve a problem. We have heard of the epithet – Problems are opportunities in work clothes.

Currently, there is despondency among some CFP Certificants that the practice is not taking off. Some of them have suggested advertising on a big scale about CFP Certification and their benefits to make people aware of the certification and their benefits. There were many other ideas about what the board can do. Some of the ideas were indeed good and actionable. But the basic point is that one is talking of what someone else has to do rather than what they themselves can do and be a success.
Setting up a practice requires a certain mindset. There will be problems if our certificants ( most of them from insurance or other product sales background ) are not willing to abandon the typical sales approach, when they are approaching clients for practice. Clients look at CFP Certificants as their financial consultants & advisors. In consultancy, the overt sales technique seldom works. Clients are looking for competency, knowledge & skills, professionalism and trust worthiness in their Financial Planner. It really boils down to how a Planner is able to demonstrate this to clients. Being a CFP Certificant would help. Qualifications are good, to the extent that it endows the Certificant a certain level of knowledge & skills. But ultimately, the client is looking at the advisor who will be their confidant, their touchstone and guide.

So, the problem is really being a competent Financial Planner and in being able to demonstrate that to clients. All other attributes need to be developed to metamorphose into a consultant. That is what will help build a practice. Fee for services is incidental and will not pose a problem with a client, who is convinced.
What is the advice I would offer a CFP certificant, who wants to get into practice?
Firstly, they should be able to clearly differentiate the services offered by a sales person from what a planner like them, offers. It is a matter of communicating the value proposition clearly. The planner needs to lay before the client what exactly they would do for the client, the kind of information required, the actual intellectual inputs involved, the deliverables, the time they will spend on creating the plan, the process involved, who would be their contact point etc. The charges for the services also need to be clearly and unambiguously explained, right upfront, so that the client understands what he is getting into and there is complete transparency. Once these have been done, the client should be allowed to make up his/her mind. There is no need to hustle. Clients truly appreciate if we do not keep calling and pestering them. In fact, a planner would be shooting himself in the leg, if he were to do that. Consultancies do not work like that. Subtle reminders may be a good idea – like useful information relevant to them can be sent across or some relevant investment ideas could be forwarded. But don’t flood their inbox with spam! That’s an absolute put-off.

One of the most important attributes that needs to be internalized, is the ability to emphathise with the client and start thinking from their point of view. A good consultant will only think of what is best for the client and advice accordingly. It may seem on the surface to be a self-defeating proposition. Even the client may not be aware that you have done the best by them. But, it gives you the moral high-ground and confidence to talk to clients. Clients are adept at spotting a genuine one from another who is fibbing. Clients also understand that their advisor needs to be compensated. Today, many people who are contemplating engaging a planner are earning well and don’t mind paying for professional services.

Most people are running after new clients. Existing clients may feel neglected. It is a cliché to say that the cost of acquiring new clients is four times more than keeping existing clients. Yet, we all fall prey to the temptation to run after new ones, all the time. What keeps the clients with you is excellent, timely services. What you have promised, you need to deliver. If you are able to do this consistently, you are in business. Clients who have experienced great quality services, seldom abandon you. They are the insurance for any bad times, one may occasionally come upon.

Another persistent complaint is that clients don’t pay. I am yet to find a client who refuses to pay. Some may bargain. It is up to you to succumb to it, accept a lower fee or reject it. No one has flatly refused that they will not pay. If a prospect is refusing to pay then a) you may not have been able to communicate your value proposition properly ( assuming your value proposition is good, in the first place ) b) they just don’t believe that such services should be charged. If it is the former, we need to work on our communication – for the onus of communication is on the communicator. If it is the latter, it is a perception problem and a wrong type of client to have and hence should not be acquired in the first place.
How much to charge is a matter that is best left to a planner. The charges should be reasonable and commensurate with the services rendered. There is always the temptation to charge based on the capacity to pay. That will backfire, sooner than later. Integrity is one of the bedrock principles that a Financial Planner has to internalize. Working like opportunistic carpet baggers, will probably work for sometime – not for ever. Sooner or later, these things get around. Charging the same fee for same work rendered is ethical and the correct thing to do. The last thing you would want is a sullied reputation.

Scouting for clients is another area where planners face problems. In a virgin territory, it is the duty of every financial planner to articlulate what we stand for and shape opinions in favour of Financial Planning. Fortunately, this is the need of the hour. We need to meet people at every possible forum and communicate this. Regulatory activism has left advisors with no option but to embrace a consultancy practice. Change can be traumatic, like it was for the mouse who kept wondering who moved my cheese, in the book by that name. But change is constant. We can make it work for us by embracing change and be the first movers or be left out by others who were willing to do it. There is proof of concept now. There are many Financial Planners across the country, who run successful practices. And unlike the perception that it only works in Mumbai and Delhi, there are planners in Nagpur and Jaipur who are able to charge clients. There are planners in Mumbai and Delhi too, who complain that people are not willing to pay.

It is upto us to make it work. We are still at the pioneering stage. We need to go forward and acquire clients like the explorers of the past laid claim to new virgin land. Like Wright brothers, we may all be instrumental in starting off a gargantuan industry, that will look at this point as the inflexion point, when it all started. Let us lay the foundations for a successful fee based practice. It’s possible.

Published in Financial Planning Journal in the December 2010 edition

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