Can you hear the voice of change?

01 August 2007 Esm? Davies, Celestis

"We accept the verdict of the past until the need for change cries out loudly enough to force upon us a choice between the comforts of further inertia and the irksomeness of action." Judge Billings Learned Hand, in this statement, sums up a situation currently facing financial advisers.

The need for change is ringing out loudly and the proposed changes will have a material impact on your business, but it is not simply a matter of amendments to commission or early surrenders that will affect you. And it's not all bad news.

FAIS Ombud Charles Pillai has appealed to all of us to transform the financial advisory business from a cottage industry to a profession – on par with the legal or accounting fraternity where a prerequisite to practicing is many years of study and 'apprenticeship'. The spirit of much of the FAIS legislation and other regulations currently being considered is couched in this appeal. The authorities view the future of the industry as dependent on the development of a professional, client-orientated body of advice and service providers. We cannot argue with this approach.Consider how the changes to commission regulations could affect your practice.


The reduction of upfront commission in favour of as-and-when commissions indicates an intention to link adviser remuneration to ongoing client servicing. Read together with aspects of the FAIS Act, it implies that you are expected to earn future commission streams by ongoing service and client reviews, not the initial sale of a product. Does this differ from your current way of doing business and what do you need to change?

The proposed commission changes apply to contractual savings products but we foresee similar changes being applied to risk and other products down the line. It's not a simple matter of changing your product offering to avoid the implications or believing that you will not be affected because you focus on a different line of business.

Have you analysed your business to assess the extent to which these changes will affect you and have you factored the likely changes and future possibilities into your business plan?

Cash flow and costs

If a substantial element of your business mix includes contractual savings products, you will experience an impact on your cash flow when the changes are implemented. How will you make up the deficit? Can cutting costs solve the problem and, if so, which costs? Should productivity levels be improved and, if so, how? Are there measures that can be taken to enhance efficiency levels?

Fee based

Have you considered implementing a fee based advice service? Nigel Scott of the Wealth Corporation suggests that shifting to a fee-based model requires a fundamental change to the way you deal with your clients. Ask yourself what it is that you are offering and then what the fee should be. If you have a segmented client base and diversified services, you will need to establish a more complex fee structure and still adhere to the principles of value and delivery. And there is the need to implement a fee collection system and processes to handle this.

The time to make choices is now, but you need to do your homework thoroughly first. There is a golden opportunity to position your practice to prosper in the changing environment. Applying the principles of practice management will allow you to add on-going, sustainable value to your business. But take action now – before it becomes irksome.

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