Ireland is awaiting the final ratification of European regulation on commissions currently paid by financial product providers to financial advisers for sales of pensions and saving products, explains John Corr.
EU regulation, which is expected to be passed by 2015, is proposing a ban on commissions to financial adviser’s advice, leading to the sale of a product.
This means that the only way a consumer can obtain financial advice in the future is if he or she is willing to pay the financial adviser for that advice. Similar commission bans have already been introduced in the Netherlands, Denmark, Finland and Australia.
The UK also implemented changes in 2013, outlawing the payment of commission by life companies to financial advisers for sales of investment and pension savings products. The customer and adviser now agree a fee between them for advice given, which is paid in cash by the customer or alternatively the customer can instruct the life insurer to deduct the agreed fee from his/her policy.
Friends First has been practically assisting financial advisers to prepare for these future changes, but believes that regardless of any new regulation on commissions, financial advisors should be committed to developing and improving their financial advisory business to meet the increased financial planning needs of Irish customers. For advisers this means developing the quality of their planning skills and service offering to clients to ensure they are meeting their long-term financial needs and that the client appreciates and values the services. In this scenario, clients will be happy to commit to rewarding their financial advisers regardless of how they are paid.
Commissions and fees
Friends First believes that financial advisers should be paid in a variety of ways including commissions and fees, but that payment should be spread over the term of the client engagement with payment consistent with the service being provided.
This service-orientated model also helps the adviser to develop ongoing recurring income rather than relying solely on upfront commissions from new product sales which can lead to advice and products not in the clients best interest.
Friends First has taken significant steps to assist financial advisers to transition to a service-orientated model based on providing long-term financial planning advice services to clients. We are also assisting advisers to help them transform their business to this model through an innovative educational programme called the Foresight Programme.
The Foresight Programme is a practical management and development programme designed specifically for financial advisers to provide them with the capability to complete a full or partial transformation of their business to a financial advisory model focused on developing a significant proportion of recurring income from advice and services to their long-term clients.
Advisers can be paid through commissions from product providers, fees paid by clients or charges generated by the level of assets being managed by the advisers.
The programme is specifically for directors of financial advisory businesses and life brokerages who have demonstrated a strong interest in completing a transformation of their business.
The objective of the programme is to provide participating advisers with the tools and processes to complete and implement a three-year transformation programme for their business.
By completing this process, advisers can attract and retain the right clients, achieve greater security over their income and develop enhanced and long-term value in their business.
Those brokers who complete the programme will receive a detailed blue print on how to change their business to one that will deliver what they and their clients want.
The programme comprises four separate modules focused on the critical parts of a financial advisers business including the process and tools for completing a long-term transformation process.
The four modules are:
• Building an effective business strategy and plan
• Producing an effective client proposition and segmentation strategy
• Developing a sustainable income model and value proposition
• Creating a robust client focused marketing plan.
Each module is delivered to financial advisers by Friends First and external experts in a highly participative manner at a one-day workshops at four locations around the country.
Advisers are tasked with completing preparatory work before each module and further work after each module which is designed to assist their own business transition.
The full programme is delivered over a six-month period enabling the participants to fully assimilate and implement the material from each module.
We have now just completed module 1 of the programme and are fast approaching module two.
The feedback from participating advisers to date has been very positive and encouraging and as SMEs they appreciate access to expert practitioners that they may otherwise not be able to finance. Friends First is benefiting by assisting the development of the third party distribution that it uses exclusively to promote its products.
By doing so, we believe we will develop a collaborative working relationships with these advisers which will improve the quality of business placed with us.
We are, however, mindful of not doing anything that in any way undermines the quality of the independent advice undertaken by the advisers, so participants are under no obligation to place business with Friends First just because they have availed of the Foresight Programme that we provide.
We believe that those financial advisers who transition to the new service-orientated advisory model, with or without the assistance of Friends First, will be those who are best meeting the financial planning needs of Irish clients and are prepared for any forthcoming changes to commission payments.
The Friends First Foresight Programme provides financial advisers with the roadmap to transition and transform their business. The outcome we believe is customers who will receive better financial advice which they will value, advisers who are providing a better more relevant service, which will develop stronger long-term income and value in their business and life companies that will provide better products for advisers and customers and who will be in a stronger position to retain their business for longer.
The benefits of foresight
1. Clarity: Through a three-year business plan, implement best practice in managing a small business to maximise commercial opportunities – confirming where the broker wants to take his business and why.
2. Competence: Tools, processes and techniques that are available to each participating broker to help them complete the change.
3. Confidence: Know that they are doing the right things and focusing on the correct priorities, maximising their time and resources.
4. Control: Make the decision to take better control of their business, what it’s about, where it’s going and how it’s going to get there.