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Part 4: Driving Business Capital Value

Posted on 18 October 2021   

In our previous newsletter, Driving Success in Challenging Times – Part 3: Driving business capital value, we provided examples on how you can build capital value by embedding the principles of Treating Customers Fairly (TCF) Outcomes 3 and 4 into your business. These two TCF Outcomes highlight the importance of clear and effective communication with your clients. Communicating in a way that they understand is pivotal in strengthening the client relationship. This then is how you build business capital value; by maintaining a loyal client base that contributes to recurring income and business growth through referrals. With this being the final newsletter of the series, we unpack the last two TCF Outcomes, namely 5 and 6.

Expectations are almost second nature to us. Expectations can stem from an advertisement we saw, a friend’s experience or simply by seeing a design or illustration. In the financial services industry, a client is most likely to form an expectation of product performance, based on your explanation thereof. In the event that the product solution is unsuitable, the client should be able to freely exercise their right to switch to another product solution or, depending on the severity, lodge a complaint. Many of us experienced this at some point. For example, switching to another bank account because the fees and bank charges were not properly explained, costing us more than expected or wanting to lodge a complaint because a withdrawal instruction was not processed within the timeframe of the Service Level Agreement (SLA). When things go wrong, the last thing you want is for another thing to go wrong. Instead, you want a solution and your requests to be processed hassle-free.

For this reason, we ask you to consider the following:

  1. How do you measure whether you have met your clients’ expectations?
  2. Do you measure whether your performance is in line with your client SLA?
  3. Have you implemented a Complaints Management Framework that is easily accessible to your clients?

In this newsletter, we provide examples of practices that demonstrate TCF Outcomes 5 and 6. This will provide you with insight into how to ensure that the principles of these outcomes are met and can be embedded in your business, thus driving business capital value.

TCF Outcome 5 – Products perform as firms have led customers to expect, and service is of an acceptable standard and as they have been led to expect

The purpose of TCF Outcome 5 is to address the requirements that should be met for the business to demonstrate that products recommended to clients have performed as expected, as well as to take cognisance of service and whether it has been delivered to the standard as agreed with clients.

One of the reasons clients approach financial advisors is because they have done their research and therefore understand what they are looking for. However, they require your expertise to understand the more complex terminologies and aspects of a financial product. As mentioned in our previous newsletter, part of ensuring TCF and building client relationships is communicating in a way that clients understand. According to an article by Kitces, one of the top three items on the list of what is most important to clients is an advisor who communicates and explains financial concepts well.

Therefore, it is important to ensure that clients clearly understand which events are excluded, or what is meant by certain terms, e.g. business interruption, credit life protection or credit income protection. Making clear which risks are not covered helps avoid the situation where, in the event that a claim is rejected, the client is not left disappointed, disadvantaged or surprised, especially during a time such as the COVID-19 pandemic. In challenging times, clients usually remain calm and think, ‘my advisor has it covered’. For this reason, it is important to have the difficult conversations, address and clearly disclose the positives and negatives of taking up a product solution e.g. whether there is a large excess fee in respect of a short-term insurance claim, or whether there is a waiting period for a disability claim, etc. The client would rather hear that they need to pay more to receive more protection, than pay but receive no cover at all. Ensure that you receive adequate training and materials from your Product Suppliers to be able to clearly articulate, in a way that the client understands, the use and benefits of a complex product solution.

The expected performance of a product solution is directly linked to a client’s confidence in you as an advisor but also the financial services industry. As previously mentioned, clients usually approach advisors once they have done their own research. However, due to the complexities in the investment, short term insurance and long-term insurance fields, and with limited, layperson’s knowledge, clients are likely to find it challenging, if not impossible, to provide the right and adequate protection for themselves. This is why they seek out your advice and expertise. They need you to demystify the complexities, therefore, ensuring performance is in line with client expectations which drives business capital value. How? The product performed as expected, in line with what you had disclosed, and since you delivered on your promise, this builds client trust in you. In turn, this drives business capital value as the client is more likely to refer you to friends and family, come to you for other needs and is likely to stay with you in the long run.

This outcome focuses on two aspects, the performance of the product solution and the fact that service must be of an acceptable standard. In our previous newsletter, we said that consistency of service and continuing to meet client expectations (documented in a client SLA) is a practice that drives business capital value. This SLA includes specific services and service levels depending on how you have segmented your client base. For example, you will see ‘A’ clients, who provide you with 80% of your profits more often than ‘D’ clients. ‘D’ clients are most probably being communicated with once a year in order to provide an updated written statement of products including current details as required by Section 7 (4) of the FAIS General Code of Conduct (GCoC). These services create a different set of client expectations. For example, if you sent the client a birthday card last year, they are going to expect one this year. Living up to these expectations continues to tangibilise the value of your services and builds the client relationship and their experience with you. According to an article by Kitces, based on the results of the recent YCharts Advisor-Client Communication Report, 85% of respondents consider their advisor’s frequency and style of communication when deciding to retain his/her services. 88% would also consider this when recommending the advisor’s services to a family member or friend.

Do you know what your clients expect from you? If not, we encourage you to ask them through client feedback surveys. According to research by Business Health, businesses who formally ask for client feedback experience a +71% profit increase per principal.

What is the process the business follows when you notice a product is not performing as the client was led to believe? Does your business have clear, documented service standards in place for client service processes and do you communicate these to your clients e.g. are service standards documented in an Operations Manual and do you have individual SLAs with clients? Is there a process to ensure the Operations Manual is updated as and when processes change? Are processes in place to mitigate the risks to clients when it becomes apparent that products are not performing or are unlikely to perform as they have been led to expect?

TCF Outcome 6 – Customers do not face unreasonable post-sale barriers imposed by firms to change product, switch providers, submit a claim or make a complaint

The purpose of TCF Outcome 6 is to address the requirements that should be met in order for the business to demonstrate that clients do not face unreasonable post-sale barriers when they want to change a product, switch providers, submit a claim or make a complaint.

Once again, the responsibility is both on you, the advisor, and the Product Supplier. The reason is that you put the client in touch with the Product Supplier. As a result, when clients experience any issues with the Product Supplier, it forms part of the financial advisory services offered to assist them in this regard. These issues may be uncovered during the client review or through any client feedback communication. In our previous newsletter we mentioned that having a documented Risk Management Plan which highlights risks that must be carefully considered e.g. increasing client complaints about product performance, drives business capital value.

Does your business have a process to ensure consistent support is provided to clients at claim stage? Does your business have a Complaints Management Framework in place which complies with the requirements in the FAIS GCoC? Are specific training initiatives in place to assist employees to be able to deal with a wide variety of client queries and complaints effectively and efficiently?

Complaints can be untapped opportunities to improve your services and strengthen the client relationship. Changed behaviours can show clients that you listen and value their input. For example, if you notice that many clients are unaware of the charges when cancelling a particular product or switching, identify where the problem arose. Could it be that changes were made by the Product Supplier and that updated training is required? If you identify e.g. poor service standards from the Product Suppliers which impact your SLA with clients, it would be in your business’ and the client’s interest to bring this to the attention of the Product Supplier. Ongoing monitoring of the complaints received about all Product Suppliers is a key risk mitigation strategy. From a business perspective, it makes sense to ensure processes are in place to keep clients informed of the progress at all times. Clients are then able to experience the value you add, by making an active effort in handling their complaints.

For this reason, your Complaints Management Framework should be structured so that you can track complaints in real-time, and so that your business is able to respond proactively. This management information can help you minimise your complaints and improve the client experience. The business should be able to identify the root causes and prevent the same thing from occurring in future. The framework should also distinguish between internal complaints e.g. a client complaint about delayed response times, and external complaints where a Product Supplier has let you down. Solutions and process can be linked to the internal ones and can be incorporated into the day-to-day operations and employees’ job descriptions. The framework should also identify which complaints were escalated to the FAIS Ombud.  As mentioned, managing complaints effectively can help your business mitigate risks and improve business processes which ultimately drives business capital value.

Being transparent and disclosing the necessary information with clients during the Advice Process, is central to rendering financial services and the regulatory requirements. In doing so, you manage your clients’ expectations and minimise complaints. This ultimately impacts the client experience and therefore can either drive or destroy business value.

This brings us to the end of the driving business capital value series focusing on how implementing business policies and procedures, directly contributes to driving business capital value. This requires your constant input and review of the business, its goals, direction and policies and procedures. We recommend that you plan to take time at least once a month or once every two months to review your business. The focus being working ON your business rather than IN your business. This way you are able to focus on creating value e.g. creating consistency, giving vision and direction to employees. These efforts directly contribute to the growth of your business, succession- and/or retirement planning. Ultimately you can ensure that your business serves your clients and that at the end of the day it rewards you, your hard work, commitment, passion and dedication.

To download a list of key practices that were discussed throughout the driving business capital value series, click here.

With our in-depth knowledge of financial advisory businesses and best business practices, we can assess a business and calculate the capital value it has accumulated. To request a valuation and find out what your business is worth, please contact us.


Business Health. (2020, January). Latest Adviser Profit Drivers (Stats & Data for Australian Practices, Jan 2020)
Kitces. (2020. March 30). Crafting A Communications Matrix to Refine Client Investment Communications For Stronger Relationships. Retrieved from: https://www.kitces.com/blog/client-communication-matrix-report-personalization-ycharts-sean-brown-frequency-style-channel/
Kitces. (2020, October 19). What Clients (Actually) Value Most in a Financial Advisor. Retrieved from: https://www.kitces.com/blog/evan-beach-value-financial-advisor-goals-priorities-morningstar-returns-communication/

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