How to build long-term value in a post-trail environment

After Westpac’s unexpected move away from the traditional trail model late last year, many advisers were left wondering where their value would lie “beyond the trail book”. 

And while this has left some smaller operators concerned about what the future may look like, experts are saying that it has provided opportunities for those in the industry to create value by diversifying their business, while also focusing on deeper client relationships and building efficient systems and processes.      

Building deeper client relationships

For Jenny Campbell, Country Manager of Finsure, that starts with advisers making more of the relationships they already have.

“There’s actual evidence that the more products you facilitate the customer to purchase, the more likely you are to become the trusted adviser at the heart of their financial decisions. 

“So, mortgage advisers need to look beyond residential property lending and consider the wider product market - like Kiwisaver, insurances etc. As those kinds of referrals and relationships are really important.” 

And Bruce Patten, the CEO of NZ Financial Services Group (NZFSG), agrees. 

“Advisers hold a huge amount of information about their clients and their wider financial circumstances, so there is an opportunity to use that information more effectively. 

“Banks have always understood the concept of ‘share of wallet’ - the more products a customer has with them, the stickier they become. And that same principle can apply to an adviser business. 

“I saw this back when I was running my own mortgage business. Once we introduced insurance to the process, the number of referrals increased because we had more touch points with a client over a longer period of time.”

However, he warns, this doesn’t mean advisers should try to be everything to everyone. 

“In fact, I strongly believe the opposite. If you specialise, you can become very good at what you do. An adviser doesn’t need to become a mortgage adviser, insurance adviser, KiwiSaver adviser and asset finance specialist all at once - they can build a network of trusted referral partners around the client.”

And if a mortgage adviser thinks beyond just themselves. Campbell says that a ‘book’ has inherent value, even without trail. 

“There are a lot of intangible elements within a business beyond simply the trail income. From client engagement, to compliance, the number of products or services held by clients and the quality of the information recorded about them. 

“You don't want a client book to simply be a list of names, email addresses and phone numbers. So, the value is in understanding how engaged those clients are, the strength of those relationships and the quality of the data behind them.”

Scaling businesses through technology  

Patten says technology isn’t a tool to ‘get rid of existing staff’. Instead, he adds, it should be about enhancing their capabilities so they can do a better job and spend more time servicing customers.

“There are huge opportunities now for advisers to use technology to make their existing teams more efficient. But it can’t all be about AI, there has to be a happy medium. The goal isn’t to remove the human element, it’s to remove some of the administration around it so advisers and their teams can spend more time doing the things that actually add value for clients. 

“And that is where I think the really good businesses will differentiate themselves - using technology to become more productive, while transitioning that additional capacity to look after customers better and generate more referrals.”

And Campbell doesn’t disagree, noting that there will be (and already is) a huge amount of movement around efficiency in the advice industry, particularly as AI continues to develop. 

“The opportunity is to have advisers spending more time talking to people and less time doing paperwork. And this comes down to streamlined processes and clever use of technology. 

She notes that compliance is another important part of this, in that the regulatory requirements in New Zealand are not particularly onerous if you have a good workflow in place. 

“In fact, good compliance can be a business enabler rather than a roadblock. And technology can help with that, as can building the right support structure around the adviser. 

“So that might mean employing a loan writer, administrator or other support staff to take care of many of the paperwork and processing tasks. The objective is to free advisers up to spend more time face-to-face with clients and doing the work that actually adds value.”

Making the business less dependent on the owner

The other side of building long-term value is creating a business that does not rely entirely on one person.

Patten sees a clear distinction between one-person businesses, where the adviser personally manages most aspects of the client relationship, and larger operations where responsibility is shared across a team.

“If you are a one-person business and the entire value of the client relationship sits with you, it can be harder to demonstrate value to a future buyer. The client knows you, trusts you and has built that relationship with you personally. Unless you have done an exceptional job of passing that relationship on, there is a risk that the value leaves when you do.”

He says that does not mean every adviser needs to build a large business. For those happy to remain owner-operators, that model can work perfectly well. But advisers who want to eventually sell or transition their business need to consider what happens to the client relationship when they step away.

And Campbell says this is where processes, people and technology become important.

“I think succession should be about continually building and improving a good business. If you build a strong business, then sale or succession becomes a natural outcome when the time comes.

“That means maintaining strong client relationships, keeping good records, developing efficient processes and building a professional brand.”

One common risk, Campbell says, is simply becoming too busy with new business and neglecting existing clients.

“Advisers need to keep engaging with their existing client base in useful and relevant ways – whether that is through newsletters, checking in when a fixed rate is coming up or simply maintaining regular contact.

“So, for advisers thinking about their future value, that ongoing engagement can be just as important as the systems behind the business.”

Using the aggregator as a business partner, not just a CRM or lending panel

Both also see a role for aggregators in helping advisers build more scalable and transferable businesses.

Campbell says advisers should make greater use of the support available to them, including marketing, websites, campaigns, virtual assistance and loan processing.

“It is important for advisers to engage with their aggregator as much as possible and make use of the support available. At Finsure, we want to be a key business partner for advisers, not simply a place to submit a mortgage application.

“The opportunity is for advisers to lean into that relationship, be open to new ideas and experiences, and make use of the wider community of advisers around them.

That community is one of the valuable things about being part of an aggregator. Advisers don't have to work everything out themselves, and sharing ideas and experiences can help them build better businesses.”

For Patten, flexibility is important, allowing advisers to choose the systems and processes that suit the way they want to operate.

“We are working towards making our systems more open, so advisers can use external software and have it interact with our CRM, with the aim that advisers are able to build their businesses in the way that works best for them, rather than forcing everyone into exactly the same process.”

Ultimately, the goal is to create capacity for advisers to focus on their clients while building a business that can function effectively beyond the individual owner.

Looking ahead

Neither Campbell or Patten are sure whether the last two standing banks (Kiwibank and BNZ) will shift away from trail commissions, but they both see advisers continuing to adapt to a multitude of changes in the industry over the past 10 to 15 years - from the traditional “transactional” operation of a “broker” to building long-term relationships with their clients. 

And Campbell’s advice is to focus on the business already in front of them.

“Look at the customers you already have. Think about the quality of your client relationships, how engaged they are, how good your data is, and whether your processes are making the business more efficient or simply keeping you busy.”

Patten’s advice is to welcome the changes coming through technology.

“Embrace what is coming and don’t be afraid of it.

“There are a lot of people who are scared of AI. I understand that and we’re not going to force people to use it. But I would encourage people to not ignore it all together and take a pragmatic approach to learning about it.

“If advisers combine that mindset with technology and continuously looking at how they can improve their processes, they will be in a much stronger position to build a business that has value well beyond the next few years.”