by Tony Vidler.
One of the most common dilemma’s for financial advisers is how to make a transition from purely commission-based remuneration to generating fee-paying work.
It is more simple than you think – though not necessarily a swift process.There are several critical decision points for the adviser to work through when considering how to do it. Most importantly though, you need a framework or process to explain your methodology to clients in a way that makes sense to them, and gives them confidence that your business approach is in their best interests. I shall explain how to do that in detail shortly.
Before moving to the process and client conversation in detail, let’s review the decisions you have to make to transition to fee generation in your practice. The first is to decide, and commit, to the process of valuing yourself appropriately. For many advisers this represents a paradigm shift, and having to move from the mindset of “competing for every potential client” to “choosing who to work with”. We should not under-estimate how big a mindset shift that is either…it is the critical element, and major step in business thinking.
It is a given that you have to establish an appropriate fee level, though some advisers seemingly struggle with this. Doing so though is actually just a simple mathematical process of determining what your own cost of time is, together with your desired income rate, and allowing for expected downtime (or non-income generating work you have to do). Having said that, there is still the need (regardless of your desired income level for example) to take into consideration other market forces – what the usual rate is in your field, consumers expectations, particular expertise you may have or services you might provide, and so on.
Next there is a decision as to who you will be trying to move to a fee-based relationship. All existing clients? Just some of them? Only new prospects you see? There is no right or wrong answer, though there are clearly some risks in trying to change the existing adviser/client remuneration basis, so careful thought is needed. Let’s assume though for this example that you have decided to maintain existing client relationships & remuneration agreements as they stand, and you are looking at how to bring in fee’s for new client work in the future. A gradual transition to fee generation in other words for a purely commission-based adviser.
The most simple method of doing so is to consider your advisory work as a “project”. Or rather, a potential series of projects.
The conventional best-practice advice theory holds that we undertake a 6-step process with every client, every time. The theory holds true IF a client actually wants that – and some don’t. But even if the client does want the full process of engagement, data collection, analysis, recommendation, implementation and monitoring/review, then there is no reason why this cannot be broken down into different projects with different client choices at different stages. Remember, clients like some choices – and committing to the entire 6-step process up-front is sometimes a barrier to gaining a new client. If you can give them some choices and remove some barriers, that has to be better for everyone.
Moving to a fee-generation model can be as simple as having a conversation with prospects that essentially goes like this (though this is a VERY abbreviated version):
“there are three parts to engaging an adviser that you might consider:
The first part of the project is to provide a PLAN. During this stage I gather all the pertinent facts, analyse the possible solutions, and provide you with a recommended course of action. That is all done on an agreed fee basis, and on completion you have a plan which you are free to do as you wish with. You can ignore it, or implement it. If you decide to follow the advice (which we call implementation) then you are free to take that to another adviser, or buy online, or direct from a product provider, or you can talk to me about implementing it for you. It is your choice. My role as the adviser here is to provide you with the best objective advice I can, so you are simply paying for my time and expertise in providing you with good advice. It is like having an architect draw up plans for a house – you don’t have to commit to building the house with him, but drawing up the plans is a significant piece of work that you must pay him for.
If you decide you do wish to IMPLEMENT any recommendations from the plan with me, then that is fine. I will do that on a commission and/or fee basis (insert you own preference here). That means I will do (explain in detail the work you will do for them, showing what a headache it is for them to do themselves of course) to put any recommendations in place and ensure you have as few hassles or headaches as possible – my team & I will take care of it for you. This part is like appointing the building project manager if you decide to build the house the architect drew up – and it is you choice who you appoint to do that.
Once any recommendations are put in place, it is your choice as to whether you wish to work with me on an ongoing basis. That is what we call the “REVIEW” phase – and it means that each year (?) we will review the previous recommendations and (explain in detail your ongoing value and advice process). As a client you will also get (explain in detail your service proposition) each year. We charge clients commission/fee for this ongoing service and access to advice reviews. Once the house is built you can decide on who services and looks after everything you put in it“
Now this has been a quick gallop through the positioning talk – but sufficient to convey the principle of it hopefully.
The key benefits of adopting such an approach is that it actually positions the adviser to be able to give good honest objective advice at the front end – and be valued and compensated accordingly. The client has clear choices as to how much work they wish to engage the adviser to do, or not do. The client has choices about how and where to implement any advice. The adviser can work fee-paying work easily into their business model with new clients.
Perhaps most importantly though, it is a wonderful screen for eliminating the tyre-kickers who were never going to buy the car. The good adviser has expertise and knowledge that is valuable, and that should be valued by both the adviser and the prospective client. If a prospective client does not value objective advice sufficiently to pay for it, then don’t work with them. They tend to be consumers who purchase based on price, and no price is ever low enough. Those who come to you for low prices, will leave you for lower prices.
Value yourself appropriately, and then position yourself accordingly. In doing so you will begin the transition to generating fees and moving away from purely commission (at risk remuneration!) only work.
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