How to incentivise and reward sales people has long been a contentious topic. Too many times I have seen businesses set up incentive programs that reward the wrong behaviours, which can affect team morale, client relationships, sales, staff retention, and so on.
For instance, I recently met the managing director of a medium-sized software business, who asked me why would his sales people keep selling one version of their product when they had been instructed to also sell in a newer, more comprehensive version of the product.
I asked him two questions:
1. “How do your sales people get incentivised for each product sale?”
2. “Do they earn most of their income from their commissions or from their base salary?”
It turned out that his sales people earned more commission by selling in the older version than the newer version of his product. And the sales people made the bulk of their income from their commissions rather than from their salaries.
There you have it. What makes perfect sense to the sales person – “If I make more money by selling in one type of product and the majority of my income comes from my commissions I would be stupid selling anything else” does not always work for the organisation or the customer.
Lesson: If you want a different outcome (as did the aforementioned MD), you need to think about what behaviours you want to drive and reward in your people, that don’t create competing motivations.
And herein lies the issue with certain aspects of the financial planning industry.
Much of what is being written about the financial planning industry in current and recent times is centering on the issue about competing motivations.
As I see it, there are two different models in operation in the financial planning industry:
Fee for Service model
Is where you engage an independent financial adviser to guide you and instruct you in your financial planning and wealth management strategies. These people are in the business of selling their consulting services and their advice. They earn their income purely off their hourly consulting time. Service fees are applicable to the level of service provided. Their focus is on advising on the three keys are of wealth management: creation, consolidation and distribution, with no products commission attached to their advice.
Product sales model
Is where you buy a specific product or suite of products to incorporate into your financial planning and wealth management strategies. In this instance you know you are buying a product via a transactional product sale. You can do this at a bank branch for instance. Some people who run their own self-managed super funds work this way by purchasing only product. Others may use a broker who sells a range of these products and can provide easy access to the right product you need. Brokers usually make their money by getting a commission on the sale of these products. Some brokers also make trail commissions for the lifetime of the sale which is where you are seeing an increase in complaints. This model is basically the old insurance sales model.
There is nothing wrong with these models, so long as they are open and transparent and do what they say they do.
Basically, people should know what they are getting, ie. independent advice for a specified fee or product for a specified fee/commission. For instance, there are customers who do not want to ‘pay fee for service’ and prefer the commission model, so these two models offer choice which is only fair in an open market.
However, the problems arising for the financial planning industry is when people using the ‘product sales model’ try to pass it off as the ‘independent financial adviser’ model. All this does is create competing motivations like:
• “Do I give my client what is best for them or best for me?”
• “I need to sell more product to supplement my retirement pool not necessarily my clients.”
The issue I see with this approach is that we are more likely to get products that make the most money for the broker or planner, not the best product or solution for us. We are at risk of becoming a vehicle for them to make as much money as possible at our expense, as is evidenced by some of the more spectacular business failures in recent times.
Financial planners who are really only selling product with a commission structure attached as their main source of income cannot act truly act in an independent advisory or consulting role.
The competing motivation that can arise is that they can become more concerned with how they get paid, rather than how they can provide better advice for their clients.
This poses some important questions for the industry:
• Why have these competing motivations being allowed to manifest?
• Is the industry trying to squeeze a product sales model into a consulting sales model?
• What is the industry doing about creating a client-centric model where it’s all about the client and the client’s outcome?
• What relationships have been created with the product suppliers that may be leading to these competing motivations?
In my opinion the terms ‘financial adviser’ or ‘financial planner’ have been poorly defined and often misused by the industry, potentially leading to misunderstandings, confusion, and in some cases, distress and financial loss for some customers because they did not get what they paid for.
In my opinion, those who sell product should be called a ‘financial product specialist’ or ‘financial products broker’.
And those who truly practice legitimate Fee for Service models can rightly call themselves a financial adviser or financial planner.
Clearly, this issue will not go away until the industry finds the best way to legitimately define financial advising or financial planning and stop creating opportunities for competing motivations, which only serve to devalue their industry and its potential for a truly professional model that works for all. More work to be done here.
Happy selling.
Sue Barrett is founder and managing director of BARRETT, a boutique consultancy firm. Sue is an experienced consultant, public speaker, coach and facilitator. Sue and her team are best known for their work in creating high performing people and teams. Key to their success is working with the whole person and integrating emotional intelligence, skill, knowledge, behaviour, process and strategy via effective training and coaching programs. Click here to find out more
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