Achieving ‘buy in’ to the business transition process from members of the same firm can be one of the toughest hurdles to clear, says Cherry Reynard, but there are ways to smooth the path.
Financial adviser practices have traditionally been structured as a loose co-operative of like-minded advisers, with many little more than a group of individuals who share the same stationery and branding. Many were self-employed, reliant on their clients buying new products to generate income. For this reason, they have historically been unwilling to share clients within the practice or draw on outside expertise for fear they would lose their revenue stream.
The Retail Distribution Review (RDR) makes this remuneration structure a headache for practice managers. The FCA demands an established, practice-wide process behind all recommendations. The advice given to one client has to be the same as that given to another client with similar needs. One adviser acting as an independent unit can therefore become toxic to the firm.
But persuading advisers who have been either actually or effectively self-employed to shift to a salaried remuneration structure is no mean feat and has been among the most difficult of all the transition hurdles for practices to overcome. The elusive ‘buy in’ to a business’s transition process had been hard-won by those advisers who are already out the other side with a fully RDR-ready practice.
Most agree that the lead has to come from the top. A committed practice manager needs to work hard to generate support for reforms from individual advisers. Any change in remuneration structure for advisers needs to be handled with sensitivity, with the emphasis on what the adviser will be gaining rather than losing.
There is, after all, much to be gained from being part of a strong, healthy practice as opposed to an individual fiefdom. It should be more secure – the adviser does not constantly have to recruit new clients to boost his earnings. It should also result in better client service.
Furthermore, it means the adviser can draw on the expertise within the practice without any fear that he will lose his client to another adviser. It also solves the problem of succession. If there are two or three people working on one client, advisers can take a holiday without wondering whether their clients’ needs will be properly met.
The structure of the new remuneration packages will be vital in generating support for the new structure. Nothing is more likely to discourage ‘buy in’ than less cash in an adviser’s bank account at the end of the month.
A number of leading industry figures have called on practice managers to ensure that base salaries are sufficiently high to overcome the sales-focused mindset of many advisers. Most forward-thinking practice managers are now replacing commission with profit-share, so that advisers feel fully part of the new-look business.