Are advisers really compensated to act in their client's best interest or are they in conflict with the best interest of the client's? Do we really incent the behavior that we seek? If Boomers are seeking competent and trusted advisers that will act according to their best interest, are we giving them the proof that we can do that?
Much as been written about the vast amount of wealth that has begun to transfer from one generation to another over the next 15 years. It has been estimated that approximately $14 trillion in assets involving over 70 million households will begin to migrate over the next decade and beyond.
Never before have so many households needed competent, trusted advisors to help them navigate their wealth into the future. Whether it's their intent to pass the assets along to their heirs or to their favorite charity or foundation, they need the guidance of a competent and trusted advisor. Never before has financial planning been so desperately needed by so many.
But, as an industry, are we prepared to meet the needs of the largest group of consumers ever amassed in our country's history? Are compensation plans aligned with the best interest of the client, across the board? Can advisers truly act in the best interest of their client's and still be successful? Are the plans in conflict with the company's desired outcome? Aren't most plans still designed around the amount of commission and fees an adviser generates? Don't we tell advisers to develop long term relationships with their clients, to think in terms of households and cross selling opportunities, yet, we based their compensation on the amount of revenue generated?
Yes, investment advisory accounts and the assets in those accounts are increasing in popularity, but by all estimates the total percentage of accounts in advisory accounts has just recently crossed into double digit territory. Why isn't the "win/win" scenario of the advisory account gaining more traction? Following the money trail might reveal the answer-look at compensation plans.
What
if...Advisers were paid to gather assets and to develop relationships? What if advisers were paid an annual trail based on the anniversary of the assets being held-the longer the client retains the assets with the adviser, the higher the payout. Wouldn't that encourage the nurturing of long term relationships? Wouldn't that encourage transactions that are in the client's best interest, without regard for the generation of fees? Here's a big one- what if all investment products (packaged or not, insurance based or not) paid the same revenue stream? Or what if the product cost and its risk profile were correlated for revenue? What would the product mix of most advisers look like? Isn't it time for our compensation measurements to be changed and updated? Aren't we still paying for business the old way and expecting advisers to find business the new way? Just look at the number of lawsuits surrounding the "overtime pay" issue and you will realize that we have to look at our business differently. Those lawsuits seem to be gaining ground and changing the landscape. Change is hard, but it's good, too! There are 70 million households with over $14 trillion in assets looking for an answer. We should deliver it.
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About the Author
William F. Cole, CFP™, is a 20 year veteran of the financial services industry and a sales coach and business development consultant for financial advisors and sales managers. Find out how you can become a Sales Accelerator at http:///www.completefinancialadvisor.com
