Set yourself fee: Why (and how) top financial professionals switch to a fee-based structure

One of the most significant potential benefits to shifting to a fee structured practice is that a financial professional can maximize their talents by offering their clients access to greater breadth and depth of financial planning services. Still, the idea of incorporating a new pricing structure can be daunting for both professionals and clients (change is challenging). It helps to approach it in three phases:

1. Adaptation means beginning with the open mindset that makes change happen
2. Education turns procedural vagueness (“Where do I start?”) into confidence and clarity
3. Transformation means a new focus

Phase 1: Adaptation = a mindset for action

It helps to understand that incorporating a fee-based component to a practice – or shifting business to entirely fee-based - may provide greater opportunities for financial professionals to expand their practice. Why? Because by its very nature, a financial professional who focuses on exclusively on buy/sell transactions will eventually maximize the number of prospects and clients they can meet. Furthermore, they’re limited in the types of financial planning services they can offer – not only in the time it takes to provide those services but also by how they would be compensated for those other services.

One of the greatest motivators of change is recognizing the potential for positive results. As we’ll see, incorporating a fee-based structure into a practice may provide positive results on both sides of the relationship.

Phase 2: Education = knowing your clients—and the numbers

Let’s look at clients and what they crave from their relationship with a financial professional:

As clients share what matters most to them, you can see that while investment performance is clearly critical, clients prize the total relationship they have with their financial professional. It’s important for a financial professional to gain a holistic knowledge of the client, which will consistently inform their financial life journey, understanding this knowledge should encompass:

• Their career, current goals and financial life now
• Their family and how that shapes and drives their decisions
• Their retirement plans
• Their future and legacy goals

Deeper relationships take time and a dedicated effort to provide additional services that address a client’s expanded financial picture. And that demands a commitment to educating yourself on what matters most.

And here, a hard truth presents itself. A financial professional who bases their practice on transactional or brokerage models—making individual trades versus creating a holistic financial portfolio—will lack the time to understand and develop these “total relationship” elements. And as a result, the client relationship may not be as strong.

In sum, the transactional model stresses buying and selling as the critical revenue driver. The financial professional who executes business at the buy-and-sell level may not have the time- nor the resources-to engage “the whole client.”

Phase 3: Transformation = stressing relationships

Saying so long to a transaction-based model may empower you to make one of the most significant improvements possible to your practice. The facts point out both what doesn’t work (a “par for the course” shortcut to a relationship) and what does—providing your client more of you:

• More time to build and foster a connection
• More time to learn about them
• More time to embrace their lives and goals, financial and otherwise

The graphic below illustrates how the top financial professionals who build and nurture deeper client relationships have more of their clients, too. To be clear, they do not have more clients; in fact, many times they actually have fewer. But less is more when a financial professional realizes more accounts with their current clients.

Think about this graphic. Advisors who establish fuller relationships with clients who are fewer in number, but generate greater amounts of business, boast an attrition rate of just 1%. Translated, say, to an election result or a batting average, 99% would equal a triumph of unheard-of proportions. Especially when working in lockstep with expanded sets of expertise and services, relationship longevity benefits clients and advisors alike.

When financial professionals move to offer services and construct portfolios that address their clients’ goals, versus buying and selling client investments, something incredible begins. In sum, the advisor can successfully attend to multiple accounts for each client. A successful fee-based financial professional gains the time (via fewer clients) and the resources (via fee-structured investment platforms and technology) to grasp and guide a client’s entire financial picture. Transition is truly cultivation. The total relationship, so important to both parties, prospers.

What does a future of fee-based business opportunities look like, then? This graphic illustrates more of what’s possible:

This creates a foundation for efficiency, too. Clients can speak with financial professionals knowing their concerns matter; financial professionals can in turn work with their operations team to use everyone’s time wisely and make financial success possible. (If your practice lacks this capability, consider third-party consultants who can provide all the help you need.)

Five key takeaways:

1. Clients place the highest priority on one benefit: that their financial professionals develop a broad, deep understanding of their total financial picture.
2. Successful financial professionals who enjoy strong, deep relationships with clients have fewer clients, but more accounts with them.
3. The transactional or brokerage business structure may naturally hinder financial professionals who want to build this deeper relationship.
4. The transition to a fee-based structure is easier than it seems.
5. Practice the same self-patience you would advise your clients to use.