Firms that decide to change model will face tough decisions and may have to cull the least valuable 10 per cent of their client base, according to FP Advance managing director Brett Davidson.
Davidson told the Institute of Financial Planning conference in Manchester last week that advisers should be making the transition to the new model if they want to increase the value of their business.
He said successful new model companies know where they add value to the business and segment their clients, often culling the bottom 10 per cent of their client base.
He said: “That is quite difficult for many people to do but if you want to be hardnosed and really focus on growing the value of your business, you have to consider whether your client quality is high enough to achieve what you want.”
Davidson added that the important thing about remuneration is not what form it comes in but that it is transparent and clients know exactly how they are being charged.
He said: “The new model debate is not about fees v commission. Advisers just need to realise that however you charge people, they will figure it out and you have to show how you put a quid in their pocket over and above your profit.”
Davidson offered a four-step plan to help advisers in the transition to a successful new model business. He said it is important to create a superb value proposition, develop a process that delivers consistent service, use a marketing plan that adequately promotes the business and employ people who can carry out the above requirements effectively.
He also reinforced the importance of establishing a solid business strategy and ensuring that every employee knows exactly what it is.
He said: “How many of you can say that every single one of your staff can explain simply and clearly what your business strategy is? I am always amazed at how many people don’t even have a clear business strategy. This is one of the most important things for any firm.”