Better Business: The A-Team

In another extract from their new book 'How to Survive and Thrive in the New World of Retail Financial Services', Nick and Martin Bamford tackle staffing and recruitment issues.

The historic intermediary model has always been based around the adviser client relationship.

This is a people business and it will always remain so as the role of trusted adviser is an important one and much valued by the consumer. However, things are changing and the adviser client relationship is now so potentially intense that it requires support and that support will come from a team based approach.

The future successful intermediary firm of independent advisers will be team based with each team member bringing to bear their skills, experience, relevant qualifications and knowledge to produce the best possible results for the client. It will become (if it is not already) increasingly more difficult for one person to deliver the complete package. In any event the individualistic approach is fraught with risk.

Let us compare the current model against our description of the future team based approach.

ADVERSARIAL

The current adviser/administrator model can best be described as 'adversarial'. It is full of potential conflict and thus risk orientated.

What typically happens is that the adviser takes the lead and a substantive role in delivery of advice. The adviser 'acquires' the client through whatever marketing approach they are most comfortable with. They then build rapport with that client and introduce them to their services. Very often this is not a firm based presentation but whatever the adviser feels is most appropriate. The presentation may therefore not be aligned with the firm's world view.

This lack of alignment is quite usual where the adviser is self employed. Once this alignment is broken it is very hard to get it back on track. The potential for brand damage is enormous.

The adviser carries out the 'know your customer' exercise, client identification for money laundering regulation purposes and establishing the client needs and wants. He then carries out research (sometimes with the assistance of the administrator) in respect of existing client arrangements and also starts to prepare advice and product solutions.

The adviser then revisits the client and presents the identified solutions. Illustrations and key features documents are presented as are product brochures fund fact sheets etc. Application forms and trust forms are completed and then the whole package is presented back to the centre (in the context of this description, administrator can also be taken to include compliance and management) typically with a suitability letter justifying the recommendations.

Here is where the conflict and risk arises. Not only will the administrator point out that the adviser has incorrectly completed the application form but the compliance and management team may also dispute the validity of the advice. A very good example of this is available in respect of the FSA Thematic Review on Pension Switching. The case study used by the FSA is a classic example of this in action a justification of the advice given after the event.

CONSENSUS

Consider an alternative approach. In the team model approach advice is never delivered to the client unless and until it has been agreed by the team. The roles of each team player reflect the particular stage of the client relationship.

The client has been 'acquired' as a result of a consistent firm driven approach to marketing. The brand values are determined at the centre of the organisation and material and messages used and presented to the client are entirely aligned. This of course can only be done once the client proposition has been agreed by all involved in the delivery process.

Everyone in the firm regardless of job title should understand and embrace the client proposition and understand the value it delivers. Whilst it will usually be the adviser who delivers the client proposition and checks for suitability to the prospective clients needs, it is only the first step in the advisory process.

The approach to know your customer can best be facilitated by the client providing the objective data (usually by asking them to complete a financial questionnaire ahead of the first no cost, no obligation meeting) so that the adviser can concentrate on more subjective issues the needs and wants, goals and objectives and further rapport building.

The next stage of engaging with the prospective client for advice services can be done at the centre with the adviser and support team members determining the scope of services, the fee to be charged and the content of the engagement letter to be issued to the client.

If the client decides to proceed then research, analysis, formulation of planning and advice and product solution recommendations can be done at the centre again with the adviser and support team all committed to the creation of the best possible advice. We have found the use of 'case conference' a very successful tool for this where all involved have their say in advice process.

Producing advice in the form of a written report not only forms the agenda for the client advice meeting but acts as a permanent record of how the advice was constructed. What is most important is that the advice that is presented to the client, and not necessarily by the adviser who held the first 'discovery' meeting, is by consensus. No more arguing after the event as to whether or not the adviser delivered suitable advice. This team based approach also drives out risk to the firm.

CHALLENGES

A number of challenges arise as a result of this team based approach not least the difficulty of recruiting suitable team members. We have certainly found that there are some very good advisers out there who we could never employ.

They are highly experienced, highly qualified and highly productive but would struggle to align themselves with the systems and processes necessary to achieve the output described above. We reckon there are at least four key attributes needed;

• A team player needs to be 'emotionally secure'; they need to have their ego under control;
• They need to be service orientated with a desire to deliver the best client experience at all times;
• They need to be creative because it's always possible to do things better. However, change needs to be managed so if someone in our firm wants to change a process they need to bring it to our best practice meeting at the beginning of the month.
• They need to be highly teachable because someone who says 'the way we used to do it', or 'the way we have always done it' is missing the point big time.

A further challenge will be the way revenue is distributed in the firm. The team model requires that everyone is highly productive but also that the adviser accepts the distribution of value in the system.

Key added value here is the development of relationships with more than one individual. In the event of holidays and sickness clients know other team members are available. In more extreme situations (death or retirement) the client also sees that continuity of service is possible.

Credit where it is due to Phil Billingham of Perception who described the model of Adviser/Administrator and the newer model of Finder/Minder/Support which we embraced and developed within out own business.

REMUNERATION

How the different parts of the team are paid for what they do is always a difficult subject. Traditionally it was the case that the value sat with the adviser. They were the individual who acquired the client and convinced them to buy a product which generated commission. It was only fair that they should receive the lion's share of the revenue.

But things change and our thinking on this needs to evolve. In the new world of retail financial services, the value is more evenly distributed throughout the team. Remuneration structures need to reflect this.

Looking at the Finder/Minder/Support model described in this chapter, you might conclude that the remuneration should be evenly spread between the three, with the adviser receiving two-thirds of the revenue if they were fulfilling both the Finder and Minder role.

In practice, the value should be weighted towards the Minder and Support roles. It is the provision of ongoing service and advice which is valued in the new world, rather than the initial acquisition of a client or the quick sale of old.

A better remuneration structure for this new model might be around 20% going to the Finder, with the balance evenly split between the Minder and Support functions. If the adviser acts as both Finder and Minder, they are still receiving the higher percentage of the revenue from a client relationship, but this new balance more accurately reflects who is actually doing the work and adding the value.

We have moved on considerably over the last decade. The cost of being an authorised business and providing the skilled infrastructure needed to support a productive team of advisers is many times larger than it was in the past.

The advisory role can still be financially attractive, particularly if the adviser properly utilises the Support team and then spends more of their time acquiring target clients and providing the type of excellent ongoing service which will lead to profitable referrals.