I am not an advisor and have no expertise in how clients should be serviced. But as part of an overall treatment to help advisors choose between an independent broker/dealer and an RIA model, I cannot resist, however, making some comments about product availability and also recounting some of the arguments for using commissions. Commission product uses fall into six primary categories:
- Commission-based planning for smaller clients. Proponents of this argument point out that smaller accounts are not feasible to service in a fee environment due to account minimums or the economics of the relationship. Also, the client may just need a one-time consultation rather than an ongoing one, and thus the compensation may need to reflect its one-off nature. The other side of this argument points out that hourly or project fees are available as compensation methods for such situations.
- Life-insurance. Variable life insurance is only available on commission compensation. Philosophically some advisors believe in using variable life and others do not. I would like to just point out that some fee-only advisors partner with third parties who provide the insurance services and then rebate the commission to the client.
- Variable Annuities. Variable annuities are another similar philosophical choice–some advisors use them and others consider them too expensive for the benefits offered. It is interesting that even advisors who generally do not use variable annuities report that there are clients who are very attracted to income-for-life guarantees even after the advisor tries to talk them out of the high-cost product. It’s interesting to note the increasing availability of fee-based annuities on the custodial platforms.