September 17, 2014

The Why, How & What of ‘Institutionalization of Advisory Practice’

Sadique Neelgund

In a white paper published by UK Based Unbiased titled Value of Advice, `value’ from a client’s standpoint is seen as the confidence they feel about their finances whilst engaging with the Financial Advisor.

Study from Wharton & SSGA, says, the fundamental trait that forms the relationship between a Financial Advisor and Client is `trust’. The study laid down 3 levels of trust to cement the relationship.

  1. Trust in Technical Competence and Knowhow
  2. Trust in Ethical Conduct and Character
  3. Trust in Emphatic Skills and Maturity

Irony Is, there’s a huge oversight of the importance of these traits from IFAs. Even if an IFA consciously and genuinely makes an attempt this into fit into his/her practice, how easy would that be?

Since traits like `Value, Confidence, Trust’ are intangible and the moment of truth/reward are years later, how would you inspire your client/prospect today? I am not questioning the practice, but I genuinely wonder how in a service industry, (not only financial services) buying decisions are made by clients. (Read `Predictably Irrational’ by Dan Ariely)

In product sales, it’s easy as the client feels, experiences, compares the features and decisions are made. Hence the firms advertising strategy revolves around the product and is relatively easy (not to undermine the importance of neuroscience in advertising).

But You & I are in Financial Services, whatever we offer are intangible. How would we then get the client to know and feel about our offerings the way we feel about them?

I am not here with some quick fix solutions…. But I have some perspectives which may get you thinking and may work. (I would ask you to stress on `may’ when you read, so that I get the relief that what I intend to convey would be conveyed :-).  At the same time, I am convinced that NOT having these (read solutions) might NOT be a great idea. With this heavy background, let me now, write down my views…

This article `Institutionalization of Advisory Practice’ focuses on structured, disciplined, process driven advisory practice. Institutionalization brings clarity to thoughts, direction, focus and effort. Remember, what we are trying to address is the way we make our clients/prospects feel the same as we feel about our offerings. And for that, it is necessary that you have a razor focused clarity on what you stand for. Institutionalization will help you do just that!

Now, lets see what is Institutionalization about?

Here I present a few steps which are inevitable in institutionalization. You may be following some or all or none, and even if you follow some, the way its supposed to be, you are sure to reap the benefits.

This process begins and ends with WHY are you doing it and HOW are you doing, WHAT you are doing???

Yes, it starts with a WHY? Are you destined to be there or you just happened to be there? Which client would like to do business with a person/entity which got there by chance and not by choice?

But that’s not enough, and that’s why I am listing down the Why’s, How’s & What’s of your advisory practice.

The WHY?

Core Aspects: To understand it in tangible sense, visualize Vision, Mission, Business Captions. These should communicate your purpose, your existence, your DNA. Over time, clients will start connecting you to these traits.

Let me give you an example. The slogan of the world’s largest company by market cap (Apple Computers) is `Think Different’Apple strongly communicates the reason WHY they do products, what motivates them and what can be expected. Today, the world would be keen to see an Apple Product launch, they would relate to it as a different and innovative product/experience!  Its purely because of their superior communication strategy and outstanding product deliveries.  Both go hand in hand to create this- extraordinary experience for their clients!

Just a couple of more examples ..

`Expert with a Heart’ is quite an attention grabbing slogan from a FA company in Bangalore! They have just managed to communicate everything they stand for through this message, Expertise & Trust. The traits that the clients’ value the most.

`Precise in a world that isn’t’, is the caption of SPDR ETFs from SSGA. While the biggest threat to the ETFs is its operational transparency, SSGA is aiming at removing that perception with this message.

All of these are crisp, clear and connects.

My Advice

Now, if you are thinking all of it would be relevant and practical for medium and large organizations, then you are wrong. Its about the thought process and intent. You don’t have to have mission statements… but you need to define what are the core aspects…

And remember, its core, not all. So, keep it precise and short. As my ex super boss says, `The essence of positioning is sacrifice’.  Put on your thinking hats, spend some extra time in the loo, pay attention to the ads, you are going to get it!


Ideal Client. There’s this quote, “Shoot for the moon and if you miss, you will land among the stars”. But your stars will be bad if you had wanted only the moon and missed it, isn’t it? So, if you want your stars to be good, its important that you define who you target.

Traditionally, businesses sketched their target audience on demographics viz Age, Income, Gender, Location etc. While these can be followed in an advisory practice too, I am of the opinion that a little more qualitative definition would do better. List the top 20 clients with whom you thoroughly enjoy working (not necessarily from whom you derive high revenues) , apply the segmentation variables such as demographic, behaviorist etc. psycho-graphic, For instance, look at buying motivations, spending patterns, acceptability of your advice and why, decision making pace etc. This should give you an idea of who your ideal client is and will bring in tremendous amount of clarity when you prospect.

As I was doing my research for this article, I happened to notice an interesting statement , “Financial Advisors are TEA Sellers. Selling Time, Expertise & Advice”. So, if you expend your time which can never be recaptured, its important to attract only clients, who fit into your ideal client profile.

Value Proposition

Value Proposition stems from your offerings which can be best designed once the ideal client is sketched.  It is not aspirational but essence of what you are currently able to deliver.

  1. Giving a clear foresight into the client’s financial lives (Ask your clients – Would you prefer to be certain about your financial life or remain uncertain?)
  2. Improving the client’s finances through disciplined investing, increased ROI and decreased expenses.
  3. Creating emotional satisfaction or relief

A question?  Would you prefer a restaurant that has a kid’s play area (assuming you are married with kids) over other outfits, all else being equal? If your answer is yes, only then the complementary offerings piece would make sense to you!

Why some clients may choose you as their Financial Advisor may be influenced by your complementary offerings. Here’s an example of what it could be,

  1. Offering educative seminars to corporate employees on finance and taxation.
  2. Sponsoring a vocabulary course for kids aged between 7 – 13 years, in an XYZ institute.
  3. Assistance on holiday travel plans or club membership

Notice the difference between the offerings? That’s deliberate, since the offerings would be extremely subjective and individualized unlike the core part.

As I write, I am getting increasingly obsessed with the idea of complementary offering and even started to think that it could be the deal breaker-:)

Revenue Model

The `WHAT’ ends with what you make out of the proposition that you offer to the client. And its more vital if you are on the advisory phase driving your revenue through fees and not just product incentives. Truly, there isn’t much to write here except a few fee models and my strong perspective (advice) on how to position your revenue model, should you charge fees. (which is derived out of my personal experience accompanying a lot of IFAs for joint calls for pitching a fee based proposition)

Fee Models

Fee only:  most unbiased as the advisor gets his revenue only for planning, research and recommendation on asset allocation and security selection. Product incentives are not a part of the revenue stream for this model.

Hybrid: A blend of product incentives and some form of fee structure mentioned above makes a hybrid revenue model. There’s revenue from the client and product providers. This is the fast emerging model in the current landscape.

The fee structure can be basis the following.

  1. Flat fees for a specified period depending on what services the client chooses.
  2. Time bound fees. This is based on the scope of the work and fees are charged per hour of work done for the client.
  3. Fees based on the assets under advice, which is typically a certain %, decided between the advisor and client.
  4. Fees based on the portfolio performance, which is typically above a benchmark performance agreed between the advisor and client.

A fee only model is extremely nascent at this stage in our country and even if we look west (US) to gauge some trends, out of 70,000 CFPs, the fee only advisors are about 2400*.

My Advice

Its straight-forward, I mean the ‘advice’. And it is wise to be absolutely upfront and transparent about your fees. Never ever be defensive, instead use fees as a base of discussion of your offerings. Simply put, the fees that you charge itself should be seen as a unique proposition and not a thing to be wary of.

The HOW?

Ok, now your client knows Why you are in this businesses and What you are doing about it? The client has got the bigger picture and its time to cement the trust with some bit of granularity too….

On your Advisory Process:

The way you structure your advice, tools/platforms you use, asset allocation philosophy, your/firms pedigree on research etc, etc.

On your Service Delivery:

About your CRM systems, back-end infrastructure, trade execution process/platforms, query resolution process, billing systems, etc etc.


It will be boring to give a lengthy conclusion after a lengthy write up. Hence, I will be brief.

You might have already had an idea of what I had penned down and thought about this many times, in a structured or haphazard manner. The point is, your client do not know it and would not understand it unless you pen it down. So, the trick is to have a written/documented communication that the client can read, understand and can thus, appreciate your offerings as in the same way you feel passionate about it… And that’s very tricky.

For Immediate Action

If you want to test my hypothesis, sit down to write the `WHY’ part alone (that is, if you don’t have it already). What I can bet is the amount of clarity, direction and confidence that this effort is going to bring into you and your practice. It will be beyond imagination.  All the Best! 


2 Thoughts to “The Why, How & What of ‘Institutionalization of Advisory Practice’”

  1. Saurabh Mittal says:

    Awesome thoughts. Very well written. Thank you

  2. Thought provoking write up. keep it up

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