Take lawyers, for example, who typically charge by the hour. They are keen to sell an ongoing service that provides repeated billing opportunities. Work is itemised to ensure hours charged for can be justified to cost-conscious clients.
In contrast, estate agents paid on commission focus the bulk of their attention on guarding the transaction and keeping parties aligned until the point of sale, but are rarely held in high-regard in the softer elements of customer service.
When and how businesses get paid influences how they market and deliver services.
Likewise, as regulatory change around adviser remuneration impacts the market for cross-border financial planning services, it will radically alter the adviser-client relationship, and change the conversation around investment risk.
In an environment where front-loaded commissions are the predominant mode of remuneration, attentions are inevitably focussed on the initial transaction. New business is king, with strong incentives to get clients invested, particularly when any clawback penalty on redemption is borne by the end client.
As business models shift away from front-loaded commission and move toward transparent ongoing remuneration, how will the investment advice conversations be impacted?
Provide clarity at the outset
To sustain successful ongoing client relationships, firms will want to focus greater attention on the path to the investment goal and ensure it is charted along a course which the client understands and is comfortable with.
It is crucial to calibrate expectations at outset and give clients a clear perspective on how their chosen . Forearmed is forewarned – clients that have well-informed expectations from the beginning are more likely to maintain their confidence in the advice, and hold their conviction in the long-term investment objective.
This will galvanise them with the resolve to stay in the market through the lifecycle of the investment, allowing them to realise their end goals and maintain the advised relationship.
Manage expectations over time
In addition to calibrating tolerances and expectations at outset, advisers also face the challenge of managing any misgivings that emerge over time.
This issue is exacerbated as the placid bull market of recent years gives-way to more volatile conditions. During spells when the client’s conviction may be tested, advisers will need to be able to offer re-assurance and comfort.
Solutions specifically designed to sit within defined risk parameters can offer some certainty over how investments are expected to respond to different market conditions. This can soothe concerns even when volatility tests the client’s resolve.
Risk-targeted solutions have flourished in jurisdictions such as the UK over the last decade by offering an antidote to this challenge. Offering clients a blend of long-term returns alongside the certainty of defined volatility bands, risk-targeting has succeeded in the face of intense investor caution following the financial crisis.
Evidence value added
Alongside equipping clients with realistic expectations and delivering solutions to match, it is crucial to evidence ongoing service.
Much like their peers in the legal profession, advisers receiving repeat fees or commissions will need to be proactive in evidencing work carried out for clients and demonstrating ongoing value add.
By demonstrably illustrating the provision of ongoing advisers can provide clients with the re-assurance they can see the ongoing service being delivered.
Firms that adapt to the new charging environment and focus on illustrating and evidencing ongoing service will find clients recognise the value added and are less likely to resist ongoing fees or commission.
Danny Knight is a director at Old Mutual Wealth Multi-Asset.
