When it comes to your service offer, over the next 12 months, there are three questions you need to be prepared to answer.
Your clients may never actually ask these questions. Doesn’t mean they’re not thinking about them.
Should the regulator want to know the answers, you’ll be glad you prepared ahead of time.
In truth though, being able to answer these is not just about protecting yourself, it’s about getting on the front foot with what’s coming.
The Hayne recommendation contained all sorts of viewpoints; many fair, many less so and many wholly inaccurate in most cases.
One that stood out was the stated belief – Hayne’s words presumably – that ongoing service arrangements were nothing more than a way of replicating trail commissions.
With the businesses I work with, this isn’t true. There’s a good reason why clients might want to work with an adviser ongoing, and it’s not that one.
Here are four of them:
- They don’t have the desire to manage it themselves.
- They don’t have the time to manage it themselves.
- They don’t know how to manage it themselves.
- They’ve previously managed it themselves and the results weren’t pretty.
The idea that once advice has been given then no further ongoing services are needed until the client decides so is flawed. I mean by that rationale, why bother with pilots?
The reason we have pilots is that planes are off course 80% of the time, and the danger of getting it wrong is too great to entrust to a non-specialist.
And whilst it may be possible to get your journey without any course corrections, the truth is it’s unlikely.
The more often these course corrections are made, the less likely the plane is to hit trouble that may delay arrival, result in unnecessary fuel being used or, god forbid, end with a landing in the ocean.
Instead, the pilot with the assistance of the onboard computer (to crunch the numbers) and the tower (to provide the right heading) ensures the route is fast, safe and stress-free.
You and I know this. We know that ongoing service is about more than just investment management. However, at this time of heightened awareness, it’s not about what we know or don’t know, and we should all expect questions.
The three questions that you need to be able to answer are as follows.
Question 1. What’s in the service offering?
This is really about being able to say clearly, “These are the services you’re going to get for the fee you’re paying”.
It’s basically FDS/ Opt-in with the fee for no service lens wrapped up. If you’re promising certain things, make sure you’re able to deliver them.
If there are elements of your offer you’ve pumped up to fill empty space, you may want to consider a new approach.
Question 2. Why are you recommending this ongoing service to me?
It’s no longer enough to say, “…because you’ve got $x FUM”.
Best interest is at play here, and it’s important to be able to explain why you’ve recommended the $5,000 retainer instead of charging a lower fee.
This is simply the reality of being able to point out the reasons behind the recommendation.
If you’re wondering how the clue is in 4 bullet points further up the page.
Question 3. How did you come up with the fee?
If you’ve done your pricing, this will be simple.
You simply whip out your fee model and demonstrate to the client the commercial model that underpins your recommendations.
A word of warning. This is a key area to get right now. Pricing is a key part of what I do with businesses on the program sooner or later because it matters. And I’ve worked with many profitable businesses who, when we got to it, realised that they were profitable by accident instead of by design.
You don’t want to be there 12 months from now.
I’m genuinely not trying to scare you. I’m not trying to push the idea that you need to change everything. Merely that these are interesting times.
With a 12 month renewal, a regulator whose ego has been bruised and clients having heightened awareness of what they’re getting, being able to show the link between fees paid and service delivered is vital.
Get on the front foot now. After all, if you’re confident, then that’s 50% of the equation dealt with, so you can focus on the rest.