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Action, not reflection

Louis V Gerstner’s autobiography Who Says Elephants Can’t Dance? How I Turned Around IBM should be required reading for all CEOs or principals in adviser firms, in fact, everyone associated with a firm, particularly self-employed advisers.

When Gerstner became CEO of IBM in 1993, its shares had fallen to an all-time low and the company was on the verge of collapse. He was recruited because of his successful management of RJR Nabisco and American Express. Gerstner had no background in IT but during his seven-year chairmanship he transformed the firms into one of the leading forces of the computer age.

He had to be bold and get rid of outdated practices, changing the company from the inside out. The thrust of his changes was the move from a transactional-style business to a customer-driven enterprise able to respond quickly to the volatile technology market and face down Microsoft and Intel in the internet era.

Now does that sound familiar? From where I sit, some of the networks resemble the old IBM stuck in the past, centred on its management and not its clients. This is a high-risk strategy and destined for failure in TCF terms and in long-term profitability.

Adviser-charging is not business as usual. Providers are either going to delay payment of adviser charges until the cooling-off period is over or require a wet signature if they are to pay without delay.

We now find that adviser-charging and pensions do not go together (more on this next time) and this pushes us to a two-cheque process – one for the provider and one for the advice firm.

This is not what many thought would happen and I am certain the networks will not want to cope with the risk that advisers ask for one cheque to them instead of the advice firm and one to the provider.

This is nothing new, I am aware of network members who have billed under their own name for some time.

Another issue for adviser-charging is the move in this country to more use-it-or-lose-it capped tax allowances for products such as Isas and pensions. The current limits will lead most sensible advisers to recommend that the fees are paid from the clients’ bank account and not from providers using adviser-charging.

The fidelity risk here is massive and cannot be under-played. To avoid it, firms need to accept cashflow delays or more direct conversations with clients. All that needs practice and planning at a time when the RDR is getting ever closer.

Now is the time to recognise that a lot of the comments made by my fellow columnist Nic Cicutti are accurate and although they may make us uncomfortable, they still need to be faced up to if we are to progress profitably. Despite this, too many of us resemble ostriches believing that nothing will change other than the labels.

Gerstner tells an engrossing story that takes you into the inner sanctum of the unbelievable mess he inherited and into the world and mind of a boss facing the challenge of a lifetime.

The RDR becomes a bigger challenge if you delay your research and development work – it is time for action not for reflection.

Robert Reid is managing director of Syndaxi Chartered Financial Planners

Twitter: @reidremoney

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