I do wonder if my generation of financial advisers are suffering from a scarcity mindset and whether that drives some negative behaviours.
Most of us entered financial services when it was an industry, rather than the profession that it is today. There are no end of horror stories out there. Even aside from those stories showing the worst historic abuses in financial services, the core model was to pay an adviser a low base and a percentage share of the revenue they generated.
The base salary was often not enough to live on, and the revenue measured was initial income from new clients. Targets were high and your figures as an adviser went back to zero every January 1st, with depressing regularity.
This model incentivised the search for new clients (or new products to sell to existing clients) rather than the servicing of existing clients. It drove adviser behaviour, and along the way traumatised many advisers. It self-selected a breed of adviser who was better at selling than advising and penalised those who wanted to do a good job for their existing clients.
Even as the model shifted more to ongoing revenue from clients, the old ways persisted in many of the larger firms. Advisers were split into two groups (Hunters and Farmers), descriptions that exist to this day. Hunters went out and found new clients and Farmers looked after existing clients. Often the Farmers looked after more recurring revenue and profit for the firm but were paid less as the role didn’t have the cachet of the ‘Hunter’ adviser role.
Sometimes a new client will find that they develop a good working relationship with a Hunter, only to then be passed straight onto a Farmer once they are signed up.
We would argue that no client in their right mind wants to be hunted or farmed and yet that is still what goes on in many advisory firms. Learnt behaviour, as we all know, is very hard to unlearn.
My generation has to carry some of the blame for this attitude persisting. Many of us grew up in a state of scarcity when we first started in the profession.
I am hugely encouraged that new entrants into our profession are well qualified and expect to do a professional job for a professional package. Sadly, I have heard some of my peers lament having to pay high salaries and pass on the new business prospects to these new advisers. The attitude is, ‘I had to struggle and so should they’, rather than ‘our profession has matured, and so should we’.
As our profession aligns itself more with other professional services such as accountants and moves to a more professional way of charging (don’t get me started on % fee charging), we need to recognise that whilst variable income is appropriate for an experienced partner, it isn’t for a junior adviser.
At Altor we have learnt this lesson, and our employed advisers earn a high basic salary, are provided with prospective clients to look after, do not have financial targets, and are not labelled.
It also helps that we charge each client the same flat, monthly fee and therefore every client receives the same service and no one client is pandered to vs another. A flat fee also means that the incentive is not to constant onboard new clients and pass old ones on.
We suspect that this is the future model of financial services. If you suspect that you have been hunted and are now being farmed, get in touch.
If you want to learn more about how the other ways in which the scarcity mindset can affect your adviser’s behaviour, then it is well worth a listen to the always excellent Kitces & Carl podcast, and particularly this episode dedicated to the subject.