Points make prizes for advisers’ best customers who could benefit greatly from their show of loyalty
A fancy night out, “free money” in the form of tax breaks, a gym membership or avocados delivered to your doorstep. These are just some extras advisers have used to reward their best clients.
But with some arguing that rules on inducements have been tightened, what benefits are suitable for advisers to give their top customers?
What clients want
Leicester firm Rowley Turton’s key clients get an invitation to client appreciation events – which can be anything from an evening at the theatre, a day at the races, sports dinners or golfing events.
“Key clients” are defined by a combination of how long they have been a client, how profitable they are and whether they are an advocate for the firm, for example if they create client referrals, according to Rowley Turton director Scott Gallacher.
Client referrals earn clients points towards qualifying as a key Rowley Turton client, but it does not offer a specific reward just for referral.
Gallacher says: “We’ve been considering it, but we have never really been comfortable with that approach. We would prefer that the referral was given without an inducement. We believe that way the referral is much more valuable.”
However, not everybody is convinced that rewarding top clients is the best route to go. While advisers who have rewards in place tend to award them to clients who are making their firm money – by either being profitable themselves or by bringing in more customers – Shore Capital director Ben Yearsley prefers a more equal approach.
Yearsley says: “All clients should be treated in the same manner. Now obviously you might see larger clients more often, but this could simply be down to having more complex financial affairs that necessitates more meetings. There also might be economies of scale with things such as platform fees.
“That aside, all clients should expect an excellent level of service and I’m not sure rewarding some over others is a particularly good idea.”
Apart from rewards directly from their advisers, clients can get benefits from some providers too. Hargreaves Lansdown introduced a so-called loyalty bonus – a discount provided against the ongoing management charges paid by investors – to “give them a good deal on their investments” some 15 years ago. These rewards are, however, frozen while a legal challenge continues.
In 2013 HM Revenue & Customs deemed Hargreaves’s rebates of annual management charges to clients taxable.
Hargreaves challenged the decision and won at the first-tier tax tribunal earlier this year, but HMRC has appealed the ruling.
HL head of communications Danny Cox notes that it is common for all platforms to tier charges so larger clients benefit from lower charges.
Rewarding the clients for being profitable is the industry’s dominant approach. Protection provider Vitality aims to reward the healthiest ones, however. Within VitalityHealth and certain VitalityLife products, members can earn a series of points by being physically active or getting a health check.
Clients can then exchange their points for a range of products and services like gym memberships, healthy food and entertainment and travel perks.
Within a year of introducing the so-called Active Rewards benefit to Vitality members, 34 per cent of people who previously had not earned any points for being physically active were collecting them to receive the rewards, according to a spokeswoman.
The spokeswoman says: “We know that claims costs decrease the healthier our members are.
“A study of 47,000 VitalityHealth members showed that claims costs decreased by up to 33 per cent as physical activity engagement levels increased.
“In January 2018, Vitality revealed that it provided members with £63m of additional value over the course of 12 months.
“Further internal Vitality data showed that 50 per cent of engaged members have saved more than half of their annual premium and a quarter saved more than their entire premium through the company’s rewards programme.”
This step was part of a welcome shift in the protection industry, which has been guilty of wooing potential new customers while forgetting about existing ones in the process.
Critics say that product enhancements do not always benefit the existing customers.
But there have been some positive developments in this area, with the launch of Guardian and British Friendly, which provide enhanced benefits for existing plan holders.
Vitality’s benefits build on behavioural economics.
The spokeswoman says the firm “continues to invest heavily in research into behavioural economics given its centricity to our business model and purpose”.
In a study four years ago, researchers from London School of Economics suggested that rewards may be more useful than simply providing more information in nudging consumers towards the right outcomes.
It concludes: “Financial literacy has only minor impacts and that financial behaviour is better explained by biases than by inadequate understanding.”