How will you justify your trail in future?

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The time is fast approaching when it will be mandatory to display your commission levels on your website. It’s quite unclear at this stage how most firms will approach this, due to the bewildering number of options available in the market. But display them, you will have to.

Are you likely to get lots of questions about them? My expectation is probably not… but you might get some. The most likely area that you will be asked about is the level of ongoing trail that you charge, as this will apply to clients each year. While you should always be in a position to do this anyway, you now need to be able to justify your trail commission clearly and simply to your clients. So how might you do this?

Well in my book, sending out a 10-page report with a template economic summary and a schedule of current investment and pension values simply won’t cut it on its own. After all, where is the value that you add here? Clients will rightly expect more for the trail commission that is being deducted from their hard-earned funds.

There are also a few “hygiene factors” that clients simply expect these days – these will help you to justify the lowest levels of trail commission, but in reality, no more than that. These include the offer to clients of a review meeting once per year, and regular communications (usually in the form of a client newsletter) that from a distance helps them make better financial decisions and educates them in personal finance matters. Oh, and offering nice coffee to clients too – trust me, it helps!

But if you want to be able to comfortably justify higher levels of trail commission, you need to go a lot further. Yes, clients will want an update on their policies and regular communications etc., but they will expect more if they are paying more. Trail is much easier justified if the client feels and recognises that you are delivering a truly personal experience to them. What might this include?

 

  • Revisit life goals: This is all about the client. Have their circumstances changed and/or have their hopes, dreams and ambitions for the future changed? Are you and the client still looking in the same direction, focused on the same goals and destination to achieve?
  • Revisit cost of goals: How do their changed ambitions and goals affect the plan, if at all? Do they need to spend more, or less? Do they need to save more, or less? Can they retire earlier or is their wealth transfer plan affected? It is so important that you review the impacts of all changes to goals within your client’s future cashflow plan.
  • Demonstrate how their plan is still the right plan: You can give the client comfort that previous decisions still hold true, or they need to be tweaked to reflect changes in the client’s life or in relation to their future ambitions. As you know, doing nothing is very often the optimal strategy.
  • Review choices and assumptions made: Things change, outside of the lives of your client and outside of your control, whether it be in the economy, the personal finance market or the taxation environment etc. Sometimes action is needed, often it is not. Review and restate the choices and assumptions made.
  • Shut out the noise: Deal with your client’s concerns about what they read in the weekend papers or heard in the news that morning. Gently (but firmly) remind them of the long-term planning approach that you have taken together and the folly of them reacting to the news. Remind them of the dangers of attempting market timing, thinking short term and changing their investments based on fads or using the rear-view mirror.
  • Be a leader: This will follow from all of the above. If your client sees you as their voice of reason and valued guiding hand, they will seek out your advice at every turn in relation to their personal finances. And they will recognise that this is a highly valuable service and worth paying for.

 

Do all of these well and you will have no issues in justifying your trail commission. You won’t be looking to hide your commission levels away somewhere on your website, instead you will want to discuss them with your clients, proudly taking the opportunity to demonstrate to them the incredible value you deliver each year.