People are resistant to change even if it means that change will put them in a better position. Change, however, is being forced upon the financial services profession with considerable speed and doing things the way we have always done them is no longer an option.
Let's face it, being an IFA is not easy. We have to deal with overwhelming changes in Government policy and regulation, increased compliance and costs, a demand on us for professional qualifications and CPD and we still need to make time to give our clients sound financial advice.
Now we have to do more and the Government expect us to earn less with the introduction of the 1 per cent stakeholder cap.
You do not have to be an economist to understand that increased costs and lower revenue will lead to your business failing.
So if we do not change the way we run our businesses, we will not prevent a decline in our revenue and eventual business failure.
The answer? Become a fee-based IFA. Not fee-only, unless you have a ready-made client bank willing to pay you enough to replace the lost commission. If you embrace the benefits of being fee-based, you will guarantee your future success.
Being fee-based means you get paid for the advice
and services you provide whether or not a client buys a commission-earning product.
Clients may pay you directly or you may use commission received to pay the fees due for the services provided. The important thing is that you get paid for everything you do.
No more frustration as a commission-only IFA when you have done everything right only to find that the client does not buy a commission product which will pay you for your efforts.
“But my clients won't pay fees!” you may say. If your '″client” will not agree that you should get paid for the work you do for them, then do you really want to deal with such people? Paying fees is not negotiable. If they want you to do work for them then you have to be paid either by them or by a commission payment – no exceptions.
As an IFA practice, we made the decision to operate as fee-based 18 months ago, having previously been commission-only.
It has been great for us. No more timewaster clients, business is more fun and we are more efficient, our income has increased and our future looks positive. It is a great feeling to know you get paid for all of your work and that clients value your service enough to pay for them.
How can you make a start of operating as a successful IFA in the new IFA area?
You should start by changing your terms of business to guarantee payment for your services. If clients sign your terms of business, then you will have a profitable relationship. If not, then your prospective client is telling you that he expects you to work for free. You do not need thousands of clients. Two good quality clients per IFA is sufficient.
We provide annual reviews for our clients so why not charge for these reviews? If you get your central heating boiler serviced you would expect to pay wouldn't you? As a business you need positive cashflow every month to grow it. Start to charge retainers for these reviews and for ongoing service – do not do reviews for free.
The most important change you must undertake is to stop giving advice for free. This is absolutely essential. By all means, offer a free initial meeting to discuss the prospective client's position in general terms but do not give specific advice. If the client wants specific, tailored advice, then they must agree to your terms of business and agree payment terms.
Keep timesheets to record the time spent on client's affairs. Timesheets can be used to demonstrate to clients the time you have spent on their financial planning and also which of your clients are the most (or least) profitable.
Get qualified. Clients expect a professional service and professional qualifications can reassure them that you know your stuff. Higher-qualified staff can justifiably charge higher fee rates.
If we all change the way we do business, everyone will benefit. You will have a more profitable practice, better quality clients and have more fun.
Clients will have a win-win relationship with their IFA and will not have to subsidise low-value unprofitable clients as each client will pay for the services used.
The insurance industry will, with your help, evolve into the financial services profession. IFAs can only prosper in such circumstances.
Carl Melvin is managing director of Millbrae Financial Services