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Financial Advisers
Friday, December 1, 2006
Decision time

If all goes according to plan, by the end of next year every intermediary in South Africa must have made a decision about whether he wants to be a fee-only adviser or a sales agent. This is the stark reality facing ‘brokers’ and ‘agents’ following the release of National Treasury’s Discussion Document on Contractual Savings in South Africa.

Essentially, financial advisers will have to make the choice between an advice model and the product distribution model. Those who choose the advice model can be called “independent financial advisers”, while those who choose the product distribution model will be known as sales agents, and they can be categorised as ether ‘tied agents’ or ‘independent brokers’, depending on their relationship with one or more product providers.
The key areas where change will be necessary are the following:
Decide on your value proposition. Most financial advisers or brokers have a hybrid business that is part advice and part product sale. By adopting the advice model, the adviser will have to think carefully about what type of service he or she is going to offer. Is he going to offer advice as the core value proposition, or will it be to facilitate access to products? The decision made in this regard must also take into account the target market of those services and the revenue model that will be used. Offering advice will mean charging a fee to the client, while the product sale model will involve commission payments from the product provider.
Review your client acquisition process. In a product distribution environment there is a sales process that focuses on product. Any needs analysis is designed to identify the need for a product. In an advice business, the objective is not the sale of a product but the dispensing and implementation of advice. How you ‘sell’ this proposition to a client is different from the way you sell a product.
Develop an advice process. If you are going to offer advice, you need to do this in a consistent and structured manner. You cannot afford to reinvent the wheel every time a new client walks through the door. The advice process must also allow you to dispense advice efficiently in respect of your meetings with clients and the production of the documentation required.
Consistently implement the advice. Advice on its own has limited value unless it is implemented in a manner that supports the achievement of the agreed goals. Product becomes the means through which part of the advice is implemented. Ideally, the dispensing of advice and its implementation should be a seamless process – the one part supporting the other.
Review client communication.  Research around the world has shown that client communication is critical to building a successful advice business. The content, the frequency, the look-and-feel and the method of delivery all need careful attention. The output must be communication that adds value to your clients, but also supports your value proposition.
Formalise client reviews. The client review process must be integrated with the advice process and must be delivered in a manner that supports the value proposition and must not be seen as an opportunity to sell another product.

These are but some of the issues that will need attention in the financial adviser’s business. In effect, choosing the advice model is likely to require a significant re-engineering of the adviser’s business. Rather than attempting this on their own, advisers should partner with a business that understand these issues and has experience in implementing them. By Robert Macdonald, Head: Xchange Solutions

Copyright © Insurance Times and Investments® Vol:19.6 1st December, 2006
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