I often hear that “financial planning” is a great industry to be in because it helps you to build up a “passive income”. Investment planning, in particular, has this reputation. All it requires is a once-off sale and the advisor gets to charge an ongoing fee for as long as the “purchaser” remains “a client”. The thought alone, I find mildly offensive. It infers intent to charge fees in the absence of services rendered or value provided. It infers that the onus of responsibility lies on the part of the “purchaser” – they become “a client” for as long as they pay their premiums. That’s not the relationship I have in mind when thinking of myself as someone’s “client”.
What a business model though? See someone once, sell them a product and presto, you’ve just created an ongoing revenue stream for as long as that (poor) dude remains invested. Conventional wisdom goes on to cite this as a much more valuable business than one that requires consistent, ongoing, (once-off) purchases on the part of the individual – you know, the kind you’d expect from a proper “client”. I think the underlying thinking here is that the “passive income” seems more valuable, as the alternative constantly gives the “client” the opportunity to shop somewhere else, or stop shopping altogether. Personally, I’d prefer the option where the client is making ongoing, deliberate decisions to spend his money with me compared to earning fees that he actually doesn’t know he’s paying.
I’m surprised that this sentiment was strong enough to create a school of thought around “passive income”. Robert Kiyosaki must’ve had a hand to play in this? To think that it’s lasted long enough for people to build their business models around upfront services and ongoing revenues, seems clinically insane. The best businesses in the world are all predicated on creating ongoing, lifetime value for their clients. Every time I go to Woollies, I’m exercising my discretion to use them again, or not. It would seem though, that the value they give me at every interaction is so damn good, I just keep coming back. That’s a proper relationship.
As a “client”, that’s the kind of model I choose – one where I pay, in return for value received. If I’m paying, and I’m not receiving value, either I don’t know that I’m paying, or I don’t know that I’m paying. The “passive income” model can (surely?) only be successful a world where:
- Consumers are deliberately kept in the dark
- Knowledge and access to information is withheld by the providers
- Transparency and understanding is deliberately kept low
- Power is weighted toward the providers
- Options for alternative suppliers and products are limited
In Financial Services, I think the points above describe the industry ten years ago. The world we’re living in today has moved on. Relationships today are defined by an equal exchange of value. Advisors and product providers earn fees in return for the value they give to clients. No value, no fee. Might still be a bit of legacy stuff around, but as soon as clients realise that they’re paying for our services, they’re going to make an assessment of the value received and more than likely, shop around for something better.
It’s time for planners to stop and think really hard about the value for which they expect clients to pay. What do you expect that your clients find valuable? Is it your time? What does your time do for them? Is it your knowledge? What does your knowledge do for them? Is it your processes? Is it your offices, your systems, your relationships, your tools, your reports? And what does this do for your “clients”?
Only once these answers are crystal clear in our minds, do we earn the right to call people “clients”. “Passive” is the antithesis of “having clients”. “Having clients” means we’re constantly fighting to better understand and recreate our value proposition in a way that meets an evolving and increasingly nuanced set of needs and expectations.