In recent years it has often felt that advice has been on trial; that there is a “gap” somewhere. So, what exactly is the “advice gap”, where does it come from, and how do we close it?
In 2012, it seemed every trade press article predicted the demise of advice, with consumers sure to baulk at advisers’ fees and flock to Hargreaves.
By 2013, independence would die they said. Every adviser will become restricted.
2014 was all about the advice gap and the rise of the D2C Robo.
And then from 2015 we started to hear that actually the future is about the B2B2C Robos, or “Bionic Advisers” as they’re now sometimes termed.
In summary, if you’d listened to the media over the last few years, you’d think the average IFA was an ageing dinosaur desperately clinging on to a hope that they’ll be able to satisfy the millennial generation.
Of course, these predictions have thus far proven wrong. Demand for independent advice is buoyant. Measured by Google, searches for “financial advisor” have grown by 33% since RDR was introduced.
Moreover, clients are very happy with the service they receive from advisers. On VouchedFor, we have over 50,000 reviews from IFAs’ clients, the vast majority extremely positive.
So why has it felt like advice has been on trial?
Well, we can all detect – intuitively – that there is a gap. It’s not a gap in service offering. Independent Financial Advice is a great service, that clients are happy with and willing to pay for. It certainly has more supporting evidence than robo alternatives.
The gap is in demand. There are millions of people out there who should be seeking advice, who are not doing so. Whether due to apathy, confusion, mistrust or a lack of confidence, when planning your finances can always wait until tomorrow, it all too often does.
So why this gap in demand? A key reason is that the IFA service is under-promoted. Financial advice is a fragmented industry, with the average firm having just three advisers. That gives it far less marketing power than say the Cola industry, dominated by just two large players (Coke, Pepsi). That’s right…industry structure alone means we face more advertising pressure to drink fizzy drinks than to plan our long-term finances!
So that’s the bit the average IFA can’t change.
But here’s the bit you can.
Where services don’t grow through advertising, they must grow through word of mouth. Indeed, the IFA industry has been built on it. Yet, it has never “gone viral” in a way that would close this demand gap.
Why is that? Well, last year, we started asking people who contacted an IFA through VouchedFor how likely they were to recommend them.
We then calculated the Net Promoter Score – or NPS – which is a widely-used way of measuring customer advocacy.
The result was an impressive 36. Put in context, NPS is measured on a scale of -100 to +100. A score of 36 might mean, for every 10 enquirers, approximately 5 are very likely to recommend you, 1 is not, and 4 might do.
Compared with well-known brands in the UK, it’s only the likes of Apple, Amazon and First Direct who score more highly (around 60). 36 is up there with the likes of Hargreaves, Barclays and eBay (around 30) and well ahead of Costa, Samsung, Sky and Aviva (all sub 20). And to show how low these scores can go, there’s the likes of Ryanair and Wonga, well below -50.
So, on the one hand, it’s a very impressive score.
On the other hand….it’s not enough to generate “viral growth” and close that demand gap. Dissatisfied customers tend to be more vocal, so in the example above, the one detractor could easily drown out 3-4 of the promoters. So, if you have one “net promoter” out of 10 enquiries, while you’ll generate some referrals, your business won’t grow “virally”.
Viral growth is rare – the likes of Apple and Amazon being in a clear minority.
However, it’s very possible for advisers to achieve similar NPS scores – indeed, through some pilot activity, we’ve helped several advisers recently generate NPS scores over 60.
The key learnings are:
- Call enquirers promptly – within the hour ideally – even if only to acknowledge receipt or diarise a time. If you’re too busy, have someone who can. If they don’t answer, try again, at least three times.
- Follow the principles of goal-based financial planning – well summarised in books like “The Client Centred Adviser” by John Dashfield.
- Provide enquirers a professional tangible output, free of charge and commitment. It doesn’t need to be a huge investment of time. A simple one page “action plan” could suffice. But it gives you and the client something concrete to work towards over the first couple of interactions.
- Follow up with clients. Again, if you’ve given them an action plan, it provides a great reason to check in with them. Have they read it? Taken any action themselves?
- Ask them for feedback! Most will be very happy, and the process of providing feedback re-affirms that in their mind. And for the odd one who isn’t happy, you now have the chance to put things right.
That’s not an exhaustive list….but it really is that simple. The challenge is in building processes to apply these practices day-in-day-out, making every enquiry count, and delivering a consistently great service.
If every adviser did that, the “demand for advice” gap would vastly reduce. The issue would then be the lack of new advisers coming into the profession! But that’s another blog altogether…