The best way to motivate and reward salespeople has been a thorny issue. Many times, I’ve witnessed businesses create incentives that encourage undesirable behaviors that can impact the morale of the team, customer relationships, sales, retention, and more.
For instance, I had a conversation with the director of a mid-sized software company. I asked him why the sales team continued to sell the same version of their software even though they were directed to sell an updated, more extensive model of their product.
I asked him two questions:
1. “How do your salespeople be rewarded for each sale?”
2. “Do they get the majority of their money from commissions or their salary base?”
It was discovered that his salespeople made more commissions by selling older versions of his product than in the latest versions of his software. Salespeople also earned most of their money through commissions, not through their salaries.
Here’s the thing. What is clear to the salesperson – “If I earn more money selling the same type of product, and the bulk of my earnings come from commissions, then I’d be foolish to sell anything other than this.” Doesn’t always work for the company or the customer.
The lesson: If you are looking for an alternative outcome (as did the above MD), It is essential to consider what behaviors you wish to encourage and reward your team members who don’t cause different motives.
This is the problem with some regions of the Financial Planning industry. A lot of what’s being reported on this aspect of the Financial Planning industry in current and recent times revolves around the subject of competing motives. In my opinion, there are two types of models operating within the financial Planning industry:
Model of fee for service
It is when you employ an independent financial advisor to assist you and guide you on your financial strategy and strategies for managing wealth. These advisers are in the trade of selling consultancy services and recommendations. They earn their money solely from their hourly consulting time. The fees for services are based on the quality of service offered. The focus of their services is to advise on the three pillars of wealth management Consolidation, Creation, and Distribution. They do not have a product commission attached to their recommendations.
Product sales model
This is when you purchase an item or a set of products to integrate into your financial strategy and wealth management. In this case, you are aware that you’re purchasing the product through an exchange of goods. This is possible at a branch of your bank, for example. A few people who have their self-managed super funds operate using this method by buying products only. Some may choose to employ a broker that sells several of these products and gives you easy access to the effect that you require. Brokers typically earn their income through commissions on the selling of these products. Some brokers also offer trail commissions that last for the entire time of the sale. This is the reason you’re witnessing an increase in complaints. This is an old Insurance Sales model.
There’s no problem with these designs so long as they’re transparent and transparent, and they do precisely what they claim they will do.
In general, consumers should know what they’re getting, i.e., independent advice regarding a certain fee or with a particular fee/commission. For example, there are clients who are not willing to pay a fee for service and prefer the commission model. Therefore, these two options are just as reasonable in an open market.
But the problem in this Financial Planning industry is when those who use the ‘product sales model’ attempt to disguise it as an independent financial advisor model. The result is conflicting motivations, such as: “Do I give my client the best solution for them or is it best to me?” “I have to market additional products to add to my retirement savings, but not necessarily for my clients.”
My concern with this method is that we’re more likely to purchase products that generate the most money for the planner or broker, not the most effective solution or product for us. We risk becoming a tool to allow them to earn the most money they can without our help, as illustrated by some of the more dramatic company failures that have occurred in recent years.
Financial planners who are selling products with the commission structure as their primary source of income cannot really perform an independent advisory or advisory job. Another reason that may be triggered is that they could focus more on the ways they will be paid rather than how they could give better advice to their clients.
This raises some crucial issues for the industry to consider:
What are the reasons these competing motives have been allowed to be manifested?
In the field, are you trying to transform an existing model of sales for products into a sales model for consulting?
What are the current trends in the industry to create a client-centric model that is focused on the outcome for the client?
What kind of relationships has been formed with the suppliers of products which could be causing these different motives?
My opinion is that my opinion, the terms financial Adviser and Financial Planner are not well understood and are often misused by the industry, leading to confusion, misunderstandings, and even in some cases, financial losses and distress for some clients due to the fact that they didn’t get the services they were promised.
My opinion is that those selling products ought to be referred to as financial Product specialists or Financial products brokers. If they are practicing a genuine Fee for Service model can legitimately refer to themselves as Financial Adviser and Financial Planner.
