by Tony Vidler
Many financial advisers have “grown up” in an environment where they were paid by commissions from product placement. That worked for pretty much all of the last century, and entire business models have been built around it, despite the obvious conflicts that presents to advisers.
Consumers and bureaucrats are pushing for the removal of conflicted advice globally, and a constant question on the lips of many advisers is
“How do I make a transition to providing advice on a pure fee basis from a commissioned-product-centric business model?”
There are a number of ways one can do it of course, but the easiest by far is to select an area which is a common concern for a majority of clients, and which is also fundamental to the entire financial advice process, and then add it in as a paid service.
The standout opportunity is providing comprehensive advice on Debt Management. It is real issue, for the majority of households in the majority of developed nations.
Consider the trends for increasing debt-to-income ratio’s:
Debt servicing is (or will become) a serious issue for many clients, and the average (private) debt has been increasing significantly in general terms.
Student loans or higher education costs, personal mortgages, investment property, consumer finance for household goods….they are all on the rise in nearly every developed nation. From my own experience over the years I have not found a single client who was not willing to have a conversation about how to save money and time on their debt.
During one of those conversations a client asked if I could prepare a plan just to manage and monitor their debt, as they were quite focused on owning their home freehold as rapidly as possible. At the time we were in a relatively low interest rate environment, but a high rate environment was not too distant a memory. Their motivation was mostly driven by their fear that if the bad old days of double-digit interest rates came back they would not be able to service the mortgage.
“Sure thing…I will have to build a spreadsheet to model the “what if’s” to work out the best options now, and in the event of changes to rates, and that will take a few hours. Then I can put it into a plan for you….I’m afraid I’ll have to charge for the time to do it”
It really was that simple. To the clients the cost was insignificant in relation to the amount they could save. The work I was doing for them showed them how valuable planning to accelerate debt repayment was, and the ongoing process of reviewing and monitoring the debt management plan introduced the coaching element which is so critical to delivering valued advice.
Given the generally increasing debt to income ratio’s and absolute rise of overall debt levels in most households, there is no doubt in my mind that for those still wondering how to introduce a “fee for expertise” element into their practice the answer lies in providing a Debt Management Planning service to clients. It can still be the breakthrough move for those wrestling with how to adapt the old remuneration models to the new world of valued expertise being paid for directly be the client.
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