Saying goodbye to commissions

What advantages could you gain from a move away from risk commission?

This was the question I challenged myself with when the Trowbridge Report first brought the issues surrounding insurance commission to light. A pure advice model? Independent and conflict-free advice? The beginning of a professional services firm? All of these advantages and more stood out to me clearly, but none more than the cost savings I could provide to my clients. With a nil-commission model, I could focus on strategy and save my clients thousands of dollars over the long term. This was my primary motivation to redesign my advice model.

As this is a drastic shift from the conventional revenue model, an in-depth review of business practices is necessary. Here are three strategic activities that helped me transition away from risk commission.

Firstly, go back to Simon Sinek’s TED Talk classic and ask: 'Why?' Why do you provide advice to your clients and why do you want your clients to seek advice from you? This step is important in moving away from commissions because your value proposition needs to be crystal clear. If you can clearly demonstrate how you add value, you can charge for it. An exercise you can go through to build a strong value proposition is called ‘productisation of services’, which is a strategic activity that converts delivered services to a standard, fully tested package, supported and marketed with the character of a tangible object. Private health services are a good example of how productisation has evolved.

Once you are clear about why you provide advice, you will to need focus on how you provide that advice. We all understand the general financial planning process, but to price correctly you will need to map out every email, phone call and time spent delivering value to clients. Build a spreadsheet mapping out each productised service you will offer and the associated processes behind each service from the first contact to what you will do each year in review. For each step there needs to be a time frame recorded that is going to assist you in understanding what it costs to deliver your ‘why’.

The third strategic activity is understanding what it costs to deliver your productised services. Before you can price your services – and, essentially, determine your profit position – you need to cost your services, including each process that you identified in the previous step. Activity-based costing is an accounting exercise that is the attribution of your direct and indirect resource costs to front line service activities. The aim of this exercise is to determine your cost to service and support your clients on an hourly basis to, in turn, develop a pricing model based on the value that you add.

Like any good business strategy, once you have your value proposition and you have set your fees, you will need a marketing plan. This plan may only focus on educating your existing clients on why you want them to transition to the new service or it could involve a full review of your marketing channels. As I did myself, I would recommend seeking out specialist business advisers who are experienced in the areas discussed to assist you with both the financial and non-financial analysis of your business. 

A move completely away from commissions might not be appropriate for every practice. In any case, the strategic activities discussed will encourage you to think critically of your business and challenge the status quo. It will help you to make your business more competitive, profitable and help you to stand out to your target clients. Our own experience has been rewarding, with positive feedback and increased engagement from our clients. Moving away from risk commissions might seem daunting and remains a work in progress, but I believe it is the future of advice.

Dean Van Zyl is a director and principal adviser of Wealth Elements

This article originally featured in the March issue of ifa magazine