Ann Dempster, Managing Director of Plum Software shows how technology can help advisers implement and evaluate the success of a fee-based charging structure for their clients and their business
With the RDR deadline rapidly approaching advisers need to be implementing a workable remuneration structure, which is both profitable for their business and can be clearly understood by their clients.
Within the new RDR world the word commission is being replaced by client agreed remuneration (CaR) with, as its name suggests, the source of payment to the adviser being agreed with the client before any advice can be given, whether that is a percentage of fund, premium (with or without reduction of benefit), deduction of units, client-paid fee, etc.
For those advisers who are not already 100% fee based, this can be quite daunting to begin with but mortgage advisers have collected fees for years and could not have survived without them. Indeed, clients expect to pay a fee for mortgage advice and they are told at the outset that the fee is part of the service. Everyone needs to be paid for their time and expertise but to be fee based, there must be a clear proposition for both adviser and clients to work within and value.
CaR is a change of mindset for client and adviser, however, once an agreement is established, not only will it help the client to understand the exact amount that they are paying for advice, and avoid any misunderstandings, it is also a means to monitor and assess the ongoing profitability of each client and it can be an extremely useful tool in helping an adviser business to be more profitable.
So how can technology help to effect a CaR-based process? The first step is to assess your client bank, dividing up all clients by profitability. This can be a valuable exercise in itself as often the clients an adviser likes can be the least profitable. A business decision may then have to be made as to whether a client should be moved into a different level of service – but this is all part of the process by which a business can be made more efficient and profitable.
Using the right software, you can break down new and existing business by client, time spent, premium, commission, fees, total funds under management, adviser/paraplanner/client relationship hours, type of work, location (eg home or office meetings) and any other factors considered to be relevant to assessing just how much time and resource is expended on each client against the revenue they produce.
Not every adviser firm will have recorded this level of detail to date, but to get sufficient depth of analysis, appropriate details should be kept if a business is to effectively monitor its levels of profitability. Software management information tools then can assess whether the level of service that you give each client is justified by the amount of remuneration that you earn offset against costs in serving that client.
Software is particularly useful in recording time spent on different types of tasks by different staff members. By allocating different charge rates for different tasks and levels of personnel it is possible to get an accurate assessment of the costs of business. Then a Costing Report can be presented to the client when explaining the remuneration structure or just kept in the background for internal assessment or to show the client if necessary.
Software can also help with FSA reporting, which now demands that businesses provide more analysis of the source and breakdown of remuneration, as part of the Gabriel report. This includes the type of advice and business, provider (e.g. platform) etc. Using software to link remuneration directly to the New Business Register and client and adviser details means each new addition to the Gabriel report should not involve significant amounts of work.
Software is an effective means to record and monitor the different payments received from different sources. This includes payments received from providers electronically, which can be automatically reconciled against expected amounts. With electronic valuations you can use your software to continually update expected fund-based renewal to check the accuracy of your receipts and for more accurate forecasting of remuneration. And by adding rules to the payments process, the software can calculate earned remuneration for each adviser and client.
But employing software around CaR is not just about remuneration, it is also about process and business efficiency. For example, by setting up different work-flows or tracks to deal with different types of client and associated business, each member of staff can more easily understand the processes and as such be more efficient in their daily tasks.
Whether your business is in the process of changing to a CaR or you are already there but want to make the processes more efficient, effective use of adviser-focused software can facilitate the progression and make your business more profitable in the process.