Whenever I speak to IFAs about what it will be like to enter the new post-commission world after 2012, they either exude great confidence about the prospect or they tell me it will never work.
The key stumbling block is one of persuading clients who, in almost any other circumstance, would have no objection whatsoever to paying a fee for someone’s services that they should do so for an IFA’s advice.
Part of the problem is that, in some instances at least, clients have become so used to the idea of advice being “free” that they are unable to accept it is not.
In other cases, even though they understand full well there is a charge for the advice they receive, they prefer the cosy fiction of not having to pay for it up front, relying instead on the adviser receiving payment by means of commission.
For some IFAs, persuading clients that a fee-paying relationship is the only game in town feels a bit like trying to talk a heroin addict into giving up smack – moreover, using cold turkey rather than gradually easing the process through over time.
It all depends on your ability to explain the new scenario to clients in a way they will understand and appreciate.
Here, I am somewhat surprised by the way some advisers – including many who in recent weeks have lectured me that they are perfectly happy to consider themselves as salespeople and that “selling” is simply the art of persuading people to do what is necessary for them – are unable to “sell” the idea of fees to their clients.
In some cases, their attempt to tell a would-be client why charging a fee is necessary comes over as so devoid of persuasive qualities that even I would want to walk away from that adviser.
A perfect example of such an experience was given by fellow Money Marketing columnist Alan Lakey the other day. Writing in MM, he told of two clients who came to see him to discuss the potential investment of a £110,00 lump sum for longer-term retirement purposes.
By the way, lest anyone believes that I have a problem with Alan as an adviser, think again. I have relied on his insights for articles I have written in the consumer press and his knowledge in many financial matters is unsurpassed.
Yet, in this instance, his “selling skills” somehow deserted him and the two clients walked away once they realised they would be liable to a £750 fee for his advice, a fee that would almost certainly have been mostly or completely offset by the rebated commission from the investments they made. They chose instead to go to Nationwide Building Society for their investment products.
Alan’s conclusion is simple: “The problem was neither trust nor lack of confidence that I could provide the solution, it was the fee. These clients, like the majority of consumers, had not previously paid or even discussed payment of a fee. Despite working for a solicitor and understanding the fee structure, Mrs B did not feel comfortable with the idea. Of course, it might be that it was because she worked for a solicitor that she did not feel comfortable.”
Now, I was not there and perhaps these two people were so opposed to a fee-based remuneration option that they remained totally oblivious to one of the greatest selling performances Alan has ever laid on in his professional life but I cannot help wondering if that really was the case.
Could it also be that, because he did not believe in it himself, Alan’s subliminal message was the opposite of what he was attempting to convey? Might it have been the case that there were other aspects of the meeting that they were unpersuaded by? Might they have been won over by a different approach?
My own experience of talking to people my own age and with some knowledge of advisers is that none has a problem with fees as opposed to commission. Where they will, however, draw a deep breath is over the requirement that they hand over several hundred or sometimes thousands of pounds in cash in one go, especially as they have never had to do so before. The other problem is they often do not have that amount of cash handy and see commission as a means of amortising their payments to the adviser.
I am sure these are both major issues that need addressing but I suspect plenty of other IFAs have found ways round them and there are many who have added their own helpful comments to Alan’s piece.
Ironically, as someone also pointed out, after 2012, it will be far more difficult for a Nationwide salesperson to pretend there is no fee attached to their advice.
By then, perhaps Alan and his supporters will have improved their selling skills – the ones they often tell me are so important when dealing with their clients. We can but hope.
Nic Cicutti can be contacted via firstname.lastname@example.org