Where Asian financial advisors need to go

Personal touch: financial planning works best when focused on clients, not investments, says CEG.

Fund managers in Asia are keen to see the development of financial planning in order to grow the industry and put it on a stable footing, but financial advice remains too focused around pushing products. Does the cliché about listening to clients really work?

Yes, says CEG Worldwide, a consultancy to the financial planning and investment industries - although to what extent its conclusions are applicable to Asia remains to be seen. Today banks, insurance companies, brokers and independent advisors all chant the mantra of financial planning but to the great majority of them, in practice this remains an alien concept. Indeed, it remains misunderstood even in developed markets.

Jim Stackpool, principal at CEG Australia, presented research findings last week at a funds distribution seminar organized by Credit Suisse Asset Management and AsianInvestor magazine that clearly demonstrate the value of a client-focused approach in the markets of the United States, United Kingdom and Australia.

A comprehensive survey of registered investment advisors, including bank branch staff, IFAs, stock brokers and agency salespeople, found a divide between a majority that concentrates on investment strategy or market analysis and a more successful minority that spends most of its time talking to investors. "Everyone in the survey claimed to be client-centred, but in reality most of them are investment-centred, and their client is the client's money, not the client," Stackpool says.

"There is a dichotomy between advisors building assets off a rising market, and those building assets off client service. Both make money, but who makes more?" CEG has found that in Australia, only 9% of advisors spend at least 60% of their time speaking with clients but earn three-six times more net income than the other 91% of advisors.

The most interesting part of CEG's research concerned a survey of US advisors three weeks after the 9/11 terrorist attacks in 2001, conducted on behalf of Merrill Lynch Investment Managers. The seminar was the first time CEG could publicize its findings and they tell quite a tale.

In the aftermath of the attacks, 94% of affluent investors and 98.5% of retail investors reported they were "really scared". While the great majority of investors said they wanted to work with a financial advisor, fewer than 20% had been contacted in person or by telephone by their advisor in those three weeks. For those few advisors who made the effort, 93% of them concentrated on their client's emotional state, not investments.

Stackpool says this follows a cardinal rule for financial advisors: be in contact even when no product pitch is involved. CEG found that those investors who were contacted after 9/11 were calmer, had favourable things to say about their advisor, tended to follow the advisor's recommendations and kept their money in the market. Among the majority of investors not contacted, a third of those ranked affluent were actively seeking a new advisor, as was one in four of retail investors.

"There was a failure in the system or incentives for advisors to advise, especially in times of turmoil," Stackpool says, noting that most advisors said they were too busy putting out fires, handling calls or evaluating the market.

According to audience members at the seminar, the personal touch is also critical in Asia, but cultures do vary. For example, Standard Chartered Bank has found that in some markets, customers also react positively to a registered advisor contacting them. In other markets, it is more important for a distributor to have someone ready to accept a call.

Other IFAs and banks reported the internet is creating new opportunities to create a personalized service without actually involving face-to-face meetings or calls.

Stackpool concludes that investment advisors in the developed markets are trying to focus on high-quality clients and use wealth consulting to differentiate themselves. "Most clients first need help for smart decisions about their money," he says, adding that asset allocation is the biggest question, not product, followed by tax and financial planning. "Most advisors are just trying to make a sale and grab immediate market share." He says the successful minority of advisors in Australia are making alliances with institutions, in order to leverage off their administrative and research platforms, and leaving the financial advisors free to spend more time with clients.