Death by a thousand cuts (Part 1)
The world is constantly changing and Financial Service is not immune.
Within the offshore financial services market place, the significant changes seem to be – as usual – around regulation, and particularly the cost of advice.
The main influencer of course is national governments, who are joining forces (to some extent anyway) to ensure that financial advice is regulated. Advice to expats still often slips through the net of local regulators though. The second influencers, (who are also being pressured by governments) are product providers – and this is where the direct impact comes from, as they control many of the popular products used.
We’ve seen the same process in any number of countries before with the following changes, step by step over time, in how financial advice is provided:
1. Products are devised, and sold to consumers. The adviser is paid a commission.
2. Products are devised, and sold to consumers. The adviser is paid a commission and has to declare the amount to the customer.
3. Products are devised, and sold to consumers. The adviser is paid a commission, has to advise the amount to the customer & get their agreement.
4. Product is sold, and the commission amount payable to the adviser is capped.
5. Pressure is applied to reduce initial commission in favor of ongoing & servicing commission.
6. A fee option or fixed cost option has to be offered as an alternative to commission.
7. Financial advice becomes fee based.
Some steps may be missed out, but the end result is that clients control the payment method & amounts to be paid, rather than the adviser or product provider. The major change we’ve seen in the UK is that the transition away from initial commission as a means of payment, means that a lot of financial advisers & firms go out of business. Those advisers that remain, and manage the change, have a golden future. So the question is “how do financial advice professionals manage the change from initial commission”?
In part 2 we will examine this further.