When it comes to transitioning to fees, the question isnt why, but how? Most advisors understand the advantages derived from a business model that includes both fees and commissions.
Clients benefit from a wider selection of investments, a generally more attentive and objective advisor, and better reporting. Many advisors prefer the consultative approach to advising clients as opposed to sales and also enjoy a more predictable, and in many cases, larger income.
So why is it that most advisors are still generating a majority of their revenues from commissions?
Part of the answer may be that they are still hesitant to make the move to fees for fear of losing income or losing clients. But, some may simply not know where to start. Keep in mind the following four steps as you consider making the transition to fees.
1. Keep it simple. One of the main reasons advisors move to fees is to simplify their lives by cutting down on busy work. Dont defeat the purpose by choosing an asset management program that is complex and difficult to master. Todays technologies and wrap products can help provide sophisticated money management and reporting–without a steep learning curve.
Some programs limit the number of mutual funds from which to build a portfolio, while others choose from thousands of both load and no-load funds. Selecting a program with the flexibility to construct portfolios from more funds should appeal to more clients.
Most fee-based wrap programs today offer full support, including a questionnaire for data gathering, asset allocation recommendations, investment recommendations, and reporting. But not all offer the advanced technology to produce these easily from your desktop. Web-based wrap products can offer instant access to customized client presentations, quarterly performance reports, daily portfolio updates and performance vs. benchmarks. This enables a high level of service to clients without costly software or data downloads.
Choose a program that creates portfolios from a broad selection of investments, has an easily explained methodology and selection process, is economical, and can be completely understood in a couple of hours. Complexity is not always synonymous with quality. A simple program can have you up and running faster and more efficiently.
2. Partner, partner, partner. Help comes in many forms. More employees–and overhead–are not the only answer. There are many allegiances that can help you efficiently and easily move into the fee-based management market.
One important decision you will need to make is whether to affiliate with your broker/dealers corporate Registered Investment Advisory firm (RIA) or establish your own independent firm.
Think of it as if you were just starting in the financial services business and deciding whether to join a broker/dealer or start your own. A broker/dealer is more complex than an investment advisory firm, but there are many parallels.