XY Planning Network co-founder Michael Kitces Michael Kitces, head of planning strategy at Buckingham Wealth Partners.

The financial advisor’s compensation model has been shifting away from commissions and toward recurring fees for several years, and the COVID-19 pandemic stands to make that transition happen even faster, according to Michael Kitces, head of planning strategy at Buckingham Wealth Partners.

“I certainly think this event is going to escalate the movement and the shift in advisor business models” to one based on clients’ assets, he said Wednesday during the Virtual Financial Advisor Summit produced by Broadridge Advisor Solutions and financial advisor marketing firm Advisorist.

The pandemic is “making the future get here faster than anyone expected, which I suppose is ironic because right now it feels like April lasted about 183 days,” he joked.

For Kitces, it is a transition that advisors should fully embrace because the main advantage of having recurring revenue is simple: “When you wake up on January 1 and you’ve got that revenue in place and all you have to do is be awesome for your clients, your mentality changes, your focus changes, the economics of your business change.”

Since the start of the pandemic two month ago, Kitces said he has “seen our entire advisor community diverge down two paths: The ones that were on the AUM models spent the past two months calling their clients and keeping them onboard and getting paid 100% for that effort because they’re on a recurring revenue model. Everybody else went ‘Oh crap. I can’t go see my prospects because they won’t let me come near their house because [they’re] afraid I’m going to bring coronavirus and kill them. So I can’t meet any of my prospects and I have to completely reinvent my entire business model to figure out how to start marketing virtually.’”

The “underlying challenge that we created in the first place [is] when you run a more transactional model, you’re always feeling that pressure of where does that next prospect come from and then, when you get a disruptive event like this,” you now have to reinvent all your marketing to figure out how to get clients virtually because the old methods no longer work, he argued.

Advisors still have to figure out how to grow at some point, he conceded. And an advisory firm must spend enough on marketing to grow the business, but not “grow yourself broke” by spending so much that you go bankrupt before achieving profitability while growing on a long-term basis, he noted.

The Importance of Differentiation

Asked how advisors can compete against 0% commissions and robo-advisors, he said it all comes down to “differentiation.” There is a major technology revolution every 20 years or so and technology keeps making it easier for consumers to make investments on their own, he noted.

However, he said: “The need for advice — and more comprehensive advice — only grows as we go through all of these inflection points…. Some of us keep doing whatever the old model was and we get a good run at it for a while…. It never kills the advisor. It forces us to move up the value chain” and specializing and finding other ways to stand out from rivals.

Other Kitces tips for advisors included blocking hours on daily schedules for important business activities to minimize interruptions.

When it comes to video marketing, meanwhile, he cautioned that video has to be “part of a funnel — it can’t be the thing in and of itself.” Nobody is going to select an advisor to handle their life savings because of a great video, he said, adding that’s “not how people make decisions.”

— Check out Ron Carson: How the Pandemic Will Shape the Future of RIAs on ThinkAdvisor.