As the world of financial planning and wealth management continues to evolve, one thing has become very clear: While the fee-based model was once a rarity in the financial industry, this client-based approach to managing money is becoming more and more popular.
Financial professionals who are able to adapt to these changes and serve their clients are likely to do quite well under this new paradigm, while those who fail to make the necessary changes may find themselves falling further and further behind. Those who stick to the old model will likely see their AUM decline over time as they lose ground to their fee-based rivals.
So what has been driving this evolution toward the fee-based model? In some ways, the move toward a fee-based approach to financial planning and wealth management has been driven by the client. Modern clients are far more demanding and much more knowledgeable than those of previous generations.
They are not content to take a hands-off approach to their investments. They want to know how their money is being managed, how their investments are being chosen and what the long-term goals of their financial advisors really are. For these clients, the fee-based approach makes a great deal of sense.
The fee-based model also makes sense for financial professionals. Here are the top 10 benefits the movement toward fee-based planning is likely to bring.
1. Lets Your Brokers Focus on What They Do Best
The brokers and financial advisors who work at your firm got into the business because they love investing, not because they wanted to be great salespeople. Going fee-based can relieve the pressure to focus strictly on sales, so your brokers can get back to doing what they do best, recommending great investments and making money for their clients.
2. More Predictable Income for Your Firm
The traditional commission-based model has its perks, like big commissions on the products you sell, but those income streams are notoriously unpredictable. The next client who walks through your door might buy a million dollar annuity, but they may also buy nothing at all. Switching to a fee-based approach creates a steady stream of predictable income that will be there month after month. Instead of hoping for that big score, you can focus on growing your AUM and taking a steady percentage of assets under management.
3. A Better and Steadier Growth Rate
More and more financial planning and wealth management clients are seeking out fee-based firms, and that's good news for practices that put themselves ahead of the curve. Converting your practice to a fee-based model today could mean faster growth and a more predictable rise in AUM tomorrow.
4. Better Client Service
When you rely exclusively on commissions to keep the lights on and pay your people, your clients are always wondering if the recommendations you offer are really in their best interests. The fee-based model gives clients the reassurance they need and helps everyone in your practice, from the brokers on the floor to the analysts working behind the scenes, focus on improving client service. Serving the best needs of your clients is essential for the survival of your practice, and it's one of the biggest benefits of the fee-based model.
5. Better, and More Plentiful, Investment Options
The commission-based approach to financial planning and wealth management forces brokers and advisors to focus on a small universe of products that pay well. Changing to a fee-based model opens up a much wider universe of investment options. That's good news for you, your practice, and especially your clients. Instead of being limited to a small number of investments, your clients will be free to pick and choose the options that work best for their circumstances and desired lifestyle.
6. Greater Flexibility
Switching to the fee-based model can give your practice the best of both worlds. The flat percentage fee you charge will grow along with your assets under management, boosting your profits and helping your practice thrive. At the same time, you will be free to recommend a limited number of commission-based products, choosing investments that are suitable for your clients and giving your advisors and brokers additional flexibility when making recommendations.
7. Fewer Compliance Headaches
No matter what the future holds for the much-debated DOL Fiduciary Rule, more financial industry regulation is on the way. Whether it comes next week or 10 years from now, it's likely to hit commission-based brokers and advisors the hardest. Moving to a fee-based model now could make complying with future regulations easier, lowering your costs, boosting your profit margins and helping you make the most of your practice.
8. Smarter Marketing
Differentiation can be a real problem in the financial planning and wealth management industry, with the average client having a hard time assessing the value of a given firm. Going fee-based can help you differentiate your practice from its competitors and make marketing your business a lot easier.
9. Puts the Incentives Where They Belong
As a practice owner, you understand the importance of incentivizing your brokers and advisors. When you move to the fee-based model, you put those incentives where they belong. The greater your assets under management, the more fees your practice takes in. That gives the financial professionals who work for you an extra incentive to get great returns for their clients and grow their accounts -- as the value of client accounts grows, so does your total AUM and your total revenue.
10. Enhances the Value of Professional Advice and Guidance
Even fans of passive investing recognize the value of professional help and guidance, and going fee-based shines a spotlight on that value. Instead of focusing on being great salespeople, the members of your practice can focus on being great investors, showing their clients the added value that only professional guidance can bring.
If your practice has not yet made the switch to a fee-based model, it may be time to consider such a move. The fee-based model is the future of the industry, with a host of benefits for clients, practice owners and the financial planning world as a whole. Going fee-based can boost the value of your AUM, incentivize your advisors to make smart choices and build confidence in your client base, all good for you and your practice.
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