The wholesale investor test has been in the news recently. Specifically, the Parliamentary Committee assessing the current wholesale investor regime has been hearing submissions from various stakeholders about the merits – or otherwise – of changing the test.
Many of the discussions about the test centre around the fact that the thresholds for classifying someone as ‘sophisticated’ or ‘wholesale’ haven’t changed since 2001. Back then an annual income of $250k definitely put someone in the top percentile of earners, now of course, it’s not that special. The thresholds aren’t indexed to CPI; if they were, the income threshold would be closer to $500k, and the net assets threshold closer to $4.5m (compared to $2.5m).
Putting the quantum of the thresholds aside, there is of course a far bigger issue with the test, which is the way it uses wealth and/or income as a proxy for financial sophistication. In this regard it is a blunt instrument.
Two people having $5m in wealth, for example, may have reached that point via very different paths (a successful entrepreneur versus an inheritance), and therefore assuming they have the same financial literacy, risk appetite, and investment behaviours is likely to be deeply flawed.
Similarly, a person earning $150,000 per year could be a FIFO worker, a graphic designer, or a medical intern.
The aspirational ‘High Net Worth’ category is not a homogenous group of alpha-chasing Porsche drivers, but rather a group as diverse as any other in the attitudes, needs, and behaviours.
Segmenting your sales and marketing efforts through such blunt instruments can thus be fraught. Don’t get me wrong, putting people in boxes can be helpful in terms of being more targeted and more efficient, therefore boosting your effectiveness and ROI. But if the basis on which we classify people is flawed, then the value of such an approach is lost.
One example closer to home is Funds Under Management (FUM). It’s often used as a proxy for (1) advisors being investment sophisticates and (2) higher value clients, which in combination can be seen as equating to higher potential for fund flows.
At a surface level it makes sense, but it’s what goes on beneath the surface that matters most.
A large FUM at a practice level could be supported by a large number of advisors. Similarly a high average FUM per advisor could simply point to a business that is poorly run, with many underserved clients.
Understanding how people actually behave is a far better way of targeting your efforts than some high-level demographic data.
The name of the game for product and service providers (fund managers, platforms, insurers, technology vendors) is to reach the people who are decision makers, who have an interest in the category, and are ideally in the ‘buying window’.
Research by the Ehrenberg Bass Institute suggests at any given time, only 5% of B2B buyers are actively in market, and underscoring the importance of building your brands among the 95%, so the next time they are in market, your brand springs to mind. However, that’s a bit of an aside.
The best way to understand, and therefore segment, your target audience, is on the basis of behaviours.
In the context of a platform like Ensombl, the behaviour of our 9,000 plus members manifests as the content they engage with – reading, sharing, liking, commenting on.
Content engagement behaviours are an excellent indicator of what an advisor is interested in right now, including knowledge areas, product and service categories, and brands.
Applying natural language learning to several million data points across our platform has identified over 130 topics that advisors are currently engaging with. These include everything from Innovative income streams to platforms, from HR to active managers, and everything in between,
We’ve also been interrogating the data based on other indicators such as role, experience, and licensee size, discovering that employees in smaller practices can be just as influential in practice level decision making as the owner(s).
Other gems have revealed themselves too, such as the appetite to consider innovative income stream products being noticeably higher for younger, less experienced advisors (perhaps because they are less likely to have blinkers on).
Perhaps the best analogy is the risk profiling processes advisors put clients through. No matter how they answer the questionnaire, it’s how people actually behave in the face of a market downturn that really matters.
The nature of the Ensombl platform, and the conversations taking place across the platform every day, means we have extremely rich behavioural data, enabling us to help our corporate clients be timelier and more targeted in their marketing.
If you have a solution that can solve an advisor problem right now, and are focused on improving your marketing ROI, we’d love to chat.
Just reply to this email or give me a call on 0408 615 160.
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