The future is looking more and more like a fee-only world for financial advisory services. Did you know that in England (and soon in Australia) commission income is banned for insurance and financial advisors?
This afternoon I visited with a friend from England who said that no one can be paid commissions anymore for insurance and financial advisory services in the U.K. My friend told me that over the last 10 years the number of financial advisors in the U.K. has decreased 90 percent, from 300,000 down to 30,000 advisors today. Imagine being a young advisor trying to start a company from scratch on a fee basis. The runway for takeoff would be very long indeed.
In Australia, starting July 1, commissions are becoming extinct. No longer can an advisor sell an insurance or investment product and be paid from the company that is manufacturing the products. The Australian Securities and Investment Commission said this on its website:
“The ban on conflicted remuneration is part of the Future of Financial Advice (FOFA) reforms and applies to both personal and general advice given to retail clients about any financial product, including managed investments, superannuation and platforms. The ban applies to commissions, volume-based payments, soft dollar benefits and volume-based shelf space fees.”1
I am writing this article now because I believe in you. Advisors and agents, like you, are the reason why millions of Americans may be able to retire with financial security. If the SEC towers over FINRA and you are forced into a fee-only world, you must be able to survive. Think about it. If America, like Australia, says, on July 1, 2014, you will no longer be able to receive commissions or soft-dollar benefits because it is considered “conflict remuneration,” you may be out of business.
So what are you going to do about it?
You can wait until this happens, if it happens. You can wait until the year you are going to be given a deadline … or you can begin the transition now. You might want to begin making the changes earlier and be proactive about the way the world around you is changing. My friend from England gave me five ways that he charges fees.
1. Discovery fee. Typically he gives the first visit at his expense. Note that he doesn’t give his first visit for free. Instead, he gives this first meeting at his expense.
2. Joining fee. Just like you join a club or fitness center, a prospect must pay a joining fee to become part of his wealth advisor community. This joining fee is the same for all individuals. Consider it a setup fee for new business.