Academic Katherine Hunt asked a rhetorical question at the recent Professional Planner Licensee Summit in the Blue Mountains and framed it a “fun little test”: look at the personal risk profile of each individual adviser and see how much of a correlation it has with the risk profiles of their clients.
“Make sure you add controls for age and controls for wealth,” she said, “and see if the advisers’ risk tolerance has an impact on the client’s risk tolerance.”
“If there is an impact it means you’re probably doing a survey in front of a client and you’re influencing it, so the client is not getting is not the best outcome.”
Hunt, who is a lecturer in the master’s of financial planning course at Griffith University, says risk profiles are being tainted by both outdated measuring tools and methods of delivery that allow for undue adviser influence. To that end, she is working with a number of start-ups on building a “different type of risk profiling system” that incorporates academic verification.
The academic was joined on a panel at the Summit by Jacqui Henderson, chief executive of Advice Intelligence, to discuss how industry participants could ‘bring your thinking into the new world’. Henderson challenged the panel – which also included Profile Financial Services chief executive Sarah Abood and Words by Nuance founder Emma Heath – to present ways in which the delivery of advice can be “smarter, safer and more efficient”.
Hunt said advisers don’t really account for the components of a client’s risk profile that aren’t accounted for, such as self-control and its impact on a financial plan.
She gave the example of a client that signs up for a plan and buying an expensive new car on a whim – thus rendering the plan inefficient. “Low self-control is a huge trigger and needs to accounted for to make better tailored advice,” she said.
Other than risk profiling, Hunt believes advisers and clients could benefit from more visual communication. Advisers are too preoccupied with ticking the regulatory boxes, she says, to connect with the majority of their clients.
“We have this amazing, strong regulation in Australia, but we kind of get blinded by it, like a horse that has blinkers,” she said. “And it’s great – the horse performs well because of the blinkers.”
“But we communicate to clients in compliance terms via a statement of advice… even though the client in front of us is likely one of the 70 per cent of people that doesn’t learn through words, they learn through pictures.”
“I think we can become a lot smarter by communicating to the person in front of us better, and building our documentation to actually suit that.”
Advice Intelligence’s Henderson agreed, noting that the technology solutions of the future will be tailored to the needs of the client, rather than the needs of the advisers.
“We need to visually represent the information and advice that we’re presenting to the consumer,” Henderson said.
Source: Professional Planner