As a young broker consultant I was enrolled on a training course where the trainer mentioned a book written by Frank Bettger called, How I Raised Myself From Failure to Success at Selling. Provided your ego allowed for a major change in your approach, then this was a book that had the possibility of major impact.
I say if your ego allowed it as, currently, I see evidence of failure being paraded as success and far too many people being in denial. We can all improve and to reject change is to accept the inevitable slide into mediocrity.
My evidence for the above statement comes in the form of responses to recent research into adviser charging that does not align with the adviser charging data held by providers, where 3 per cent upfront plus 0.5 per cent trail continues its reign supreme.
When more than 50 per cent of pre-RDR revenue came from setting up investments on 3 per cent initial commission or more, moving to 1 per cent or in some cases zero will have a major impact on any business.
The recent research I refer to suggested that for sums of £100,000 or more invested many advisers significantly reduce the intial charge. This research had a small sample of less than 80 adviser firms but when I posed the same question to over 1,500 advisers in a recent road show 95-98 per cent were still using 3 per cent initial + 0.5 per cent trail.
Of greater concern was the number of those attending who saw no difference between commission and adviser charging. They admitted that this impression was also conveyed to clients. So is it any wonder why the FCA has disclosure issues post-RDR?
Please also keep in mind that as recently as two years ago we found, during some detailed research; that the most common level of investment handled by IFAs was £50,000 or less; so this reduction in initial charge could be best described as imagined and not real.
There is no doubt in my mind that adviser charging will not last. After all, it wrecks the tax-efficiency of investment bonds or Isas and it just cannot be used when deploying a discounted gift plan unless the reduction of the discount and the gift itself is not seen as important. Good luck with convincing compliance of that.
The fact that the common initial charge is six times the on-going is just not tenable nor is the 0.5 per cent trail enough in many cases to cover the cost of an annual review, especially if the investment is in capped drawdown where on-going suitability means significant costs post set up.
Where withdrawals are sought from an investment bond then a 0.5 per cent trail equates to a 10 per cent reduction in income that’s not an easy client observation to ignore.
We need to move to a modular charging structure if we are to professionalise the sector and grow our businesses in a safe but successful way.
People may well baulk at the costs when they are fully exposed but that simply provides the opportunity for discussion. We need to grasp the opportunity and ensure the entire sector has that honest discussion on costs be they restricted or independent.
Bettger always stressed that when put on the spot people would first provide a plausible reason and not the real reason for action/inaction. When pressed they would then reveal the real reason; he used the phrase “that was interesting now what was the real reason?”
The current situation is similar but more serious. If we are not honest with ourselves, then we cannot move forward.
Robert Reid is managing director of Syndaxi Chartered Financial Planning