It has been a long-standing topic of contention how to motivate and reward salespeople. Too often, I’ve seen businesses create incentive programs that reward bad behavior, which can have adverse effects on team morale, client relations, staff retention, etc.
I met the manager of a medium-sized software company recently, and he asked me why his salespeople kept selling the same version of their product when they were instructed to sell a complete version.
I asked him two questions:
1. “How can your salespeople be incentivized for every product sale?”
2. “Do they make most of their income from commissions or their base salary?”
His salespeople made more commission selling the older version of his product than the newer. Salespeople also made more money from commissions than their salaries.
It’s there. It makes complete sense to the salesperson: “If I make more money selling one type of product, and the majority of my income comes through my commissions, I would be stupid selling any other product.” It does not always work out for the customer or the company.
Lesson: You can create different motivations by focusing on the behaviors you want to encourage and reward your employees.
Herein lies the problem with some aspects of the Financial Planning Industry. A lot of the current and recent writings about the Financial Planning industry revolve around competing motivations. Two models are in use in the Financial Planning Industry, in my view.
Service model fee
This is where you can hire an independent financial advisor to help you with your wealth management and financial planning. These individuals are in the business to sell their services and their advice. Their hourly consulting hours are what they earn. The level of service rendered is subject to applicable fees. They focus on advising on three critical areas of wealth management: Consolidation, Creation, and Distribution. There is no commission for their advice.
Product sales model
This is where you purchase a product or a set of products that you intend to use in your wealth management and financial planning strategies. This is when you purchase a product through a transactional sale. This can be done at a bank branch, for example. This is how some people manage their super funds. They purchase only the product. Some people may turn to a broker who can help them find the right product for them. The commission they receive on these sales is how brokers make their money. Trail commissions can also be paid by brokers for the lifetime of the sale. This is where complaints tend to increase. This is the same model as the old Insurance Sales model.
These models are exemplary as long as they are transparent and open-minded and actually do the things they claim.
People should be aware of what they are buying. Independent advice for a specific fee or product for an agreed fee/commission. Customers may prefer to pay a commission model over the fee model, so there is a choice.
The problem for the Financial Planning industry comes when people who use the product sales model try to pass it off by calling themselves, independent financial advisors. This creates competing motivations such as: “Do I give my clients what is best for them, or what is best for me?” “I need more product to supplement my retirement fund, not necessarily my clients.”
This approach has a problem. We are more likely not to get the best products or solutions for us, but the best for them. As evidenced by recent business failures, we are in danger of being used as a means for them to make the most money at our expense.
A financial planner who is only selling products and has a commission structure attached to their income can’t really act as an independent advisor or consultant. They may become more interested in how much they could make than how they can help their clients.
This raises important questions for the industry.
Warum, have these competing motivations been allowed?
Is it possible to convert a product-based sales model into a consulting model in the industry?
How can the industry create a client-centric model that is all about the client and their outcome?
Which relationships have you established with product suppliers to help you overcome these competing motivations?
I believe the terms Financial Adviser and Financial Planner are poorly defined. This can lead to confusion and even financial loss for customers.
I believe that those who sell products should be called Financial Product Specialists or Financial Products Brokers. Accurate Fee-for-Service models are legitimate and can be called a Financial Advisor or Financial Planner.