For some advisers, switching to a fee-based model requires a true leap of faith. For others, it's just another step in the growth of a business.
For Chuck Furr, president of Furr & Associates Financial Inc, the transition was a natural progression as his firm got larger. “Our business was transactional, but as it matured we were serving more wealthy clients," he recalls. "We felt we could give better service if we moved from a transactional to a fee-based fiduciary model,” said Mr. Furr.
He added that the move "allowed us to stop worrying about going out and making new sales.”
Craig Phillips, managing partner of Client 1st Advisors Inc, had a similar experience. “We wanted to move up-market in the early 2000s. Once we decided to go that direction we stopped offering transactional relationships.”
Mr. Phillips also instituted a $1 million minimum for clients in 2004. He said the abrupt transition was more of an issue for smaller clients, who were ultimately moved to other advisers. In fact, he said many new clients he landed actually appreciated the explicit declaration of what the firm would do and what it wouldn't do. The shift was also aided by the firm's shift to a separately managed account — and ultimately — unified management account platform.
“If we hadn't changed investment solutions with the transition," said Mr. Phillips, "it probably would have been a lot harder."
Financial advisers not comfortable with the “my way or the highway” approach, should start the discussion with their best clients, suggested Mr. Furr. “We segmented our clients based on who we felt was most loyal and who we had the best relationships with,” he said. “If you say 'we believe we have a better process for you,' they'll listen."
He added that clients always worry about being hemmed in. The solution? "We told them if you want out you can fire us."
For clients who did push back against the idea, he considered whether he felt he could convince them through education. He also considered whether they were clients worth keeping. “Certain personality types will question everything. They want control all the time and I don't want that client. I don't think they are good clients for any adviser,” said Mr. Furr. “We gave them some time, but eventually you have to pull the trigger.”
A big part of successfully making the transition is believing in yourself, said David Kashtan, a managing director with PNC Investments. Mr. Kashtan works in the financial planning department of the bank's investment program, and coaches advisers on how to make the transition to a fee-based model.
Part of that coaching: a “belief audit” that asks advisers questions about why they are making the change and how they expect to do it. “We tell our advisers to set expectations for their clients and then execute on them,” said Mr. Kashtan. “In a transactional business, you don't do that. We encourage them to build a service model.”