Veteran Middle East IFA and Mondial chairman Sean Kelleher transformed the business this year by introducing a new salary and bonus structure for its staff.
The recent revelation that the Insurance Authority in the United Arab Emirates is planning to ban full, upfront commission threatens dramatic changes to the business model of many local IFAs, but Kelleher says the regulator’s appetite for change has been clear for some time and that he is prepared.
Mondial, which operates from an unassuming office away from the glitz of Dubai’s main financial centre, now has more than $1.5bn (£1.2bn, €1.4bn) in assets under management and will soon rely fully on its income from institutional business and trail fees, says Kelleher. However, getting to this stage has taken years and was not without challenges.
Ready money
For those firms looking to make the move from scratch in 2017, Kelleher’s first piece of advice is to make sure you have some cash. “You need cash to pay salaries instead of upfront commissions. We are very thankful to those who have helped us finance the project,” he tells International Adviser.
Kelleher’s next tip is to be prepared for the UAE’s labour law requirements. “If you’re putting people on a salary, they must now have healthcare cover under the law. They must also have end-of-service benefits. The whole planning has got to become more like a proper business.
“You can’t expect to go out and sell, and if you earn X amount you pay 50% to the advisers and keep the rest. Those days are gone.”
Kelleher describes the new business structure at Mondial as one that pays a salary and a bonus for performance to its staff, with “less emphasis” on upfront commissions since these are hard to rule out entirely in the current market.
While sorting out staff remuneration is a big part of any move into the emerging IFA world in the Gulf, Kelleher points out there is also the not insignificant matter of transforming the business culture away from its previous format.
He says: “We told our people, charge what you want but with full transparency and the cost to client must be signed off by the client.”
Kelleher adds that full compliance support was also a key feature to support the upcoming changes. “Good negotiation skills are also totally necessary.”
So far, according to Kelleher, the transition is going well. A large part of this success is because the cost to clients has been reduced significantly.
“We are now into our second step in that we will drop all upfront charges on regular savings plans. Where that can’t be done because of certain tax-planning contracts, we ensure the non-indemnity option is included and rejected in the offering. Additionally, bond commissions will also be controlled downwards,” he says.
Aiming to please
And it’s not just about cost. Kelleher says client satisfaction is being driven by a mix of investment performance and adviser relationship management and service, not simply by product costs.
He notes that the new business model still requires the “hunter salesman”.
“Even the biggest brands in the industry want the hunter salesman in their team. The problem is: if my hunter salesman is charging Y% for his apples; and our competitors are charging two times Y% for the same apples, the playing field is tilted. Competition needs a level playing field.”
He adds he is confident the playing field will become more level and that is why he decided to make the transition to the recurrent income model.
“Commercially, we have been focusing on fee income from institutional business and trail fees for some time. The benefit is twofold: it is more valuable than equivalent commission income in terms of enterprise value; and more reliable than upfront commission.
