Gary Weigh

This is sent in by one of my readers. It has got to be the quote of the year from a height-challenged senior manager called Peter. “I’m firm but fair … and I’m the only short man I know who doesn’t have short man syndrome.” Yeah right! It turns out that the little fella is super sensitive about his height.

He is a real charmer (smarmy smooth) but underneath little Pete is a serial office bully of the manipulative kind who relies on undermining, power abuse and status cues to bolster his flagging insecurity. It still doesn’t seem to make him any taller but it does make the office laugh harder behind his back!

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Being wrong can feel exactly the same as being right, because even in error, the blind assumption of righteousness underlies the assertion.  However, that feeling can change dramatically at the moment the error is realised.   Embarrassment, humiliation, shame are just some of the words to describe what follows that well known sinking feeling.  But it needn’t be that way because ‘error’ is one half of the age-old problem solving tool called ‘trial and error’.  Without recognition of error there are no further trials and no therefore no progression to a solution.  So this is the time where we should differentiate belief in the self from blind righteous belief.  A little humility and Ego detachment go a long way when it comes to assertions of right and wrong.   For the entrepreneur, nothing gets done without self belief, but blind righteous belief in an erroneous assertion could lead to a very costly business failure indeed.

The post The humble entrepreneur first appeared on Gary Weigh.

Gary Weigh

At our Australian business consultancy, there is no need to take enormous risk to get a good consistent return on your investment.  There are many options.  Investing your time and money into your own business which produces a profit is one way to earn a return on your investment. 

Another option is to head for a more passive investment where you are not so ‘hands-on’ involved.  For example you can invest in shares and earn a dividend.  The regular dividends would be the return on your investment. 

It all depends on how you perceive risk!  If the share market is too volatile for you, putting your money into term deposit (for example) is another more conservative way to earn a return on your investment.

So which way should you go?  This all depends on you.  Spreading your risk by not having all your eggs in one basket is a smart thing to do.  However, you should be careful not to spread yourself too far.  You should also stick with what you know or, if you don’t know …. Start learning!

You should seek professional guidance.  There is no substitute for knowledge and understanding.

For more reading from our business consultancy Australia archive visit http://garyweigh.com/what-exactly-is-financial-control.html

Until next time!

Gary

The post Diversify and lower your risk first appeared on Gary Weigh.

Hoorah!!  A moment of lucidity prevails.  The Assistant Treasurer and Minister for Financial Services and Superannuation, Bill Shorten has indicated that the Government may reconsider its original FoFA proposal to ban commissions on life insurance sold within superannuation.  This ban was originally due to come into force on 1 July 2013.

Shorten says he has been “listening very carefully, and while this is not a definitive statement finally, I am a little more persuaded of the case around risk insurance and the commission where there’s a bit of work actually gone into delivering a product to an individual”.

“I do not see the case for commission on insurance through default or group policies, but I’ve certainly been open and listening carefully to the propositions put around individually-advised risk products in super,” Shorten says.

Risk insurance has always required a lot of explaining in the right context as well as some persuasive argument on the part of an adviser.  These are not products that sell themselves or disappear off the shelves in a buying frenzy.  This is evidenced by the fact that the majority of the Australian population has no personal insurance and those who do are significantly underinsured.

Clients fall over themselves to sign up to wealth building products but it’s a different story when it comes to wealth protection.  Expect to hear the “she’ll be right mate” as a first response to a proposal for wealth protection in the form of risk insurance.  The average Aussie doesn’t hesitate to insure the beloved car but considers life insurance to be a waste of premiums.

This attitude prevails regardless of the form of remuneration.  Everyone dreams of building wealth but no one wants to consider their own premature mortality or morbidity.  The population is generally resistant to the concept of risk insurance.

Those who do sign up for life insurance in super often choose commissions to avoid writing a cheque.  It is not an issue of commission vs. fees.  It is the very practical matter of cash flow.

Clients would rather use money that they can’t touch for years than use their already stretched household budget.  To have commissions paid out of their super fund is one way to gain early access to their superannuation to pay a bill.  It is merely a bonus that there is a tax advantage as well.

If clients are forced to pay fees for their insurance, they are more likely to refuse or reduce an adviser’s risk insurance recommendation simply on the basis of affordability.  That is, no money available after the rising costs of the mortgage, home insurance, food, petrol, electricity, water and a plethora of other living expenses.

Furthermore, it is unlikely that clients will pay ongoing fees all the way through to claim time.  But if the adviser is not paid, he or she is unlikely to be there to help.  Whilst it can be argued that the commission remuneration model doesn’t reflect the true value of advice, it does ensure that the servicing adviser is there when needed at claim time.  The importance of this cannot be underestimated.  Only those who have suffered the tragedy of a death in the family or a life threatening health event can understand the immense value of a helpful and empathetic adviser.

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Call Gary direct on 0408 756 531 or email gary@garyweigh.com

The post The future of commissions on risk insurance in super first appeared on Gary Weigh.

Gary Weigh Managing Director

Business consultancy Australia

If you are a financial planner wondering what all the fuss is about with a change from commissions to fees, here’s what it will mean for you.

At present, you are receiving commission income from super and non-super investments that you wrote some time in the past.  Yes you do pride yourself on reviewing clients and providing a service, but will clients continue to buy it at your new fee-based price?

If you have been in the industry for some time you will have accumulated a lot of clients.  Some you already give a lot of service to and others you give little of no service.  To many, you are only there if they need you.

Under the FoFA proposals, from 1 July 2012 it has been indicated that you will retain your book of commission based business, but you will not be able to add to your commission income, except if you write risk insurance.  Therefore over time, your commission-based book of business form investments and super will gradually diminish. 

That will occur for many reasons – people die, divorce, retire or they may change their servicing adviser to someone who provides better fee-based value for money.  One way or another there will be some attrition.

Meanwhile you will build your post 1 July 2012 income base from client fees.  All products recommended to new clients and new products recommended to existing clients will be subject to the new remuneration rules.  That means you will either invoice a fee directly to the client or ask the client to authorise a deduction from their investment / super fund. 

The former will require and invoicing and debtors system.  The latter will invoke the opt-in provisions where the client must actively renew your deduction authorisation every two years and must receive a disclosure notice from you every other year.

Welcome to the world of administration and financial management!  As if you don’t have enough compliance and paperwork!

But there is more!!  If you have a lot of clients, you are unlikely to have sufficient hours in a day to provide a fee-based level of service to them all at a price that would match your current level of commission income.  Many clients simply will not pay what they are paying now.

On the one hand, you could provide a very low level of service at a low price to all of your clients or, on the other hand, you could provide a lot of service to your very best clients and do something else with the rest. 

So this brings you back to the core issues that strike at the very heart of your business.  They are, developing your new service package, costing it and pricing it appropriately.  And it may be more than one service package.

Commissions to fees will be no simple changeover.  That is why you need to stop and do some real business planning, sooner rather than later!!    

Your trusted financial services business consultancy  Australia 

Call Gary direct on 0408 756 531 or email gary@garyweigh.com

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Are you an adviser facing the Future of Financial Advice with uncertainty? 

Call Gary direct on 0408 756 531 for trusted advice.

Scaled advice means providing piece-by-piece simple advice rather than a complete financial plan.  It is advice about one area of a client’s needs, such as insurance, or about a limited range of issues. This contrasts to so-called “holistic advice” which is the traditional advice model offered by many financial advisers.

The Government’s move towards scaled advice will open up the financial advice market beyond financial planners to e.g. superannuation trustees and accountants.  It is still a matter of consultation how far superannuation trustee advice will be permitted to go.

The Government indicates that it will amend the existing ‘reasonable basis for advice’ obligation in the Corporations Act to make it clear that this obligation is commensurate and scalable to the client’s needs when providing advice.

This change heralds some new opportunities for financial planners.  A few of these include:

• The opportunity to present a fixed fee menu of simple services
• The chance to specialise in particular areas
• The opportunity for regular client contact
• The chance to network around a client’s family doing ‘simple’ or ‘specialist’ tasks
• The opportunity to focus on targeted clients with the ‘particular need’

Whilst the concept of limited advice is not new, the fact that the Government is codifying scaleable advice indicates the market need for more easily accessible and advice that addresses specic needs and is easier to understand. 

The challenge for advisers will be to set out the blueprint for the future and to manage the change from the current mode of operation.  It will involve some astute business planning; in particular, an overhaul of the product offering, and pricing the new services appropriately.

Your trusted financial services business consultancy  in Australia

Call Gary direct on 0408 756 531 or email gary@garyweigh.com

The post Scaled advice opportunities first appeared on Gary Weigh.

Call Gary direct on 0408 756 531 for trusted advice

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The FOFA remuneration reforms are designed to separate advice fees from product fees.  Financial planning clients will pay product providers for their products and will pay advisers for advice.  The controversial ‘conflicted remuneration’ (i.e. of upfront & trailing commissions) that has existed between product provider and adviser is to be eliminated.  The client, not the product provider, will be in the driver’s seat when it comes to remunerating advisers.

So in the absence of upfront and trailing commissions on investments and superannuation products from 1 July 2012 (and ‘insurance in super’ commissions from 1 July 2013), what will be the available pricing and payment options for advisers?

There will be no shortage of options but many advisers are going to have to adjust to a new system of remuneration.  Although the changes are likely to be prospective, many advisers currently reliant on commissions will have to re-think their value proposition.  Let’s look at the options:

Pricing options

• Hourly rate
• Flat fee per service provided
• Fixed annual fee (a retainer)
• Performance or outcome based fees
• Ongoing advice fees – (a) fixed or (b) asset based on un-geared investments only (renewable by ‘client opt-in’ every 2 years)

Payment Options

• ‘Once only’ paid up front or when work is complete
• Regular invoice (e.g. monthly or quarterly)
• Paid through adviser payment plan (e.g. Ezi Debit)
• Deducted from the client’s investment funds at the direction of the client

Payment Types

• Cash
• Cheque
• Direct credit to adviser bank account
• Direct debit (e.g. Ezi Debit)
• Pay Pal

Where a ‘licensee / authorised representative’ relationship exists, the licensee is the responsible entity and must be paid.  Some payments will come from product providers in the form of client- authorised deductions, but a significant portion will come from clients directly in the form of fees.  It is likely that all fees remittances will be paid or deposited directly in favour of the licensee (i.e. to their bank account or payment plan), who will in turn pay each adviser.

Your trusted financial services business consultancy Australia.

Call Gary direct on 0408 756 531 or email gary@garyweigh.com

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