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The Business of Giving Advice

The statement from the FSA on legacy commission gives clarity at high level but in the detail there is potential confusion.

Legacy commission is one of the main determinants of business value so its preservation or transition to adviser-charging is important. For many firms, the issue is not about clinging to commission but about managing short-term liquidity and increasing the long-term sale price of the business.

Firms should concentrate on how this affects their relationships with key clients. These will be the source of future growth and much of the concern on adviser-charging is based on sustaining these relationships. It is highly likely these clients will need to be reviewed in the 12 months following the deadline, so planning and preparation is essential.

As soon as advice is given to these clients, adviser-charging is on the agenda. The aim is to ensure they value your service, understand the way you are paid is changing and agree to a continuation of those payments. This is the point at which you protect your income – or not.

Firms should be practical and organised in their approach. The pressure is more significant for small firms because client banks may not be diversified, meaning key clients are even more dominant. These must be identified and the value of their annual revenue confirmed. What is at risk and what must be preserved will be clear, along with a list of priority clients who must be moved to adviser-charging as smoothly as possible. This saves the time of a full client-profiling exercise.

Opinion is divided about how to deal with this group. Many advocate a plan that educates clients ahead of their adviser-charging meeting, whereas others want to avoid disturbing clients on an issue that is best discussed face to face. Advisers should think about how clients will react and decide on an approach. The education plan can involve bespoke letters, newsletters or similar methods with the emphasis on service, expertise, and accessibility.

Avoid precise prices until the face-toface meeting, where the strengths of the adviser and business will reinforce service value and benefits. It is important to remember, for most clients, this change will be a surprise and a reminder that advice services have to be paid for. They will not be interested in the regulatory background but will want to know what they are going to get, how much it will cost and if their payments will rise.

Whichever approach is adopted make it top priority and prepare to answer those questions thoroughly. In terms of business income and value, this is a critical change and it must be managed perfectly.

David Shelton is the author of The Business of Advice book and website www.businessofadvice.co.uk

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