3 Steps to Moving Your Book to Fee-Based

SEI’s practice management guru says articulating your value, listing services and sensitively framing your pitch is the tried and true way to convert your book

John Anderson of SEI has a three-step approach to winning over skeptical clients John Anderson of SEI has a three-step approach to winning over skeptical clients

Practice management blogger John Anderson has been in the business since the early ’90s, when converting to a fee-based book of business was the hot trend, and yet advisors are still seeking his guidance on how to do this.

“I can’t believe that 20 years later I’m still having this conversation,” laments Anderson, an SEI Advisor Network managing director who writes a popular blog on practice management solutions.

But, citing data that the average advisor’s book of business remains stuck at just 31% fee-based, Anderson tells ThinkAdvisor in a phone interview that most advisors are doing fee-based business; it’s just that their books are divided between new clients who pay quarterly fees and older clients who remain commission-based.

For that reason, Anderson says advisors no longer need convincing that transitioning to fee-based business is worthwhile.

For one thing, fee-based business aligns advisor-client interests, whereas commissions raise suspicions that the products an advisor sells may not, objectively, be optimal for the client. And in a world in which regulators are increasingly scrutinizing advisor compensation, a fee-based model raises fewer red flags.

Advisors get the “why,” Anderson says. It’s the “how” they’re asking about.

“It’s how do we go back and take that old book of business and convert them to fee-based without sounding like, ‘I’ve been your advisor 12 years; I’m now going to charge you quadruple what I was.’ That’s the struggle,” he says.

The SEI exec, who writes weekly for the firm’s Practically Speaking blog, identifies three steps to make this case with legacy clients, the first of which is for the advisor to articulate his value.

“What is your value proposition that you want to offer; not just to new clients but to old clients? Your value proposition is foundational. It must be targeted to a specific set of clients you want to work with, the obstacles those clients are facing and the solutions you provide to those obstacles,” Anderson says.

“Most advisors are focused on too broad of an audience,” he continues. “If you understand who your target is, then you can understand what obstacles they face.”

Yet Anderson has observed that advisors often mistakenly segment their clients based on what’s important to the advisor (e.g., the client’s financial weight) rather than the client. Such an approach is an impediment to the advisor’s ability to demonstrate he can add value to clients’ lives and therefore charge that annual fee.

The next step, says Anderson, is “really understanding service you offer to clients. A really easy tool is what we call the client services statement. It’s a list of services broken down by category.”

So, for example, under the category of “investment oversight services,” an advisor can list “money manager selection process; using technology to aggregate the client’s entire portfolio on one site; portfolio rebalancing,” and many more things, depending on what that advisor offers.

Under the category of “retirement income distribution services,” an advisor can list “calculation of spending needs; tax-efficient distributions; Social Security review,” among other potential items.

Under “family wealth planning,” an advisor can list “beneficiary designation review; estate plan analysis; trusts review” and so forth.

Under “client service and communications,” the advisor can note the statements, newsletters, quarterly meetings and events offered all as a way of inventorying the many services provided that the client may not think about.

The final and logical next step is to articulate the message intelligently in a manner focused on how the client will hear the message rather than how the advisor might be tempted to give it.

Advisors overly influenced by internal industry jargon might make a case for becoming the client’s “fee-based advisor” — Anderson has heard advisors auditioning their client presentation use such language.

“Every time he mentioned the word ‘fee,’ the hair on my neck stood up,” the SEI exec says of a recent audition. “Why are we calling ourselves ‘fee-based?’ At end of day … clients are asking for advice, not product.”

For that reason, Anderson suggests advisors presenting their client-services statement use what he calls a “graduation story”—something like:

“We’ve been working together for 15 years. I think we should move to the next level in our relationship. Rather than a transactional one based on products, I propose a more advice-based relationship. Here are the services you get … Would you agree that over last 6-7 years, the economy has changed? Shouldn’t we change alongside that?

Anderson says SEI’s business transition team has aided in hundreds of these transitions.

“None of this stuff is new,” he says, but advisors “hear it when [they] need to hear it.”

“At end of day, the investment side of the business is becoming more commoditized. What isn’t commoditized is the advice of the professional sitting across from them."

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