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I originally posted this article in Feb 2019 and it’s even more relevant now in October 2019, as the ban on Grandfathered commissions has just been legislated.

Whilst our original thinking was that you had until the 1st January 2021 to replace or transition this income to fees, the language coming from the government and the regulator is sounding more like this transition should be complete by January 2021… a different proposition to being suddenly switched off on that date. Many fund managers have already switched off grandfathered payments from various products and indeed, even if you weren’t receiving these payments directly, you’ll likely be impacted by rising licensee fees if your licensee was subsidising your fees with this income from product providers.

Naturally, the level of impact and the amount of work required to solve this issue will be different for every business, but I have a few suggestions that will help you, no matter how big your “number” is.

Before coming up with your action plan the first thing to do, if you haven’t already, is to quantify just how big the problem is for you. This will influence your decisions on what strategies to implement. In the very least, you’ll want to review your pricing model to determine the ‘right’ fees to charge in order to meet your profit goals (and I’d say – profit obligations), and you may also need to embark on what many of my clients refer to as ‘Project Granddaddy’.

There are in fact, three different sources of ongoing revenue that you want to identify, that will require your attention. Do whatever it takes to get under the hood of your remuneration statements and identify what you’re earning in the form of:

  • Grandfathered investment trail commissions on old investment products – split these between engaged clients who are receiving active service from you and passive ‘customers’ who are not engaged with you.
  • Grandfathered volume bonus payments from investment providers. (If you’re not receiving them directly, consider the impact if your licensee fees are subsidised by them).
  • Ongoing fees collected from clients who signed onto a fee arrangement prior to 2013.

Once you know how much income and how many clients you’re talking about, it’s far easier to decide which strategies to use to solve your grandfathered commission problem, and in which priority to use them.

Your easiest wins will come from your engaged clients.

You’ll be seeing them all at least once in the next twelve months, and you can swap the trails for an increase in the fees they’re paying, and sign an annual service agreement with them… problem solved well within your deadline.

For those clients who pay by a combination of fees and trails that haven’t been in for a thorough review in the past two years, you’ll need a compelling conversation to bring them back to the table, properly engage with the value of your services (and with their own finances), and sign a new service agreement on your new proposition to continue to receive the benefit of your advice and counsel. If you’ve been contemplating how to lift the value of your ongoing services, you might enjoy this article on the future of recurring revenue in your business.

There are a number of options for what to do with your disengaged customers. But first, start by reaching out to the ones who suit your new advice offering and re-engaging them.

It may take one in every four, or even one in ten, to engage on your current fee structure and replace that passive income.

Of course, if you’re not yet entirely happy with your value proposition, if you haven’t nailed down your pricing model, or if you don’t have the capacity to service more clients, you’ll probably have more work than just reaching out to people…

Whatever your situation, there is a way to create security in your future – but continuing your current “business as usual” is not the answer.

Now is the time to do the work and evolve the way you run your business.

Demand for great advice will certainly outstrip supply in the years ahead and there are fantastic opportunities for advisers who get on the front foot.

If you’d like some help to stay ahead of the curve and make sure your business is in an advantageous position for the coming years, reach out and chat with one of our Consultants. We can either assist you privately in your business, or if you prefer lower-cost support in a group environment, lock down one of the places in our February Business Evolution Blitz program as soon as you can!