A personal story that is not about advertising agency remuneration, but could be

I was reflecting on the recent conversations I have had in regards to media agency remuneration, both globally as a strategic partner of the WFA and locally with our strategic partnership with the AANA, and thought that there are many parallels with my experience with financial advisers.

My personal experience with financial advisers has not been a happy one, but I have explored remuneration models that include commissions, retainer fees and performance fees and I have to say while none are perfect, some have definitely worked better than others.

Negotiation remuneration models for professional services can be like negotiating a maze

In the mid 1980s as a medical research scientist, before the introduction of compulsory superannuation, I engaged the services of a financial adviser who immediately sold me a superannuation policy. Over the coming years he sold me another and another and another. There was no financial transaction with him directly as he explained that the Insurance Company paid him a commission on the policies, much like the media commission system. The more I spent the more he was paid.

Then the Government introduced the Superannuation Guarantee in 1992, my employer at the time,  encouraged me to roll my super into the company fund which I did. It was at this time that the company appointed Financial Adviser informed me that the previous adviser had effectively robbed me as each time I wanted to increase my super contributions he opened a new policy to increase his commission rather than simply increasing the existing policy which would have yielded a smaller return to him. The impact on me was less superannuation contributions.

I continued to contribute to the company fund and transferred this to successive employers with the understanding that a fixed fee was paid to the adviser each year for their work, much like the labour based fee. The relationship was mechanical with no more input from the financial adviser than was paid for and certainly produced an unspectacular result.

In 2000 I established my own business and the Financial Adviser that had managed my superannuation over the past 8 years suggested that he could take on a larger role based on a combination of fee and performance success based on returns each year.

The relationship quickly deepened and become more encompassing with the Financial Adviser providing advice beyond superannuation to include property, family and testamentary trusts with all of the associated complexity. This was a boom time and the results were excellent and the Financial Adviser reaped the rewards of this growth on top of the fee.

This continued, but there were concerns that the investment strategy was high yield but high risk. At the time advice that the boom would continue were soon to be proven false and in 2008 the correction proved that the eight year growth strategy was flawed.

So what are the lessons?

The commission system provided an incentive to the adviser / agency to look for ways to maximise their return even at the expense of my long term performance and provided no incentive for them to be proactive beyond selling me more products.

The head hour fee based retainer model provided a level of service and attention from the adviser / agency but there was no incentive for managing performance or requirements. It became a very pedestrian relationship driven by the transactional nature of the remuneration.

The performance based remuneration model provided a high performance relationship, the the adviser / agency with proactive advice and subsequent growth. The important lesson was that the success metrics must be considered carefully as the focus on annual performance only was executed with an unacceptable high risk.

But certainly where you are investing significant amounts, it is important to achieve alignment where possible between the buyer and supplier and not just treat the relationship as a simple transaction of services.

In media and investments this is especially important where the ultimate sellers of the media / investment products are able to provide incentives much greater than the fee you are comfortable paying for those adviser /  agency services.

What remuneration models have worked for you in any sort of business / commercial relationship and why? Let me know here by leaving a comment.

About Darren Woolley

Darren is considered a thought leader on all aspects of marketing management. A Problem Solver, Negotiator, Founder & Global CEO of TrinityP3 - Marketing Management Consultants, founding member of the Marketing FIRST Forum and Author. He is also a Past-Chair of the Australian Marketing Institute, Ex-Medical Scientist and Ex-Creative Director. And in his spare time he sleeps. Darren's Bio Here Email: darren@trinityp3.com

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