A recent study found that only 46% out of 1000 UK residents surveyed would be prepared to pay fees for financial advice. Whilst we have always paid for the financial advice we have received, putting your hand in your pocket and paying fees upfront is a long way from the passive disregard many consumers have displayed to the withdrawal of fees as commission. You might even (as the anti Retail Distribution Review lobby will) go so far as to say that the impact of this might be that consumers will be more reluctant to access and purchase the financial services products that they require.
The survey also revealed that the sources that consumers tap into to access financial services products are wide and diverse – the internet, their bank, friends and family. It stated that consumers wish to be offered products from a range of institutions; that they wish the range of products to be uncomplicated and that they do not want to become involved in a choice that is too complex. None of this feedback seems to fit nicely with the definition of an independent model, under PS10/6, where IFAs will have to conduct a comprehensive and fair analysis of the wider range of retail investment products that goes beyond packaged products. It sounds more like a restricted advice model to me.
Another recent Oxera report found, however, that only 14% of the IFAs they surveyed were interested in changing status. It’s possible that due to the fact that restricted advice also requires a fee charging model and a level 4 qualification, they see no benefit in changing.
Given the sheer volume of information to take in about the Retail Distribution Review requirements ahead of making clear decisions about their business, the requirement to attain a level 4 qualification and the need to keep up the day job, it is likely that some IFAs will find it difficult to shape and transform their business models in time for the 2012 deadline.
Setting yourself up with the systems and processes that will support the evidence required for an independent model will require investment. Moving to a restricted advice model and successfully differentiating yourself from other IFAs will require investment. So, costs will rise and the only way to cover these increasing costs will be to generate revenue from each client for the advice they receive. A critical mass of customers will be required and a stronger, more regular relationship is likely to be what delivers the income stream IFAs will require post 2012. Work back from this and you start to see the work that will be involved in reviewing your client base, identifying which customers are likely to transition to a fee, analysing the average number of client interactions each year, calculating your costs and identifying your fee structure.
So, how will you encourage customers to pay for the advice they receive? Successful financial planners are inherently tuned into the process that consumers naturally follow when buying financial services products and our sales processes are built around this cycle. However, what they now have to become better at is creating an appropriate “brand” for their business that reflects their values, identifies how their service is different to that of their competitors and then selling their brand to the market.
Alison Young - 3rd June 2010