How to Transition from a Commission-Based to Fee-Based Advisory Firm

Beyond the headache of the transition itself, there are very few reasons not to shift your clients to a fee-based advisory model.

The conversation has shifted.

Instead of evaluating whether a fee-based billing and service model is right for their practice, most advisors are thinking about the best way to manage the change experienced by clients and staff in the transition.

Transitioning from Commissions to Fees

Transitioning from a commission-based billing model to a fee-based billing model isn’t difficult, but it requires organization. Whether you are considering a complete transition, or are working on shifting a larger portion of your business to fees in 2019, we’ve outlined a list of considerations to help you along the way.

How to build your advisor value proposition

The advisor value proposition looks different under a fee-based billing model, and it needs to be front-and-center throughout the transition. Your clients will more easily accept change when they can clearly understand how the change will benefit them, practically.

A great place to start when building your fee-based value proposition is your process. Think about the additional services you can offer fee-based clients – planning, tax management, behavior management, ongoing portfolio monitoring and rebalancing.

How do these services bring value to the client? Be upfront and detailed about the benefits each provides to the client. Your ability to clarify the value delivered from the transition is paramount, particularly due to the direct tie to a change in cost structure.

In the value proposition, discuss what it is you aim to help clients achieve and how you are uniquely positioned to do that. Help them understand what drives you, why you get out of bed each morning, and how you are prepared to help them achieve their own goals.

How to segment your clients for the transition

Segmentation is important for two reasons. First, it makes the transition more manageable. The overall workload of transitioning your entire book of business is likely too great to take on at once.

Segmentation also helps you refine your pitch. You’ll need time and practice to fine-tune your client communications. Strategically selecting the right investors to work through the kinks with can prove beneficial when addressing the transition to larger, more hands-on clients.

Segmenting clients is one of the more difficult tasks when transitioning to a fee-based billing model. Not all clients are equal. Some are more suited for the transition to fees. And even if your end goal is to become a fee-only advisory firm, segmenting your clients into groups can ease transition pains.

Ultimately, your segmentation will be unique to your firm, however, it’s generally best to begin with clients that take a hands-off approach to investing and/or those who are newer to your firm.

The clients who question your investment decisions less are typically more accepting of billing and service structure changes. And the clients with less exposure to your transactional business model will find the transition less uncomfortable than those who’ve been with you for years.

A good rule of thumb is to target transitioning 5 clients per week.

And if you’re unsure about a client’s suitability for a fee-based billing and service model, consider whether they are actively pursuing a long-term investment goal. If the answer is yes, they are likely well-suited for a fee-based relationship. We find that mindset, over investable assets, is a better indicator of suitability.

How to develop a pitch for the transition

Clear communications might be the most important aspect of a painless transition from a commission-based to fee-based billing model.

As is natural with any human, your clients will likely have a natural aversion to change. People don’t like disruptions and uncertainties. That’s why your initial pitch needs to both address their concerns and highlight your vision.

Start with why you are proposing the transition to a fee-based billing model – and ensure it revolves around the client. Don’t discuss your desire to stabilize the business’s revenue stream. Your clients don’t care about that. Instead focus on their goals and how a fee-based billing and service model is going to help them get there.

Outline the benefits of working with a fee-based advisor, such as a more comprehensive service experience, fiduciary responsibility, and the simple fact that the advisor revenue is no longer independent of client performance.

Once a client is clear on why the transition is beneficial to them, address any uncertainties they may have. First and foremost, address the change in service cost. How will this impact their bank account?

Then move on to operational considerations, such as what role they will play in the transition and how long that might last.

How to prepare your team for the transition

Discussing the benefits of a fee-based billing and service model with clients is only the first step of your transition.

It’s also important not to forget your staff. Execution on the promised increase in service and care is essential to your long-term success in the transition, and that begins and ends with a clear vision and process for your internal stakeholders.

A transition from commissions to fees requires a cultural shift within your team. You, as the leader, will need to reinforce the outlined vision and process to ensure the experience consistently matches what was proposed to each client.

Deploy the same talking points used for clients to get your staff aligned and ready for the transition. Like your clients, it’s important to highlight the benefits, but this time, as it pertains to the business.

When is the right time to transition?

The transition to a fee-based billing model will never be convenient. However, that doesn’t mean it isn’t the right move for the investors you serve every day.

As a fee-based advisor, you can more easily position yourself as a trusted consultant to your clients. Your clients will enjoy the increased service and care, and your business will enjoy the stability of deeper client relationships and more dependable revenue streams.

1233 – FTJFC – 12/11/2018