What continues to hit the headlines in both the trade press and personal finance pages is the ongoing and very apparent lack of cohesion in how the industry should address the issue of remuneration. It continues to perplex me how people do not fully appreciate how the different business models work and how there are those that have taken on the challenge of addressing the negative sentiment towards commission and are ensuring their business model is fair to the consumer, distributor and provider.
This industry has been plagued by a constant barrage of negative news, firing across the bows and views that are given for the benefit of a few column inches and a moment of fame.
There are those that consider trail commission as a dirty word and that this method of income should be wiped out in one fell swoop. This is not only misdirected but assumes that many of us who have built a business model based on being remunerated by trail commission and rebating initials should be tarred by the same brush as those that have abused this income stream and taken it for granted.
The consumer continues to be put off by this barrage of negative sentiment and while debate is sometimes for the good of those that rely on our services, at times not enough is done to help promote the positive aspects and the hard work many are putting in to try to change perceptions.
We applaud the fact that this industry is taking the need for change seriously and that levels of commission for what is all too often a lack of service has much scope for improvement. However, these changes should not be driven by committees that have taken it upon themselves to become judge and jury, but by those of us that endure the ongoing demands of regulation, providing and improving consistent customer service and understand the practice of providing either an advisory, discretionary or execution-only business model.
Recent announcements from product providers, which effectively indicate that initial commissions on low-cost products will be removed, are the start of what will be a dramatic change in remuneration levels. But changes in the day-to-day aspects of our business that will have a big effect on us all should be achieved through working together towards a common goal rather than by simply trying to adjust to the fragmented opinions of politicians that do little to instill confidence in the consumer.
The recent misselling scandals have been driven by the front-end earnings associated with initial commissions. This is an open opportunity to abuse this income stream by encouraging one-hit sales and forgoing the service the consumer quite rightly expects and deserves.
An IFA business that has founded or adapted its business model around sustainable income revenues through trail commission, perhaps using lower initial commissions to bolster more complex financial planning matters, reduces the volatility of a pure initial commission model and offers a solution to the changing demands of our regulators and, more important, the consumer. This gives an incentive for the IFA sector to deliver a service that continues to meet clients’ demands and should promote healthy competition and have a positive effect on the consumer.
We will be compelled to ensure that our service delivers ongoing communication of not only an aggregation of client’s financial statements but also informative factual commentary and opinion that is consistent and educational. Client loyalty in the sector is at an all-time low, having been diminished by a number of problems from all areas of our industry. But this should be an incentive for us to deliver the services that will propel us to the dizzy heights of a professional service industry.
With trail commission becoming a more acceptable and justifiable form of remuneration it also gives the consumer some control, and the option to complain if service levels are unacceptable with the threat of transferring to another distributor which delivers what it promises. These changes are here to stay and as distributors in this environment we have the ability to take control of implementing them at a time when those who have not built a model on this basis will have to adapt over a period of time.
We have set up our business on the basis of recognising the need to meet clients’ demands to be kept informed and have the ability to make more reliable decisions on their financial futures.
This is a scaleable model that will allow us to cover the different levels of distribution with an underlying structure that adds consistency based on core research capabilities and marketing, which can be adapted to the different needs of our clients.
Richard Craven is managing director of the Money Portal