The business model of the financial advisor: from commission to value creation
Despite operating in a fast-changing and competitive market, financial advisors are insufficiently using opportunities to find new ways of creating value. This has been shown by research conducted by Professor Henk Volberda and Kevin Heij, MSc, of Erasmus University and Avéro Achmea, the Netherlands’ largest insurance company.
Demand has changed completely. Legal requirements have been tightened. Moreover, the internet is creating new business models, while new relationships have also been established between insurance providers, advisors and customers. <link people henk-volberda _blank>Professor Henk Volberda argues that “financial advisors who are highly entrepreneurial and innovate their business model intensively perform 29 per cent better.”
Meeting the new demand requires a significant change of direction. “You can see a move away from providing products and acting as an intermediary, towards consultancy, particularly in prevention and risk management,” explains Jack Hommel, CEO of Avéro Achmea. “That change will take guts.”
For the first time, a study has examined the effect of entrepreneurship and new revenue models on the bottom line in one of the Netherlands’ most important sectors. Below are the study’s most important findings:
- Financial advisors operate in an above-average dynamic (+6%) and competitive (+2%) market, but are mainly preoccupied with refining their existing activities (business model replication).
- Entrepreneurship contributes heavily to changing the business model (business model innovation), and entrepreneurial financial advisors also draw more revenue from internet. Financial advisors who are particularly entrepreneurial and innovate their business models intensively perform 29 per cent better than those who not doing so to any great extent.
- There is a shift away from the traditional provision of products and services towards new value-creation models. This requires different roles to be played by the financial advisor in the value chain between insurance company and customer. The financial advisor can opt for co-operation with other financial advisors, specialisation in particular services, separation of high-value services from standard ones, co-creation with customers, and the provision of more tailor-made services to customers to create greater customer loyalty.
- This switch-over requires transformation-minded leaders, who score 67 per cent better on entrepreneurship and 59 per cent better on business model innovation. It is about having a vision, motivating and challenging employees, and giving attention to workers in order to bring about innovation. Unfortunately, these types of leaders are very hard to come by among financial advisors, only one per cent. Most financial advisors display transactional leadership aimed at short-term performance and focus insufficiently on developing new knowledge. Financial advisors who have access to a great deal of new internal and external knowledge do much better on entrepreneurship (+77%) and business model innovation (+74%).
- Financial advisors who actively modernise their business models contract out 21 per cent more of their activities, especially ICT-related work. By farming out activities, financial advisors can concentrate on high-value activities or new ones.
- ICT activities contribute to business model innovation. However, it is the softer, non-technical aspects – such as leadership, expertise, company structure and culture – which lead to business model innovation. In fact, these soft aspects account for 65 per cent of success in creating new revenue models.
- Business customers who use a financial advisor score better on company performance (+11%), proactivity (+11%), entrepreneurship (+9%), risk orientation (+8%), business model innovation (+6%) and business model replication (+3%). Although the study demonstrates that business customers regard themselves as being more entrepreneurial than their financial advisors, the research findings show that a positive connection exists between the entrepreneurship of a financial advisor and that of their business customers.
About the study: research institute <link research centres inscope _blank>INSCOPE – Research for Innovation is a leading organisation conducting research into social innovation. INSCOPE carried out this study into entrepreneurship and value creation among financial advisors under the leadership of Professor Henk Volberda of Erasmus University and initiated by Avéro Achmea.
The findings of the study can be found in the research report Moving to a New Business Model for Financial Consultancy: How Entrepreneurship Contributes to Value Creation. The report was presented on Tuesday 11 March 2014, at the Avéro Achmea conference ‘The Value of Advice’. The findings are also available in the Dutch-language book The New Business Model for Financial Consultancy: From Commission to Value Creation by Professor Henk Volberda and Kevin Heij.
