If you’re still operating under a commission-based compensation model, you may be left behind.
Fee or commission? The question continues to be debated in
the financial services industry as advisors list their reasons for supporting
one over the other.
Yet if you talk to your clients, the question has a very
clear answer for them. In a recent poll conducted by Cerulli Associates, a Boston-based
research firm, 50% of investors agreed with this statement: “I am willing to
pay for advice regarding my financial investments.”
This thinking clears the path for the fee-based model of
charging for advisory services. Clients looking for more transparency in a
post-recession economy are looking for advisors to clearly demonstrate their
fiduciary responsibility and build a more advice-based relationship.
With more investors seeking the fee-based model, how can
advisors know when it’s right for their practice?
Given the option, Plan Sponsors are choosing to work with
advisors who work on a fee-based compensation model. With or without the new
fiduciary rules, the fact is if you’re unwilling or unable to work in fee based
model, you’re putting yourself at a considerable competitive disadvantage.
Educated employers will require it. Because we work with advisors regularly to
help them move to fee-based, we know the transition is not difficult, nor
The benefit to your customers: increased clarity of the
fiduciary role and responsibility. Also, clients feel confident the
advisor/client relationship is based on clearly defined services for a clearly
defined fee structure. With deliverables and compensation a known entity,
client expectations are easier to meet and manage.
Advisors can make the new fee structure a selling point,
making the fee conversation a mutual decision. Benefits advisors and clients
are entering into agreements where the fee structure is completely
customizable, and where it is contingent upon the quality and scope of the
services provided. Up front, clients can choose from the services advisors
provide and be charged only for those services they want or need. There’s more
understanding of what’s being purchased, which brings added clarity and value
to the advisor/client relationship.
Likewise, fees can be based on advisor expertise and
performance. Best-in-class service models can earn advisors reasonable premium
fees. Again, the fee parameters are mutually agreed at the outset of the
The transition to fee-based compensation is not a difficult
one. First, check with your firm. They will advise you on the requirements for
transitioning a commission- based account to a fee-based account. Then develop
a transition plan for phasing into the new compensation model. With a planned
transition, you should be able to move seamlessly from one compensation model
to another with minimal-to-no disruption.
If your firm isn’t interested in allowing you to work under
a fee-based arrangement, you will be limited in the qualified plan marketplace.
It could be time to consider your options, which may include finding a firm
that’s more open to change.
Need help? Click on the Contact link to talk with us about how to make the switch, communicate the change to your clients, document the process, and manage a new way of working with your clients.
Before leaping into the unknown, we recommend a thorough examination of your plan. Because we are experts in the field, we know the marketplace and know what your existing vendor is capable of offering. Through this examination, we can help you optimize the service you receive.get xpress proposal