Podcast
Advice Architects Ep. 5 with Josh Book, Parameter Insights
The New Advice: Loyalty Drivers and Client Priorities
November 29, 2022
The New Advice: Loyalty Drivers and Client Priorities
In this episode of the Advice Architects, Day talks with Josh Book, CEO of Parameter Insights, about what trends are driving customer loyalty and how wealth management firms can modernize their customer experience by leveraging data and technology.
Josh shared that in order for firms to be successful they need a deep understanding of what's driving consumer behavior and develop processes based on this data to give consumers the personalized wealth experience they desire. They need to switch their focus from products to processes and treat their clients the way they want to be treated.
Josh Book is a trusted consultant to the wealth management sector focusing on bringing innovative, relevant and empirically driven data and insights to help wealth executives make informed decisions to help them scale and build client relationships.
Listen to the full episode here or on Apple or Spotify.
For more information about Josh Book, CEO at Parameter Insights, you can find him on LinkedIn,or check him out on Twitter.
For more information on Responsive AI’s solutions for advice providers, contact us.
Day:
Welcome to Advice Architects, episode five titled The New Advice Loyalty Drivers and Client Priorities. This is Day from Responsive and today we are speaking with Josh Book, CEO at Parameter Insights, a data driven, consumer focused research and strategy firm and the wealth space. Josh is a mastermind at synthesizing how market shifts and wealth management are driven by client needs and behavior and how the future of advice is changing to meet these needs. Good afternoon.
Josh:
Hi. Day, good to be with you.
Day:
Thanks so much for coming on the show. At the top of the show, we kind of do a Proust questionnaire, the Advice Architects questionnaire where we kind of get to know you a little bit. So to start you off, what's your job title and what do you actually do?
Josh:
Well, you didn't have this in the prep notes, Day. My title is CEO of Parameter. What do I actually do? A lot of everything. I help companies predominantly try to understand consumers better and I try to surround myself on my internal team with smart people much smarter than me to arm me with the right answers to give those folks. And we sort of work in this symbiotic relationship that way I suppose.
Day:
Thank you for rolling with the punches. We like to kind of make this a surprise so people give us really fresh ... How long you been doing it for and how'd you get started?
Josh:
I mean we've had this conversation I think before Day, but I'm kind of a reforming management consultant. I was previously at Accenture working across a number of industry verticals. I've always had a bit of an entrepreneurial itch and I started Parameter unbelievably about eight years ago now under a bit of a different guise, I suppose. We were really kind of going to be a boutique strategy consultancy, but hyper focused on data and helping execs use data in more agile and frankly less expensive ways than what I had been being exposed to in these large scale transformations. But we quickly saw an opportunity to help particularly wealth executives begin to understand the modernization of the wealth management business, which was back then kind of this thing called robo advice. And we were a bit cynical in our ideas around what we were reading, that it was the Uberization of the wealth business that robo was going to eat every millennial dollar from here to kingdom come, who's to say your age is the driving variable and your one's propensity to want to choose one wealth channel over another or what have you.
And so we had collected some great data science and market research expertise in the team and thought, "Well, why don't we actually start a study from a consumer perspective and start to answer these questions?" So we launched a syndicate research program that was then covering robo specifically, I hate the term, but digital advice in both Canada and the US, and that grew into another sort of sister syndicated series called an online brokerage. And then as we've seen the wealth business mobilize and modernize to some extent, we really just are covering wealth advice in all of its forms now.
So digital, air quotes, hybrid and traditional and trying to help firms understand what are the trends out there from a consumer perspective, which brands are gaining traction and various kind of measurement components, what things seem to be driving customer loyalty, which I think we'll talk about a little bit, so on and so forth, across the full wealth wealth spectrum. And so that's where we are. And then we have also a little consulting business that kind of works in tandem with that to help firms kind of move through customer journey design and strategy and how might they seek to scale their traditional business by using firms like Responsive, so on and so forth. So that's kind of where we're at and we're having a lot of fun with it and growing steadily, surely but steadily.
Day:
Awesome. When were you happiest FinTech or wealth tech related or what's your happiest wealth tech experience?
Josh:
My happiest wealth tech experience, I mean haven't had a lot of happiness, Day, because we cover this. And so I guess a lot of my, I sort find my way in between different levels of frustrations of the firms sort getting in their own way and the skepticism that we see all the time. I guess I'm happiest that I saw a massive, from the pandemic, coming out of that or within it, just a massive rush of new people to savings and investing. And I think that makes me happy notwithstanding that things are difficult for them in many ways now, but it's happy, but I derive happiness from that because so many people just were, I don't know, were they alienated from wealth management? Did they not have access? Whatever the catalyst that was not there before to get them into the fray and at least thinking about investing seems to have alleviated and maybe it'll be somewhat cyclical, I don't know. But seeing the numbers in our data in 2020 and '21 of just massive movement of folks into, it happened to be online brokerage for the most part, but more people coming into the fray made me happy. Now there's lots of work to do with all of that, but .. I suppose that's a kind of crappy answer to your question.
Day:
No, it's good. No, it's good. Why do you care about wealth tech?
Josh:
I just have always thought, I'm always interested in investing. I've always been, even as a kid and the conversations I had in my personal life and along the way it always struck me how un, what's the word, accessible investing really seemed to be to so many people where and now, gosh, the of so many interesting and easy products to use to invest and platforms to use to invest coming online, it just struck me as sad really, that so many folks were missing great opportunity of sort old Warren Buffett commentary, really compounding, time in the market, these kinds of concepts. And so I just have always wanted to find ways to make that experience better for more people. And this is my current seat in trying to do that to some degree from the inside out, I guess.
Day:
Awesome. Okay, so over the past decade there's been a conversation about new technologies and wealth and changing client expectations. Some things have changed, some things have stayed the same and there's been some astounding tech failures, I think. But it really does feel like we're on the verge of a new kind of advice that leverages technology. But both you and I know this has to be driven by real consumer needs and preferences. So maybe we can start with the last tech hype wave. How did direct brokerage and robo fail investors?
Josh:
So, I don't know that I would say that they fail those direct brokerage and robo, as concepts, failed investors per se. I sort of do think that we're seeing ebbs and flows in the evolution maybe of innovations, that are somewhat normal. I mean every innovation kind of goes through these kinds of ebbs and flows as it finds their way. And the innovations particularly around advice I think are pretty spectacular. I mean the idea of, air quote, robo and making in investing and advice more accessible in digital and using those kind of algorithmic innovations and so on is pretty spectacular. I think though executing them within these staid business models, which are, it's also a complex and opaque industry context and being executed by somewhat disincented governance models led to longer uptake than was kind of thought and overall some rethinking. And so we're seeing that continue on both an online brokerage and that the spotlight was shone on them as I kind of mentioned throughout the pandemic and then also in the modernizing kind of wealth advice model.
So to tie that up, I think it's really failed on execution. If you think about how those innovations came to market, did they really understand the consumers for which they were came online for? Did they find the right ways to become accessible and approachable for larger swaths of consumer segments? Bigger challenges are facing a plethora of newbie investors that stampeded into self-directed investing as I kind of mentioned. And now they're facing challenging investing environments. And so a lot of those challenges that we've been talking, and we've been talking about this for a lot of years actually since probably before pandemic even, can be alleviated if firms were doing better at building, we call them on off ramps between wealth service channels. And I include retail banking in that.
The fact is, I think to be successful, firms need deep and continual understanding of the consumers that they're serving. Because people have, and we've seen this, people are making choices into wealth channels for various and wide varieties of reasons. And I think firms need to do a better job at understanding those customers to help guide them into the most appropriate channels at the time. And that's a bit fluid and I mean that's a bit of a utopian view, but the long and the short of it is I think we're just at the beginning of how to modernize the wealth business and it's quite siloed, particularly here in Canada and that's just not going to work. And what I worry about, Day, is those newbies that rushed in, if they're having trouble now, have they become disenfranchised to wealth generally. And we've seen in our own research disenfranchised folks are really tough to get back into the fray.
And so we're working continually with our clients to help figure out the customer journeys around on ramps, off ramps. If you came into a self-directed channel, maybe that wasn't, and for whatever reason let's understand the reason, but perhaps it's not the right place for us or that particular segment, how are we helping them into something that is better for them?
Consequentially, on the flip side, in an advice environment, many, many high net worth folks don't want to be engaged by a traditional advisor in the way that traditional advice has been engaging higher net worth people. They want a more digital experience. So how are those folks helping service those kinds of customers and just understanding that journey and maybe there's customers there that are in a traditional environment that want to be in a self-directed environment. Well how are you helping them in those ways as well? So that's kind of where I go. So I wouldn't say that they've failed investors and frankly if you went to pure returns, the pure play digitals have actually not done badly at all. So I don't know that they've failed. I think we're just at a spot along a journey and it's really up to those of us in the industry that are executing for our customers to figure out ways to bring these kinds of amazing tools frankly together in the right ways.
Day:
So it seems like there's these sort of siloed markets getting, giving a promise to certain segments and then there's not a broader consideration about, I like this idea of on-ramps and off-ramps, so direct to client, pure digital, still evolving, especially in this wild market. In your Canadian survey you say that only one in three clients are satisfied with their digital experience and I believe in a personal advice context. So is there an opportunity to take the learnings of digital and robo? What are the market drivers of that you think for personal advice? What are you seeing there?
Josh:
We look at component parts of kind of wealth offers, be they traditional or online brokerage or digital advice. And we want to understand what levels of what, what's driving well, we want to know who's satisfied with what. And as you say, use of digital technology to enhance a services in a traditionally advised relationship is among the lowest elements, or one of the lower things that ... one of the things that people are least satisfied with across things like ability to communicate in person, response time for inquiries, so on and so forth. Doesn't mean it's awful, I mean a third. Satisfaction scores are generally pretty good for the industry, particularly in the traditional side of things. But clearly Day and opportunity exists for the traditional advice channel to make better use of technology in the way they serve customers.
And that's nothing new talking about that. I think traditional advice specifically will do well to really build a deeper understanding of consumers and do kind of crisper segmentations so that they can build more personalized customer journeys. And the reality is digital, the use of digital technology is integral in their ability to do that, but also integral in their ability to drive more personalized experiences for customers, which we're seeing as an area of massive opportunity for differentiation, for sure. And we're not seeing very much uptake frankly on the traditional channels to do anything terribly unique. I mean we're still talking about digital onboarding. It's 2023 in about 10 seconds. So that doesn't strike me as rapid moving. And so I think there's a lot of opportunity there.
Day:
But it's your view that customers want this, right?
Josh:
Indeed. And we see that by what people recommend. See there's one thing to be satisfied with something. Imagine you're a consumer of a wealth business or wealth service and you have a various areas of which you kind of apply levels of satisfaction toward, Oh I'm happy with the fees. Oh that's a cool digital reporting component. I like that a lot. So on so forth. But that may be different than what you tell your friends about, you may say to your friends, it's a really nice digital experience, I'm getting really personalized kind of educational and advice kind of moments that I find hyper relevant to my thinking, things like that. And so that's how we start to determine what's useful and what people want. Because they often, it's not all or nothing of course, but the things that they promote are often the things that will drive more growth for the aspiring company.
Day:
So what do you see as blocking firms in this capability and how would you say to get unblocked?
Josh:
I really think that the industry as a whole is so kind of product sales focused still that we forget about the overall experience that we're trying to deliver, which isn't a sales experience, it's sort of like a wealth process. It's sort of moving from product to process I guess. So that to me is a bit of a step change in culture. And so how we try to help folks with this, is to really center around customer journeys. What do we want for this segment? What is the world for them as we walk through it supposed to look like? Are we even close? Are we even close to delivering that?
And then how do we then go about changing some of the moments that we want to change? And invariably, technology is a critical component of the answer. And so I just think there needs to be a little bit more maybe risk taking it's not really risk taking in my view, but within these large firms it's hard to change the way we've thought about delivering service to customers, which has always been sell more product, really.
Day:
Yeah, no, this has been, we see the same things and we want the same things for our buyers. This is a great transition into what really matters. And I think that's what you're talking about are the things that actually drive loyalty for wealth advisors, the things that customers really care about, the core components of care. What are the core components for you and what you've found in your research that drive this loyalty?
Josh:
So, let's just talk about, generally, advisor loyalty for a minute. So advisor loyalty's relatively high in North America, it's not quite as strong in Canada. So in Canada, 47 roughly percent of folks are very satisfied with their advising experience. This we're talking traditional now, not digital, 23.6% are net promoters in the US 65% are very satisfied and 50.6% are net promoters. Cross demographics scores in the US are lower among females, younger clients and those with lower incomes and assets, but elevated among clients with higher incomes and assets, which is not overly surprising. In Canada, same like in the US, loyalty's lower among younger clients. But the pattern for gender actually is different, it shows a reversal really. So scores are higher among Canadian females than males. Advisors in Canada, I think should be happy to see strong satisfaction in that promotion at both ends of the income spectrum and in general client loyalty scores peak amongst the wealthiest clients.
So when you think about overall satisfaction, you can then, and we kind of talked about this a little bit, it can be unpacked in terms of the satisfaction with the specific dimensions of service in both the US and Canada satisfaction. So we're measuring that as percentage, very satisfied is quite high across almost all the core service areas for advisors. There's two areas where satisfaction is lagging, so that's fees. Not a huge surprise there. Fees, everyone likes to gripe about fees, but also in what we talked about is the use of digital technology to enhance those services. And so we talked a lot about that. Advisors should be cognizant and as kind of returns begin to erode as we're seeing now, clients typically become pretty increasingly focused on fees vis a vis perceived value of the service.
Remind me, did you want to know what were ... You wanted to know some other specifics? So communicating well over email and providing strong educational information or two other areas? Yeah, I want to talk about that more where satisfaction lags quite a bit. So when you're combined with relatively low satisfaction scores on digital enhancements, you got to ask whether advisor businesses are keeping up on the modernization front for sure. But I also think that education component is a massive area of opportunity for innovation and personalization and we're just so not there yet. You can think about these presentations where you're slinging bagels and coffee or an email that comes out with some generic market kind of overview like why is that relevant to me? There's just so much work that can be done to enhance the advisor client relationship in specific moments that I think is not well done yet.
Day:
I think we think the same thing. There's so much such a rich space and you can do so much more. So two of the top drivers identified in your survey were centered on speed and reaction time. Can you talk about the value of speed and what it means for clients?
Josh:
Those things were pretty put in, pretty much put in the spotlight, especially over the pandemic time, lots of inquiries, lots of instructions, et cetera. I think this talks to, Day, the scalable, the scalability issue in an advised relationship. So what are firms doing to put tools in their clients' hands to make this a better experience? And what are wealth firms doing to arm their advisors to act or to have a more scalable desktop where the component or concept of speed can be addressed more proactively. So we don't see that a lot. This is all part to me of the advisor modernization basket. So sorry, I riffed on speed. Sorry about that.
In this case it is kind of speed, but again I think I would take it back to segmenting your customers. So are you arming your advisors to segment their customers to know who really values the response time and who really values execution instructions? Well I would say everybody probably. And so what technologies are you putting in place to make this happen.
Day:
The ability to communicate in person, over email, over the phone communication or lack thereof is a critical topic. Can you talk about where you're seeing failures and opportunities?
Josh:
Those two kind of lag in terms of drivers of satisfaction. People don't seem to value them quite as much as they do. Things like quality of investment recommendations, extent of financial knowledge, education, so on and so forth. Ability to communicate in person is sort of middling for satisfaction, funny enough, lower on as a driver of recommendation. So I think that to me means it's pretty ripe for automating. But again with a personalization bent, so segment appropriately, automate and deliver the right content to the right person in the right way. But it's lower on the list as drivers of recommendation and satisfaction. So it tells me that there's wiggle room for the advisor there, but definitely an area where technology can be useful and should be made used of to automate.
Day:
You’ve mentioned this category of the consultative dimension of advisor services. Can you walk us through that idea what it contains as sort of pillars you've walked through a few of them and then and where we can do better?
Josh:
Yeah, so it kind of comes down to me to that ability to understand my complete financial picture, which we see as a fairly strong driver of both satisfaction and recommendation. I mean just to put some numbers to this by the way, in terms of overall a consumer's overall satisfaction, the ability to understand this is for Canada, for the listeners, we have the same stuff for us as well. Ability to understand my complete financial picture has a score of 12.1% and in the regression that you could view that as being twice as important as something like fees, which is a 6.1%. So it's a relative basis all of these measures. So take that for what that is. But I orient there, there's things that are bigger, air quotes, bigger, more important drivers, which is the quality of educational financial content and information, which is a 13.3, extent of financial knowledge and quality of investment recommendations.
But those to me are all a bit consultative. I guess I would basket them sort of together. I think firms really need to find ways to personalize the experience and scale using digital and technology to help them scale those personalized experiences. It doesn't mean be more available Day, if you were a wealth advisor to your 250 person client list. It means derive a better experience or build a better experience for each of those 250 folks because you understand them and you've been able to bucket them into pretty specific and well understood customer segments that now you understand what their requirements are. And some will be, and there'll be vast differences and that allows you to be more, that allows an advisor to be freed up to use their skills in the right places at the right times, which just is a win-win for everybody.
And I think advisors kind of do this intuitively to some degree. I don't think they're well-armed with technology and some may not want to be or may feel some adverse feelings about deploying technology in new ways. Change is tough, but the reality is, and we're seeing when you cut across demographics, I mean younger demographic folks want more digital in their experiences, whether it be wealth or other. But that it doesn't seem to us, and we're seeing this across different generational cuts, it doesn't seem to be like when you've gone from Gen Z to millennial that it's reducing or you've gone from millennial even to Gen X, that those folks are reducing their desire for a digital within those experiences. But we also see within those generational cuts, folks that are very wanting for a human interaction. But that's where I'm getting at that notion of segmenting like don't segment on an age or a wealth number even. Segment on what those folks actually want in their wealth experiences and be prepared for that to shift some as well, as they move through their own financial lives. Right?
Yeah, definitely. So I just want to loop back and just touch one thing. So you said 12%, so it is 100%, we're dividing that up what matters? 12% goes to having your financial situation understood as a client. 13% goes to the educational content that's sort of letting you into what's going on with you. So that's a quarter of the value is in this two way understanding. I know that my advisor understands me and I'm understanding what my advisor's doing. Is that a fair statement?
Josh:
Yes. It's kind of share so the, it's not like percent of a pie. So I mean getting into the science of, it's a computational approach to regression called LMG that we use, that's just for the creators' last name start with L, M, and G. And it measures the relative importance of drivers in terms of shares of explained variants. So the share based interpretation allows for those service dimensions to be compared directly to one another in terms of how much each dimension drives overall satisfaction or net promotion. So like a driver with a 12, we were looking at 12.1% share of importance would be seen as twice as important as a driver with a share of six, whatever percent.
Day:
Got it, got it, got it.
Josh:
So it's not like it's that, you know what I mean? It's not a pie per se, it's just a way to measure relativity.
Day:
Got it, got it. Okay. So putting on the technology hat for a second, where do you see some easy wins in the short to medium term for businesses to augment these core consultative capabilities? What are some topics that folks can think about practically when they're thinking about augmenting their advisor?
Josh:
Yeah, I think, I think about things like an advisor dashboard and I don't have a encyclopedic knowledge of what's going on per se there, but I just think about the planning experience and how that's been. And I see certain technologies helping, planning becoming a little bit less painful, a little bit more dynamic and less static. And I think when I consider planning and then of an advisor dashboard, it all kind of comes together to me to what's the right mix of digital and putting me as the client in power to some degree. How are you reporting to me getting, is it just some jiggly job of numbers that are impossible for me to really decode or am I meaningfully able to see how are these things performing to some goals that I've set? How are the fees, how are costs being displayed to me? Is it transparent?
I think the industry as a whole has been so opaque for so long, it's really gotten in its own way. And I think customers really desire a transparent process that they can feel a bit empowered by. And that's that component around education and information, how you're personalizing that. So planning to me is a great place for these folks to start looking at different technologies to deploy. How is an advisor's dashboard built? Is it, or do they have 15 different plugins that they're trying to toggle around to give them some sort of insight about what to do with each different customers? So I think cleaning that all up into a cohesive, scalable experience, both for the advisor obviously, but the client is the end client, it's their life at the end of the day and I think we need to do better at helping empower them within their financial life. And I don't know any other way to say it other than that, to be fair.
Day:
If you had to give advisors one piece of advice on earning client loyalty, what would it be?
Josh:
Serve the client the way they want to be served. So I call it the platinum rule. We all heard about the golden rule? Treat others as you would want to be treated. I say no. The platinum rule is: treat others as they want to be treated.
