WealthManagement Magazine

Fees Versus Commissions

You've heard the debate on fees versus commissions. You may have your own thoughts about which is better for clients, for building trust, for creating consistency in revenues, etc. (see Fees Versus Commissions, Page 64). But this whole discussion is really about how you service clients, not about how you get paid. If you simply managed accounts and haven't perfected skills in planning, allocating

You've heard the debate on fees versus commissions. You may have your own thoughts about which is better for clients, for building trust, for creating consistency in revenues, etc. (see “Fees Versus Commissions,” Page 64).

But this whole discussion is really about how you service clients, not about how you get paid.

If you simply “sell” managed accounts and haven't perfected skills in planning, allocating and reporting, if you ignore your fee-paying clients and spend your day finding new money, you're still a transactional broker.

Likewise, a pure commission rep who spends time with clients in planning, allocating and reviewing portfolios is as much of a professional as the pure fee guy.

The fees-versus-commissions debate is fun, sells magazines, and it does raise interesting issues. However, the controversy boils down to what you do for clients. How you get paid is immaterial.

Entrepreneurial Myth

The “brokers are entrepreneurs” myth has been around a long time. There is some truth to it in that brokers aren't typical corporate schleps. But let's face it: You were hired, trained and are paid as a salesperson, not a business owner.

That state of affairs may change as the sales culture on the Street dissipates, and as clients demand more personalized and professional services from teams that have a full quiver.

Brokers need to think carefully about how to create and run a real business. In “Entrepreneurial Reality,” Page 53, we discuss ways to evaluate whether you're up to the task. And in “Team Building: Avoid the Pitfalls,” Page 59, we warn about the problems you can encounter when putting a team together.

Proudly Agnostic

“How can we write about getting rid of small accounts one month, then write about how to service these accounts the next?”

That was a question that surfaced among the staff as we pondered doing a story about efficiently servicing a large book (see “Taking All Comers,” Page 73).

My answer: “Very easily.” Here at RR, we are agnostics about how brokers do business (ethics assumed). There are a million ways to run a brokerage or advisory business. One way is to focus on providing services to a select few. But other brokers take pride in helping pretty much anyone.

We want to share all ideas on how various reps operate. Some will fit with what you do, some won't. But all are worthwhile. So please let us know your thoughts!

Best of luck,

Pru Listened to Me

For years now I've been encouraging firms to become more advisory in nature. To wit, I've recommended they spin off proprietary product units, exit the trading business (or at least run retail trading as a service business) and focus on meeting the needs of brokers and their clients.

Prudential Securities has taken a step in this direction by dismantling its investment banking business and refocusing analysts on serving brokers and investors (see “Reinventing Research,” Page 79).

It's a refreshing change. Everyone is familiar with the conflicts created by analysts who kowtow to issuers. That's one reason they let you ride a stock all the way down until forced into “market-neutral” posture.

Brokers generally don't trust analysts. Prudential Securities President Jamie Price says people at asset management firms feel the same way. I figure retail investors are not that far behind. Wall Street should pay attention to this development.

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