Every financial adviser should be familiar with the statistics: Only 5% or so of South Africans will retire comfortably. In total, South African consumers owe R1.6 trillion in debt. There are 20 million active credit users in the country and around 60% of those are impaired.
The question is: Where does this leave advisers?
If they only offer their services to those who are debt free and have attractive pots of assets, they are fighting over a very small pool of potential clients. If they widen the net, however, how do they effectively deal with the immediate financial realities people face while also managing their future requirements?
Speaking at a recent Momentum Consult event, CFP® Nigel Willmott argued that these conflicts have to be recognised in the financial planning process.
“These clients may be three to four months in arrears on their debt, but we want to talk about retirement provision and risk cover,” he noted. “If they can’t even get through today they are not going to be very receptive to what we think they need to do in 30 years’ time.”
Nobody can solve a client’s debt problem by selling them a product. The solution therefore necessitates a different kind of approach. Particularly in a post-RDR environment, advice practices will have to engage with clients in new ways.
Willmott suggested that financial coaching will need to play a bigger role. This is a process that does not just look to solve a particular problem or meet a specific future need, but focuses on changing client behaviour over the long term.
“It is relationship-based, one-on-one, and client led,” said Willmott. “Often we as financial planners tend to tell people what they need more than actually listen to what they are asking. We lead the conversation because we think we know what’s best for the client. But with financial coaching you need to let the client do the talking, and you do the listening.”
A coaching engagement might take place over anything from three to 24 months, but it always starts with the client setting the goals. Do they want to get rid of debt, take greater control of their spending, increase their rate of saving? These are not things that can be achieved overnight, which is why a simple, single meeting will never be enough. They involve a process through which the financial coach supports the client towards the desired outcome.
Importantly, not all financial advisers will necessarily be good financial coaches, but that shouldn’t prevent them from offering the service. Financial coaching is not a regulated activity and could therefore also be conducted by evaluated and approved life coaches, psychologists or counsellors.
Right through this process, however, the financial adviser should always be at hand.
“As the coach works with the client though their life goals, there will be certain points where they will need a solution,” explained Willmott. “There will need to be advice. In other words, by going through a client-led coaching process you will create certain business opportunities where needs will have to be met with a practical solution.”
Not only does financial coaching naturally lead to these opportunities for an adviser, but it also results in better clients.
“The biggest threat to any financial planning is your client’s behaviour,” said Willmott. “And with coaching you find that goals become more attainable and measurable. Clients gain more confidence through seeing their financial achievements. Their financial knowledge improves and they become more engaged. Ultimately they become better buyers and more sustainable clients with improved lapse rates because they are more in control of their money.”
I could not help but picture some of the real old-timers in the industry who are still practicing today. Many of those have delayed a well-deserved retirement, not due to bad personal financial planning, but because of the obligation they feel towards their clients, whom they have coached for many years on so much more than money matters – editor).