I often field questions about which adviser fee model is the best: commissions, fee-based, AUM-based or a subscription. Financial compensation drives adviser behavior to a degree, and therefore some compensation models are better than others. But the assessment needs to go beyond compensation – it needs to focus on value.
Any compensation structure can be justified if you add value as an adviser. Nowadays, as consolidations continue and fee compression becomes a threat to status quo services, you need to be cognizant of the value you can add to a client’s situation. Here are nine ways you can add value to clients.
1. Financial planning
My research, based on this 2019 report published in the Journal of Financial Planning, determines that advisers who lead with planning are likely to have more satisfied clients than those who don’t. Financial planning isn’t a one-size-fits-all solution. I suggest you learn your clients’ goals and work on how to solve for them. Goal-based planning can be easier for clients to connect with, because they’re the driver of the planning process.
2. Consolidation
I don’t want to oversell this planning aspect, but consolidating assets and information has a lot of value. Clients are willing to pay to have all of their financial statements, investments, risk management tools and planning consolidated. This isn’t immediately valuable to your client, but more valuable for the client’s spouse and family if something happens to them.
3. Cost reduction
Look at ways you can reduce costs for your clients. Review current investments and products and see if you can cut investment costs, or help clients with budgeting or reducing spending. You can also reduce costs for clients by reviewing their employer plans and suggesting a change to a new plan provider.
4. Access to products
It might not seem as obvious, but access to products and services can add a lot of value to clients. This could be access to investment funds, insurance products or a financial planning calculator or tax planning service your firm offers. Despite an increasingly open world of investments and insurance, many people don’t think they have access to these products. As an adviser, you can provide awareness of these products and services.
5. Behavioral coaching
Many academics and thought leaders believe financial advisers are in the behavioral modification and service business. Vanguard’s research showed that under its Advisor Alpha model, advisers can add the most value through behavioral coaching. Work with your client to prevent them from doing the wrong thing at the wrong time.
6. Tax planning
You likely can’t increase your client’s returns by 15% or 20% a year, but a good tax plan can sometimes reduce taxes by 15% or 20%. Tax loss harvesting, charitable bunching strategies and Roth conversions are easy ways to add value. Taxes remain one of the largest expenses for clients. If you add some level of tax optimization to your investment strategy or tax planning to your practice, you start to distinguish your value from other advisers.
7. Investment allocation
Your investment allocation might not beat the market, but it can still add value to clients. For instance, young adults might have $100,000 in their 401(k), sitting entirely in money market accounts. You don’t have to beat the market to help these clients – educate them on the value of investing for the long run and the value of having equities in a long-term investment portfolio.
On the flip side, you might have a 65-year-old client who is about to retire and is 80% invested in one company stock. Asset allocation can be extremely valuable. It’s not about chasing yield or beating the market but getting an individual client into a better place.
8. Risk mitigation
I’m worried that the RIA world is starting to ignore risk mitigation and insurance planning. I often hear advisers who work at RIAs say they’re likely underutilizing insurance products. Compensation models and limited access to products prevent advisers from using them to a degree, but part of the issue is lack of focus. If you lead with planning, insurance fits in. Whole life, term life, long-term care insurance, disability insurance, umbrella policies, health insurance and other types of insurance planning can be the difference between success and failure for many financial plans.
9. Estate planning
Tying a client’s financial plan together by incorporating estate planning is so important. Estate planning is about protecting the client’s spouse and the next generation. If you help with all the other aspects, but don’t include an estate plan, everything could crumble in the event of an untimely death. In the future, we’re likely to see a more integrated approach by advisory firms, with estate planners on hand, delivering documents and using software to balance and track estate planning goals.
Regardless of how you’re compensated, you need to find ways to add value to your clients The focus should always be on value for cost. Start by leading with planning, and add value over time.
Jamie Hopkins is director of retirement research and vice president of private client services at Carson Group.
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