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Service industry

The Business of Advice book and website looks at how to manage and grow advice businesses. In his third article, author David Shelton discusses choosing the right service framework for your business

David Shelton
David Shelton Head of IFA consultancy service Scottish Widows

The introduction of adviser charging means that firms have to be clear about their service proposition so they can substantiate their charges. This has been part of TCF for several years and will become a permanent feature of the market. Selling service is very different from selling product.

There are some practical problems related to this, particularly if the client bank does not lend itself to a standard three-tier service structure. In addition, it is not unusual for advisers in the same business to deal differently with similar types of client, which can create tensions. It is accepted that the detail of advice, implementation and ongoing service may vary but it can be hard to defend why clients are charged on a different basis. There is no doubt that this makes a business vulnerable to TCF investigation and will create a problem if the two clients should meet and discuss their differing experiences.

Principals of businesses where this occurs must ask themselves the question: “Can I defend this variation in practice to regulators, clients or myself ?” There are often reasons why this happens, which could be linked to the amount of work undertaken but might be influenced by the adviser’s pattern of income.

This is not necessarily about criticising advisers who concentrate on initial commission because in many cases this is often used as the “down payment” for service to be delivered in the following years. The issue is that the market is moving away from initial commissions, the regulator does not favour them and there is a clear need to link ongoing service closely with ongoing payments. So, if this is the reality for your
business, you will need to achieve a degree of conformity.

As a principal, your aim should be to ensure that all your advisers operate to the same standards and they adopt a uniform approach to dealing with clients. You can achieve this by implementing:

  • A standard fact-finding form to ensure everyone collects the full range of data required to manage the client relationship and ensure the business provides comprehensive and compliant advice
  • Clear processes and disciplines in the back office to ensure all the relevant data is keyed into the back-office software
  • A standard letter or “service agreement” that explains what service the client will receive and how they will be charged
  • Guidelines on charging. Under the current commission model, this may be ranges of commission or it might be a clear statement of maximum levels or mixes between initial and recurring
  • Minimum service standards such that all active clients are reviewed at least annually with the type of contact at the adviser’s discretion
  • A process for producing the review lists on a regular (monthly) basis and system for monitoring the action taken by the advisers.

Finally, you will require a formal sign-off process for any circumstances that fall outside the frameworks. As always, there will be exceptions which should never exceed 5-10 per cent of cases.

An overview of the key parts of the process are summarised in the above diagram.

The two key sets of guidelines feed into the service agreement. In practice, you may want to combine this with the client agreement or convert the latter. The important point is to make sure that there is clarity about what you will give the clients and how much they will pay for it.

Clearly, this process is less prescriptive than the three-tier model and the advisers will have greater control over the level of service they offer as long as it exceeds the minimum standards. That is why you must use a standard service and pricing agreement so that individual clients know exactly what they will receive.

For mature advisers with many long-term client relationships, this approach is very attractive because it means they can continue to manage their clients through their own individual style, subject to minimum good practice criteria. Provided that this is correctly monitored and T&C processes are effective, this should give sufficient consistency and also achieve buy-in from all advisers. A strong selling point is that this reduces risk both for the business and the advisers.

There is an obvious concern with less mature advisers who may commit the business to service delivery that cannot be achieved. Clearly, careful training and monitoring is required to avoid this.

All advisers must recognise that autonomy implies responsibility and that they must adhere to the standards and guidelines. A less prescriptive approach is often favoured and it is absolutely right for principals to expect that it is implemented responsibly and consistently.

The Business of Advice will take you through all the steps necessary to decide which service framework is right for your business and show you how to set it up.


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