"Ever get the feeling you've been cheated?"

Johnny Rotten’s final words from the stage of the Winterland, San Francisco 1978 may seem appropriate for those Financial Advisers seeking to reinvent themselves as Financial Planners or Wealth Managers and who have been attracted to the new offerings from the traditional incumbents in Financial Services, only to find they are asked to pedal the same old tired transactional services, but under a new label.

“Reissue, repackage, repackage/Re-evaluate the songs/Double-pack with a photograph/Extra track and a tacky badge"

The Smiths, Paint a Vulgar Picture

The Financial Services marketing machine has been busy repacking the “managed fund” for years recognizing that most advisers don’t want to be responsible for asset allocation decisions.

The Product Providers (they don’t even try to hide it) have also been remarkably good at maintaining an army of self-employed advisers who, to this day, are selling their brands for them via the ingenious pricing mechanism of an “allocation rate”.

Effectively setting up Financial Advisers to complete with one another for how much commission they can earn, while the provider protects their margin through early surrender penalties. Genius!

Meanwhile, the Product Providers “innovate” by simply changing the names of the products to support whatever investment theme is popular with retail investors. Tech Funds in the late 1990s, then Property Funds, Deposit Funds in 2008 and more recently Absolute Return funds.

The common theme with these launches is that they tend to be filing a need for what people want rather than the more difficult task of giving people what they really need.

In Ireland we are starting to see the beginnings of a new wave of disenchantment. I believe that this is a sad but inevitable by-product of the shifting landscape within the retail advice sector as more advisers seek to break the umbilical cord that has funded them for so long and their focus is now on building value within their own businesses.

Let me begin by being clear about the “New Model” argument.

It isn’t about being better at the job than other Advisers, it isn’t about the fees v commission argument and it certainly isn’t part of a moral crusade to change the world., It is simply a different way of doing business and one that will only attract a certain profile of client and therefore a certain profile of Adviser.

This “different” way of doing business has certain characteristics and it is the deeply profound nature of those characteristics that most businesses fail to adopt, but think that paying lip-service to them will turn them into the movers and shakers that will attract like-minded recruits. It is only after a while that reality bites and disenchantment follows.

So, if you are looking at working in the “New Model” for Financial Advice, let me offer some pointers to consider and some of the characteristics of the business and the Advice that should offer at least a fighting chance of making the correct decision.

Advice not Transactions

Most Financial Advisers have an infrastructure to handle transactional solutions for clients. Typically, the packaged, off-the-shelf solutions from a product provider are sold, following research and chased through the process to completion with delivery of the policy documents and receipt of the commission as the end objective. Often, renewal commission is then earned and an annual review of the fund performance is offered and changes made as required.

This sounds fine but think about where the relationships and responsibilities lie. How often – particularly with more complex circumstances does an off the shelf product fit the bill? If it doesn’t (and increasing in the new regulatory world, it won’t) how could that policy-chasing infrastructure possibly support one of Financial Advice for its own sake?

More importantly, how can it possibly be a sound business model to rely on a commission agreement with a Product Provider to pay for a client service, the cost of which may bear no relationship at all with the levels of commissions being received?

What if initial commissions suddenly cease to exist? It has happened in other countries and it is my belief that it will eventually happen here. So, the next pointer is this:

Engage with the Client, not a Provider

Any serious Advisory Firm MUST have as its primary relationship, the client. Not a series of agencies from product providers.

By that I mean that every client has to have an engagement letter in place that specifies the service levels and remuneration structure. The client should always be aware that the service has to be paid for and that no advice can be given without that agreement in place. If as a result of the work, commission is generated, then fine – it can be offset against the fee. If (and as I say this will become increasingly likely) none is generated, than the client needs to be clear that they will have to pay. What a sensible business model that is – an Adviser knowing that the clients they deal with will be profitable and not at the whim of a provider.

Obviously, such a service will not be appropriate for every client, so the next check to make is:

Work to a defined Service and Remuneration structure

Any business has to have a structure within which it works. Good businesses enforce that structure on all of its staff – even though in doing so they will not appeal to all the people all the time. Turning away business is counter-intuitive to almost all Advisers just as turning away Advisers is to most businesses.

The key is this: whilst not every client will fit, those that do will be profitable and will pay for the service-infrastructure that is required to deliver on the promises made at the beginning of the relationship. The costs of that service should not be plucked from thin air, rather worked back from the actual costs of delivering the service – that way not only is the profit of the business predictable (an important consideration for any employee), but it is eminently scalable – costs can be predicted and managed as the business grows.

An obvious connected issue to that of the remuneration structure is final pointer:

A clearly defined client engagement story (your value proposition)

The fact is that any service business is only as good as the service it provides, yet in order to attract the right clients, your story must be logical, straightforward and compelling.

In general, most successful Wealth Management businesses throughout the world have certain characteristics in common. Rather like wind-tunnel design, the elements that work for one tends to work for many and tend to be along the following lines:

• Adoption of independent whole of market platforms, because it facilitates the widest possible range of client solutions.
• A clearly defined investment process based around meeting meaningful choices for investors; for example, Ethical and Tax efficiency rather than Brand-based investment stories, because the key is meeting client-centric planning objectives
• A robust financial planning process, driven around long-term cash-flow modeling because without clarity of objectives there can be no clarity of purpose
• A robust ongoing progress review service – because the goal is maintaining a long-term client service to assist your clients to meet their long-term goals?

Making marketing promises is easy and unfortunately endemic in Financial Services. What isn’t endemic is having the systems, the processes and the intellectual capital to deliver on the promises you need to be making to your clients.