The sentiments might resonate with most advisers attracted to the so-called “new model” firms, only to find they are asked to peddle the same old tired transactional services, but under the label of wealth management.
The new wave of disenchantment is a sad but inevitable by-product of the shifting landscape in the retail advice sector as more firms hitch themselves to the bandwagon without looking at some fundamental issues.
Let me be clear about the new model argument. It is not about being better at the job than other firms or advisers, it is not about the fees versus commission argument and it is not part of a moral crusade to change the world. It is simply a different way of doing business and one that will only attract a certain profile of client and adviser.
This different way of doing business has certain characteristics and it is the nature of those characteristics that most businesses fail to adopt. It is only after a while that reality bites and disenchantment follows.
Let me offer some pointers to consider and some of the characteristics of the business and the advice that should provide at least a fighting chance of making the correct decision. Most advisory firms have an infrastructure to handle transactional solutions for clients. Typically, the packaged, off-the-shelf solutions from a product provider are sold, following research and chased through to completion with delivery of policy documents and receipt of commission as the end objective. Often, renewal commission is earned and an annual review of the fund performance is offered and changes made as required.
This sounds fine but think about where the relationships and responsibilities lie. How often, particularly with more complex circumstances, does an off-the-shelf product fit the bill? If it does not, and increasingly it will not, how could that policy-chasing infrastructure possibly support one of advice for its own sake?
More important, how can it be a sound business model to rely on a commission agreement with a provider to pay for a client service, the cost of which may bear no relationship with the levels of commission being received? What if initial commission suddenly ceases to exist? It has happened in other countries and will eventually happen here. The next pointer is this – engage with the client, not a provider.
Any serious advisory firm must have its primary relationship with the client, not a series of product providers. Every client has to have an engagement letter that specifies the service levels and remuneration structure. The client should always be aware that the service has to be paid for and that no advice can be given without that agreement.
If as a result of the work, commission is generated, then fine, it can be offset against the fee. If, and as I say this will become increasingly likely, none is generated, then the client needs to be clear they will have to pay. What a sensible business model – an adviser knowing that the clients he deals with will be profitable and not at the whim of a provider.
Such a service will not be appropriate for every client, so the next check is to a defined service and remuneration structure.
Any business has to have a structure. The key is that although not every client will fit, those that do will be profitable and will pay for the service infrastructure required to deliver on the promises made. The costs of that service should not be plucked from thin air but worked back from the costs of delivering the service. Not only is the profit of the business predictable but it is also eminently scaleable. Costs can be predicted and managed as the business grows.
An issue connected to the remuneration structure is the need for a clearly defined client story.
Any service business is only as good as the service it provides, but to attract the right clients, the story must be logical, straightforward and compelling.
Most successful wealth management businesses throughout the world have characteristics in common, as the elements that work for one tend to work for many. These are normally along the following lines:
- Adoption of asset-aggregation platforms, not because wrap is the answer but because it helps with the client solutions.
- Largely passive investment strategies, because out-performance is not the key, reaching defined planning objectives is.
- A robust financial planning process, driven around long-term, cash-flow modelling because without clarity of objectives there can be no clarity of purpose.
- And finally, a robust review service that is provided independently of the adviser – how many excellent advisers are also good at providing an excellent ongoing service?
Making promises is easy and endemic in our business. What is not endemic is having the systems, the processes and the intellectual capital to deliver on the promises. A few simple checks will get beneath the skin of the business.