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Chris Gilchrist: Beware new adviser service fads

The UK’s financial adviser community is smart and resilient but it is also prone to falling in love with fads and trends (technology, with-profit bonds, low-cost endowments). A welcome part of the cultural revolution called the RDR is a shift of emphasis from products to service. But for some people, it looks as if the concept of service has turned into the next hot thing, which means it is being overcooked.

I recently spoke to an IFA who told me he had six different service propositions. I must have looked a bit surprised because he proceeded to justify the very slight differences in what his firm offered to different people under six different descriptions. And there are a good few IFA firms whose websites show they have embraced the tired old “silver, gold, platinum” branding of service levels.

There is always a trend to convert services into products, not just in financial services but everywhere. It happens because we are lazy.

The more you can define and limit a service, the more it looks like a product and that makes it easier for salespeople and prospects to get their heads around. But that does not mean it is necessarily better for either the adviser or the client. In fact, over-specification of services is likely to trip up many advisers on their way to the new model paradise.

The problem with highly defined services is that you have to manage them in line with what you have promised and the more specific you are, the more difficult it is to change things. Significant changes mean you will probably have to issue a new client agreement and drawing clients’ attention to what they are paying after you have signed them up is not generally regarded as a brilliant business strategy.

If you keep the old service going and add a new one, you compound the management problem. Are your CRM, MI systems and staff up to running lots of different services? Probably not. Inevitably, you will fail to deliver what you have promised to some group of clients.

Of course, most of them will never notice but it only takes one because TCF will require you to make amends to all those affected, not just the one who complains.

Highly specified services can be just another way of designing boxes into which to cram your clients. And it panders to the laziness of advisers who just want to attach form A, B or C to their recommendations. I believe it is better to think in terms of what clients want and need and to have a menu of things they can choose. That need not be too hard to administer.

Crucially, if you adopt a menu approach, it forces advisers to ask in detail about what clients want and need rather than trying to sell something which – inevitably – will not suit everyone.

If the client feels they do not want or need half of what is in your package, they may conclude that they are paying too much, whereas if you only offer what they actually want, they may be happy to pay as much as they would have paid for all the platinum in your portmanteau.

If you have got this far, you may also have got the point about selling a service being completely different from selling a product and be a step closer to that new model paradise.

Chris Gilchrist is the joint author of The Process of Financial Planning and editor of The IRS Report


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There are 9 comments at the moment, we would love to hear your opinion too.

  1. Every business from journalist to the higher street and from those who sell cars to those who sell advice has to settle on the answers to 2 key questions: what are we offering and what will it cost?

    How you present that is merely a marketing issue.

    To suggest that a menu is the only answer and worse that those who don’t haven’t got it is like suggesting that Coldplay is the only band or Edam the only cheese.

    Thank God they are not – on either count.

  2. Take your point Chris and agree. I am puzzled though, doesn’t RDR stand for RETAIL Distribution Review? Is that not something to do with selling products? That is what it says in my dictionary anyway.

  3. As in everything the FSA sets in motion, the cracks are surely going to show and widen as we progress towards the cliff edge set by the regulator when all things in our current financial services world will come to an end, whether the Myan prophecy also implements and all civilisation ends is a matter for conjecture.

    The proposal that IFAs segment their client banks is inherently unfair to those clients whose wealth is much lower than those who are better off, it ascribes to them a lower priority and is in effet an unfair method of treating people. Just because a client does not have 100’s of thousands of pounds spare to invest they should not be deemed of lower value. Many of my lower to middle income clients are more important than some of the wealthier ones, because I did a good job in the past with their limited resources and they recommend me to others who need assistance and advice.

    What the RDR is going to do is reduce the number of iFAs available to the public, take away the consumers choice of how to pay for advice, front load products with either fees or charges, and alienate a major portion of the population from taking advice on the basis of monetary wealth.

    You only need to look at what happened in the legal profession when it became prohibitive to take legal advice. Ordinary working families can no longer afford to go to a solicitor for assistance and legal aid has all but disappeared as law firms cannot afford to operate it because of the low payment rates.

    IFAs need to look at how they can structure the advice and service process so that it is accessible to all, affordable to most of their clients and to do that we actually need the commission ban to be set aside until someone can come up with a viable method of remuneration by spreading the costs of advice and services over the term of a plan that is suitable and has been recommended by their iFA

  4. Chris I think that you assume that in the design of services, that the IFA has not already asked and identified what it is that clients require (want and need). The designed service is not indicative of “laziness” at all, quite the opposite in fact, it is based on a thorough analysis of and the development of a service based proposition.

    I also disagree with your statement that “drawing a client’s attention to what they are paying after you have signed them up is not generally regarded as a brilliant business strategy” why not? Telling the client what they are paying for and what they are getting in terms of value on a regular basis seems entirely sensible to me. This transparency enables the focus to move from the entirely wasteful issue of price onto the much more beneficial debate about value.

    I think that you are though entirely correct to identify that CRM and MI systems and indeed staff all need to understand the service that is being offered or the risk is that there will be over promise and under delivery. In practice though suitable systems and processes to support the proposition are quite easy to create and operate.

  5. I only got as far as the part that said with profits bonds were a fad, so I am sorry if I miossed anything important. How long had with profit bonds been about? Bloody long fad. Nothing wrong with them if the fund manager doesn’t get carried away with equities and the FSA doesn’t make them unload equities just before a stock market rise.

    Get a grip.

  6. I agree with Patrick.
    Yet another rubbish article by a ‘phone hacker’.

  7. very insightful – addresses the very real difficulties of evolving charging model and dangers of being too prescriptive..

  8. Every business whether its Financial or otherwise fails to deliver on service, we’ve come to accept this. Everybody keeps forgeting especially the FSA. We are a sales industry.

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