“Why do I do it that way? Because that’s the way it’s always been done,” was the response I received from an IFA broker when I questioned why their business model is making the buyer pay their fees, despite them effectively representing the seller and shopping the deal across the market.
This inherent conflict of interest, which is assumed to be something you just accept, arises when it is unclear who the client is, and the broker is incentivised to make the buyer pay the maximum price, thereby maximising their fee.
This approach contrasts with established commercial practices in other industries, where the broker would be exclusively representing the ‘sell-side’ and be paid and incentivised accordingly.
In any case, the justification for this business model is unconvincing, and it got me thinking about other examples in our industry where things are done a certain way simply because it’s the way they have always been done, rather than because they make the most sense.
This matters, because, in an industry striving for positive client outcomes reinforced by Consumer Duty regulation, it is important to consider why we do what we do, not just how we do it.
This could be with respect to client communication, charging structures, utilisation of technology systems and almost any other business function.
Indeed, past practices shouldn’t always dictate future actions. Adaption and progress often requires a new approach and innovation often necessitates change. Accordingly, I want to look at why it’s important for advisers to take a step back and review their current practices, to ensure they are best prepared for the future.
Why are some teapots made with handles that burn your hand?
As Ben Elton once humorously pointed out regarding a poor customer experience, why are some teapots made with handles that burn your hand? Certainly, if you are in the business of producing teapots, having a safe and usable handle is one of the key attributes of a good product.
If we look at the advice sector along the same lines, we could question why some organisations still charge punitive client exit fees or have a business model that conflicts with servicing the client in their best interest.
Complacency, precedent and entrenched commercial interest are some reasons these issues persist – with teapots and in the advice industry – and why it requires determination and a large effort to change.
It is for this reason, particularly in financial services, it often requires new regulation such as the Consumer Duty to influence how the sector operates.
Indeed, the advice sector has experienced significant change and consolidation in recent years as a result of market forces and new regulation. However, despite all the change, like many industries, some participants have been slow to adapt.
Fee structures represent one example, with some legacy business models coming under scrutiny for incentivising behaviour where fees are maximised but clients may not receive the best outcome.
The consolidator model is another example that creates the potential for conflict, with clients and funds under management often being transferred from businesses that are acquired into proprietary products and platforms when this may not ultimately be in their best interest.
If you take a step back, however, and focus on the client experience and the desired outcome, which is widely acknowledged as a client-centric approach, there are many things individual firms can do to ensure they are aligned with clients.
Technology as an enabler
A starting point is to look at your proposition and approach with fresh eyes, considering the direction in which the market is heading and prioritising outcomes over traditional processes.
It is essential to have a technology suite that is fit for purpose and can cover your key business and advice requirements. For independent advisers, this should include an integrated client, advice, research, cashflow, suitability letter, client portal and reporting software suite.
It is then important to take responsibility and ensure you are competent with the systems and can maximise their use within your business and client process. Excuses such as “it’s too complicated” or “I’m not a technology person” need to be overcome with training and effort to realise the benefits.
These are the ‘table stakes’ for a modern firm, as embracing technology is imperative for staying relevant and competitive as the market transforms and consumers adapt, before looking at things such as automated meeting and calendar applications, voice transcription and AI tools.
It is also important for a modern firm to be active on social media to distinguish and promote their proposition, and to connect with current and prospective clients.
“To improve is to change; to be perfect is to change often,” said Winston Churchill. Yet, change or adaption is not always about having a crystal ball or executing a grand strategic plan.
Covid, for example, forced society to adapt and find new ways of communicating and working together via technology almost overnight. What is important is that the purpose behind our actions matter, and if you are focused on supporting positive client outcomes you will be well positioned to adapt and thrive into the future.
Angus MacNee is chief executive at ValidPath
