I have a great deal of sympathy with any ind ustry on the re ceiving end of organised pro test or consumer badgering. Whe ther you work in phar ma ceuti cals, oil, tobacco, biotechno logy or even agri cult ure, you will have been the target of banner waving, har assment and newspaper headlines.
Yet not one of these industries has really been changed by the protests. That privilege has been reserved for financial services which, for some reason, has had to endure death by a thousand cuts.
No strikes, no street mar ches, no Sun front-page headlines – just a gradual shift in perception and sentiment. Yes, I know we are all up to our necks in reviews of pensions, free-standing AVCs and endowments but the man in the street is hardly watching for the outcome with any real interest, is he?
As I write, we are threatened with the arrival of stakeholder pensions and the dwind ling commission pay able on them. As an industry, we came close to securing a 1.5 per cent maximum charge but then two companies broke ranks and gave the Government the crack of light it needed.
The two companies concerned (it would be ungentlemanly to name them here) have thus guaranteed the legislation will force every adv iser to rethink all parts of their business from time costing to cash flow.
Let us examine the public per ception to see what our cha nces are of getting the pub lic to sympathise with the adviser. It goes something like this. Mr Client needs some help choosing a pension so he agrees to a meeting with Gavin of ABC Life who spends 45 minutes admiring his wallpaper and children, scribbles a few notes and then disappears into the night £4,000 richer for his efforts.
Two years later, the fund is worth £4.60 and Gavin is on a beach in Mar bella while poor Mr Client is facing penury.
Along comes New Labour with a white steed, a long lance and a stakeholder pension. First, it runs Gavin through with the lance, then it leaps to Mr Client's assistance with a really cheap pension that solves all the problems. Two years later, the fund is worth thousands, the victim is saved, the villain is vanquished and the hero rides off into a second term in office.
We all know the reality is somewhat different. Perhaps Gavin did exist once in our tainted past before training and competence or supervision but these days he is selling double glazing or kit chens. And that is precisely my point.
The next few years will bring huge rewards for this business if the demographics are any indication. A massive increase in demand will be accompanied by a reduction in supply, with the gap being filled by direct providers and e-commerce.
Yet these provi ders will only attract and sell to people who are already mot ivated to take action – about one in five at an estimate. The vast majority will want advice. Here is what they perceive they want.
One night, while watching digital TV, Mr Client sees an advert for a stakeholder pension. Using the remote control, he sends an email and the next day is called on his WAP phone by Andrew, an independent adviser who is not swayed by anything or anybody and has dedicated his life to selflessness and the good of others.
Andrew sorts out everything, even the interest on his savings account, his credit cards and how to budget for bills. He also presents Mr Cli ent with a detailed breakdown of all the work done and how much he charges for each task.
He explains that no fee is payable because Mr Client is entitled to all this advice under the terms and conditions of his stakeholder policy. They smile, shake hands and Mr Client goes back to watching Ally McBeal as Andrew walks off to his next case.
Now, commercial reality forbids that ever happening but it is what the stakeholder market is being groomed to expect. The challenge for adv isers is to meet Mr Client's expectations while educating him on the reality that good service and good advice do not come cheap or by right.
I do not feel that charging fees makes you suddenly a professional who is unbiased. I have met many adv isers who are planning to charge £150 an hour for investment advice without understanding the basics of unit trust pricing or the tax breaks for a venture capital trust.
Hardly confidence inspiring for Mr Client.
Nor is commission necessarily bad. I know of very few advisers who willingly avoid the right product just to get more commission – otherwise the top-paying with-profits bonds would be cleaning up.
Standard Life has cracked the stakeholder code. Its new accelerator package is exactly what the industry needs. It is linked to good performance – and most clients are happy for you to do well if they are doing well. It also addresses short-term cashflow concerns for IFAs while ensuring a good focus on retention of business.
Most of all, it starts to really quantify the value of an ongoing client to a business. I think this is the future.
Do not kid yourself that just because you charge fees you are better than a commission-only guy. The future is about adding value as an alternative to the “stack em high and sell 'em cheap” brigade that are all over the internet like a loud shirt.
My recommendation comes in three parts:
Get qualified. Study and really know your subject. Add value with your superior know ledge. Then you really will be different.
Start presenting clients with a time-costed justification for your remuneration, whether by fees or commission. A statement will help cement trust. If possible, set a standard commission, such as only ever taking a flat 3 per cent on singlepremium business whe ther it be an investment trust, unit trust, bond or bank account.
Start to plan ahead for a practice growing organically through level commission and fund-based payments. Work on better persistency, more reviews and steady incremental business.
Next time you walk up the drive and start admiring the wallpaper and the children, ask yourself
am I Gavin or Andrew?
STEVE BUTTERCASE Regional director, Maddison Monetary Management