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System for fees

As the debate over CP121 hots up, I am pleased to see a more balanced and considered opinion being put forward by many IFAs. The res- ponses to my recent article have been varied, ranging from those who whole-heartedly believe that CP121 will have a positive impact on independent advice in this country to those who have condemned me for being smug over the fact that Baxter Fensham already operates in the manner suggested by CP121.

The overwhelming majority of responses, however, have been that while the proposals appear to be good for the public, IFAs are worried about the consequences for their own businesses.

There is a huge amount of fear and IFAs are daunted by how to make the transition to fees. It is not my intention to play down how difficult making the transition is but there are measures that can be taken to reduce the impact.

The key to making the transition from commission to fees is in preparation.

Last time, I concentrated on designing a service that is worth paying for. The principle behind this is that if your service is based on the need to sell commission-laden policies to get paid then it is unlikely that anyone will be prepared to pay you very much, if indeed anything, for it in future.

Advisers that rely on commission to pay for the time spent on a client&#39s affairs rely on two crucial elements. First, they rely on insurance companies continuing to provide commission-laden policies for them to sell. Second, they rely on the clients not finding out the extent to which cross-subsidisation results in getting such poor value for money.

This article addresses the more practical issues of office infrastructure and staff training. A robust back-office system provides the foundation on which to build your service. The system should record all activity by all members of staff on a client&#39s affairs and must be able to record the time spent on a client&#39s affairs by each member of staff.

This system will form the hub of your business and can be used to manage the changes in a client&#39s investment portfolio, print of reports on clients overall wealth position or inheritance tax position and some can even manage your invoicing process.

Once you have designed your service, you will know whether your existing system can adapt or whether it needs replacing altogether.

One company that we have been assisting felt its existing system was not up to scratch and was concerned about the cost and time of switching to a new one. When we sat down with them we discovered they had the same back-office system that we did. They just did not know how to use it.

One of the main reasons why this system must record all activity is for compliance. When you charge for your time and provide a more holistic advice pattern, a substantial amount of your recommend-ations will not result in a product being arranged. There must be an audit trail that can be followed to show how the client has been dealt with.

In the product-arranging world, compliance is often an afterthought tacked on at the end to justify a policy sale. This will not be enough in the fee-charging holistic planning world.

Compliance must be interwoven throughout the advice process, regardless of the outcome. The strange thing is that most IFAs find this less onerous than the old way, particularly the traditional network style of compliance.

Providing a fee-charging service to clients will also require the retraining of your existing staff. The first group to look at are the advisers, as these will be the work winners. Are they technically good enough to justify a client paying for their time or are they just good salespeople? Are their presentation skills sufficient to demonstrate their new role and why it is worth paying for?

Financial planning is too important and too emotive to be left in the hands of underqualified salespeople.

If a client is paying for a service they will demand value for money. They will not, for example, pay an advi-ser £100 an hour to order quotes for example.

This is where the role of client support or para planning is crucial. Bigger IFAs will be able to have a structure where the adviser has support to prepare properly for meetings, whether they are initial, strategy or review meetings.

Small IFAs or sole traders may find themselves playing both roles but should have a different charge-out rate for each. The admin staff will still be required to process applications, indeed, you may need more of them. One quirk that many IFAs we have assisted have found is that they now process more applications than they did before.

The successful fee-charging practice will see almost all work carried out on a client&#39s affairs by a member of staff – whether it is an adviser, client support or administrator – being billable. In the past, a lot of stress was felt by advisers trying to make their targets. Now all they have to do is facilitate work to be undertaken by a team of people on their clients.

Every adviser at Baxter Fensham generates more income working on fees than they ever did working on commission.

Whether to make the transition to fees and remain independent or to continue as you are and become an AFA is an issue that faces every IFA in the country today.

Bigger firms are likely to have the resources to make the transition on their own, albeit they may need some guidance.

It is the smaller firms and traditional network members that face the biggest challenge. They must get themselves in shape now or they will not make it.

A network-type framework will probably be of most value to them. Unfortunately, most of the current networks are not geared up to managing the transition.

Compare your own network benefits with those of the members of the Baxter Fensham Consultancy:

Assistance to design your service.

Up-front training of all staff, advisers and administration.

Interwoven compliance and training and competence.

Advice and assistance on office infrastructure.

Marketing assistance which is shortly to include a white-labelled website.

Biannual business review.

Ongoing service devel-opment.

Exit strategy with incre-ased value of business.

Be part of the future, not a relic of the past. Find out more about the benefits of being a fee-charging practice and then decide whether IFA or AFA is best for you.

If you have any questions or feedback, positive or negative, then please email me at


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