Let’s build a new profession for ourselves
Building assets and a regular income - what a meaningless business model
On January 1 2013 financial advice will, for the first time in its history, become professional.
The adviser will have to be paid by a fee. The amount paid must be agreed with the client – open and opaque. Commission, the evil of the industry for more than 100 years, will disappear.
How will financial advisers get paid? The majority of advisers adopt a very simple business model. They put the client’s assets on a platform and take a cut every month. It’s not very sophisticated, the adviser doesn’t need to offer value every month, and in fact most take the money and offer a yearly review - with a monthly newsletter by email or the odd phone call to keep the cash pouring in.
After a 100 years of commission all the industry has come up with is this – dump assets onto a platform, buy a portfolio construction tool, build a few portfolios and away you go. A hundred clients with £250,000 of assets at a 0.75 per cent fee brings in a yearly £187,500 of income for the adviser firm.
There are two main problems with this. First, at some point clients are going to cotton on that they’re not getting real value in return for fees. More importantly, it’s totally unfulfilling for the adviser. Find client, move to platform, dump into portfolio based on risk attitude. More akin to an ‘advice production line’.
Now is the opportunity to build a new profession, with value-led offers, resulting in real, tangible benefits for clients.
Richard Bishop is director and principal at Premier Practice