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.