Why it pays to be a fee-based adviser

Jun 5, 2014 @ 12:00 am

Runtime: 4:03

A panel of industry experts discusses the potential benefits of advisers running fee-based businesses, and also point out what holds advisers back from making this switch.

Video Transcript

[MUSIC] Advisors should think about becoming fee-based advisors because it's a really great way to interact with clients. It puts them on the same side of the table, and I know that's been used a lot, but it really builds, it allows advisors to build a relationship with a client that It goes beyond just selling them a product. It really creates a relationship with that client where, that becomes an advice based relationship versus just a commission done on a one time sale. Advisors just think about it if works for their practice it's a great way for them to build a practice that allows them to focus on a limited number of clients instead of having to have a very large practice where they're just doing a one off commission type transaction. It also has some benefits in that it will create a book of business that will have added value as they go forward and build their practice. It tremendously helps increase their practice management efficiency. So I think it's a repeatable sustainable process that allows them to free up time to meet with more clients on an ongoing basis, which ultimately that's, that's what they do best. For a client perspective, I think it's, it's beneficial as well, in a sense that they're getting a, a process driven approach that starts all the way from the proposal and ends with the performance. It's something they see on a consistent basis. And I think it engages, them in very deep and solid discussions with their advisors about, not just, you know, what the quarterly performance report says, but more importantly are they on track to meet their financial goals and objectives. The primary driver for me in becoming a fee based advisor was the relationship I wanted to have with my clients. I wanted to position myself as their advisor on the same side of the table as them, and I felt being fee-based was the best way to accomplish that. The client reaction overwhelmingly was fantastic. I felt most clients were open to this type of arrangement, excited about it and they felt that it put everybody in the type of collaborative relationship that they had been looking for, maybe without even realizing it. There are a couple things that hold advisors back from making the transition to fees. I think earlier on in the business, and if you're earlier on in your career, it scares you to think that, you know, that recurring revenue, I'm gonna have to take a hit in years one and two and three to ultimately build up that practice to generate that ongoing revenue stream. Transitioning to fee based was difficult. I had to change firms to do it. The original firm I was with is not a fee-based firm, so that was a difficult transition. Additionally explaining the value proposition to the clients initially was complicated even though I understood it and understood it very well. I had difficulty in the beginning articulating that to clients. Once, once I got over that, things became very easy. Explaining this change can be difficult, but I think an advisor can make it easier. What they can do is they can sit down and be prepared. They can sit down and do some work behind the scenes, figure out their value proposition, figure out a script that their going to use with clients. Practice, practice on a couple of clients, maybe close friends, or associates, and get good at it and then sit down with your clients and explain to them why it is that you want to move to advice based relationship instead of a commissioned based relationship. This is where the next generation of investor expects to be the current client base all of those assets are going to flow down to the next generation who are currently in the 40s and 50s and fee based investing is what they expect is what they know. So my advice to them would be start focusing on the needs of that generation. And start understanding what, what those needs are, and how to best serve them, that is fee based. [MUSIC]


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