At least in the Swedish financial press there is a very hot topic currently being discussed with regards to the kickback-based business models used by financial advisors.
Today’s newspaper holds an article written by Christoffer Folkebo, the CEO of Max Matthiessen, a well-known insurance advisory firm. The article focuses on developing a standardised way for presenting all fees surrounding fund investments in a transparent way for customers.
I have previously touched upon this topic through various articles including “3 steps for surviving as a financial service company in the 21st century”, Thoughts on commission less world in our LinkedIn Group, Richard Leeson also wrote a good blog post on the topic titled “A Commission Less World”.
If for example kickbacks for financial advisors are to be banned the industry has to find a new scalable way of doing business. Obviously a financial advisor has to receive some sort of compensation for their work and the most transparent way would be to just charge a fee upfront for their services. If an advisor would charge for their hours spent only the very rich could afford having this type of service which means that the advisors instead could move towards implementing some sort of subscription model.
The next question one has to ask is what is the end customer ready to pay for? My response would be:
- Getting an aggregated view of their financial life in one place
- Being able to automatically act on certain offers and advice online without having to go to a meeting
By categorising customers in certain ways it is possible to automate some of the ongoing advisory process and by doing this the advisor would be able to scale out their services without selling hours.
In summary, all these events and business model adaptations are a testament to the fact that IT-systems are getting an even more centralised role in all aspects of the financial services business.