It is time for a reality check. Why do people go into business? Why did you become an IFA? We all have the same reason – to make money for yourself an your family.
If you are in business for yourself, why would you take the commercial risks if not to offer the prospect of achieving greater rewards? Any business exists to generate profits – that is the first rule of commerce. If you think differently then you are either so wealthy that your business is a plaything or you are not facing reality.
We are not in business to advise clients. The advice is the vehicle which facilitates the true purpose of the business – to make profit. If we are not profitable then we will fail.
Why, then, have pension providers decided to spend millions on promoting a pension plan that they know cannot make a profit for more than 10 years? And have these companies discussed this proposition with their shareholders?
The decision to market stakeholder plans is all about gaining market share and not about being profitable. But not everyone can win as there is only so much market share available. There will be a number of spectacular losers in the years ahead.
Chasing volume is a dangerous game – far better to chase profit. The problem with going for volume is that you have costs which reduce the available profit. In the case of stakeholder, the costs will exceed the revenue and result in losses. How clever is that? Far better to take these costs and improve on why you have to offer a higher value alternative, do you not think?
Stakeholder will be a spectacular flop. Of course, the Government will change whatever needs to be changed to try to ensure a result but they have overlooked the obvious – people do not buy pensions, they have to be sold them.
Think about it – if people bought pensions, invested appropriate amounts , had sufficient life assurance, critical illness and income protection, etc, then financial advisers would have no place in financial planning. The reality is that people do not have enough invested in pension, savings are poor and life and health assurance cover inadequate.
The Government has decided cost is the overriding consideration and there is no place for advice in the pension planning process – at least no place for paid advice. It expects that we will not only give client advice on stakeholder pension but actually do so at a loss.
The high and mighty are happy to roll out the old chestnut that the financial services profession has been ripping off clients for years, flogging high commission products with no regard to the client's position.
Any business relationship should be based on a win-win principle so both parties benefit. The IFA sector is populated by hard working, decent people who try to do the best for their clients and make a profit at the same.
We are being forced to become unprofitable because if we sell pensions other than stakeholder we shall be deemed to be doing so just for the commission – and therefore for our own selfish reasons.
There is a solution to this dilemma – either do not give pension advice or if you do make sure it is profitable. For many small IFAs, pension business is a valuable source of income, so how can we make this business profitable?
Discuss with your clients the commercial reality of the stakeholder position in terms of your inability to give advice on unprofitable business.
If they value your advice and planning skills they will want a win-win position – if not, show them the door. Reach an agreement that you must both win from the business you transact – reasonable people want you to benefit as well themselves. Discuss with the client whether they wish to pay fees only or to consider using a non-stakeholder commission paying plan to meet the costs of your advice.
If they prefer to use a stakeholder plan and pay fees, get them to sign an agreement for the fees payable for your advice, implementation of the plan and agree a retainer payment for ongoing advice.
Better still, get paid in advance to prevent a client taking your advice and transacting the business direct.
Everything has a price. You get nothing for nothing is this life. The public says it wants organic food but will not pay a little more for it, it wants improved public services but would shun any rise in taxes – and such is the case with professional services.
Over 100 years ago John Ruskin was right when he commented on the reality of business balance and the fact that you cannot get the best of anything at the lowest price.
As far as the price chasers are concerned – other distribution channels can have them.