Transition from comm to fee base

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Feb 27, 2008 8:14 am

Any words of advice or caution on moving from commission to fee base?  Transitioning maybe half of a book of biz, at least 40m aum?  Anything someone would have done differently or avoided after going through the process? 

Feb 27, 2008 8:23 am

Are you talking about moving your practice from commission to fee base or existing clients from commission to fee base?  I think that these are two different things. 

 
In general, I think that you are doing a disservice to existing commission clients to move their current commission business to fee-based since you'll be increasing their expenses.   I think that it is perfectly fine to take existing clients and have their new money be fee-based.  Explain to your clients why you are doing it and you'll have no issues.
Feb 27, 2008 8:41 am

I'd say the first step is making a clear strategic of philosophical decision about WHY you want to change your practice to fees, and the main reason better NOT be because it's better for you financially.  If you can't truly believe in the benefits for your clients and communicate your enthusiasm about these benefits to clients, it won't matter much what tactics or time frame you use to transition.  

Feb 27, 2008 11:14 am

It is going to be shared.  It was originally built ground up comm only.

Mar 29, 2008 4:50 pm

Unless its best for the client don't do it......if its new business then it is much easier too do but your existing clients wont see any benefit.

Mar 29, 2008 8:42 pm

I've never seen how fee-based is better for the client.  Why are you going to fees?

Mar 29, 2008 8:58 pm
BILLYBOB:

I've never seen how fee-based is better for the client.  Why are you going to fees?

 
You have a client that owns an investment that should be sold.  Lets say a financial about a year ago.  You call said client and tell them to sell.  Client asks how much the commission is.  You tell said client and he says no just leave it.  Fee based accounts can allow clients to get out of their own way and do whats best because they are not paying for the recomendation, they are paying for the advice.
Mar 30, 2008 7:28 am

I've never seen how fee-based is better for the client.  


Billybob, I'm guessing that you don't see how fee-based can be better because it's more expensive for a buy and hold investor.  This is true.   Of course, if we are going the cost route, I don't see how load funds can be better than no-load funds. 
 
There are several ways that fee-based can be better.  Many people aren't buy and hold investors.  For them, fee-based is less expensive than commissions.   Personally, I think that the biggest advantage to fee-based accounts is the fact that the advisor actually can afford to continue to give good service and is legally obligated  to continue to advise the client. 
 
If a broker sells everything in "A" shares and takes a long term buy and hold approach and strives to give great service, his business efforts will be forced to migrate from acquiring new clients to servicing his existing ones.  However, his pay from servicing existing "A" shares is too small to make a good living.  ex. You have 400 clients with an average balance of $250,000 to make up your $100 million "A" share book.  If you meet your typical client 1.5 times a year, you won't have time to get new clients.   Your GDC will be $250,000.   After your cut and business expenses, you would be solidly a mediocre wage earner.   If this was in fee-based accounts, the GDC would be $1,000,000 and the advisor would be doing very well.  So, ultimately, what happens?   Either the advisor financially struggles or "A" share clients don't get the same level of service.
 
(If it matters, let me disclose that I do both commissions and fees.  There are plenty of times that I find commission accounts to be the best and sometimes fee accounts are the best.)
Mar 30, 2008 9:21 am
anonymous:

I've never seen how fee-based is better for the client.

Billybob, I'm guessing that you don't see how fee-based can be better because it's more expensive for a buy and hold investor. This is true. Of course, if we are going the cost route, I don't see how load funds can be better than no-load funds.



There are several ways that fee-based can be better. Many people aren't buy and hold investors. For them, fee-based is less expensive than commissions. Personally, I think that the biggest advantage to fee-based accounts is the fact that the advisor actually can afford to continue to give good service and is legally obligated to continue to advise the client.



If a broker sells everything in "A" shares and takes a long term buy and hold approach and strives to give great service, his business efforts will be forced to migrate from acquiring new clients to servicing his existing ones. However, his pay from servicing existing "A" shares is too small to make a good living. ex. You have 400 clients with an average balance of $250,000 to make up your $100 million "A" share book. If you meet your typical client 1.5 times a year, you won't have time to get new clients. Your GDC will be $250,000. After your cut and business expenses, you would be solidly a mediocre wage earner. If this was in fee-based accounts, the GDC would be $1,000,000 and the advisor would be doing very well. So, ultimately, what happens? Either the advisor financially struggles or "A" share clients don't get the same level of service.



(If it matters, let me disclose that I do both commissions and fees. There are plenty of times that I find commission accounts to be the best and sometimes fee accounts are the best.)





I relate this to the Tax prep business. Let's say you are a small CPA firm...you have a client that comes in to get their taxes done. Are you going to charge them $4,000 to get their taxes done for the next 10 years, or are you going to charge them $500 this year, then $500 next year to do them, etc.? Although the A-share model is "cheaper", I don't know that it makes any economic sense for a full-service relationship. Now, if someone comes and says, "look, I want these mutual funds, but I jsut don't want to do it myself online", then yes, A-shares are the most appropriate for all involved (since you aren't really going to provide much ongoing service other than monitoring, etc., and the 12b-1 is probably sufficient). But I think with the whole push towards "planning" (or whatever we have to call it) necessitates charging fees.

Mar 31, 2008 5:47 pm
Bluetang:
BILLYBOB:

I've never seen how fee-based is better for the client.  Why are you going to fees?

 
You have a client that owns an investment that should be sold.  Lets say a financial about a year ago.  You call said client and tell them to sell.  Client asks how much the commission is.  You tell said client and he says no just leave it.  Fee based accounts can allow clients to get out of their own way and do whats best because they are not paying for the recomendation, they are paying for the advice.
 
In the situation you're describing, you are not dealing with a bonafide client.  In my opinion, if you advise a person to sell a stock and they refuse your counsel, then you are simply an ordertaker.  If the stockholder is going to make the decisions, why should you be paid at all?  THey can go on the internet and trade their own account much cheaper.
 
If the client won't listen to you, how are you adding value?
Mar 31, 2008 6:04 pm

Are you a broker?  If you are and the issue of commission never came up when selling a stock I envy you.  How am I adding value?  How about selling out of financials a year ago.  Kinda seems like that should be worth something, but I could be wrong.  Here is a tip you can apply when you finish the UBS and ML personality tests, get licensed, go to training, and actually pick up the phone and call someone out of the blue.  Clients don't always take your advice.  BTW, this particular client is in a fee based account now and takes all of my recomendations.  He only had to lose 30% to know what I bring to the table.

Mar 31, 2008 6:22 pm
BILLYBOB:
Bluetang:
BILLYBOB:

I've never seen how fee-based is better for the client.  Why are you going to fees?

 
You have a client that owns an investment that should be sold.  Lets say a financial about a year ago.  You call said client and tell them to sell.  Client asks how much the commission is.  You tell said client and he says no just leave it.  Fee based accounts can allow clients to get out of their own way and do whats best because they are not paying for the recomendation, they are paying for the advice.
 
In the situation you're describing, you are not dealing with a bonafide client.(enlighten me on what a bonafide client is)  In my opinion, if you advise a person to sell a stock and they refuse your counsel, then you are simply an ordertaker. (an ordertaker is someone who receives calls, not someone who makes them) If the stockholder is going to make the decisions,(unless you have full discretion- which I don't need the liability- the stockholder has to approve of every transaction) why should you be paid at all?(because I am not a volunteer?)  THey can go on the internet and trade their own account much cheaper. (and if they can do it, more power to them)
 
If the client won't listen to you, how are you adding value?(see previous post)
Mar 31, 2008 7:02 pm
Bluetang:

Are you a broker?  If you are and the issue of commission never came up when selling a stock I envy you.  How am I adding value?  How about selling out of financials a year ago.  Kinda seems like that should be worth something, but I could be wrong.  Here is a tip you can apply when you finish the UBS and ML personality tests, get licensed, go to training, and actually pick up the phone and call someone out of the blue.  Clients don't always take your advice.  BTW, this particular client is in a fee based account now and takes all of my recomendations.  He only had to lose 30% to know what I bring to the table.

 
I'm sorry you took my arguement to be a personal attack on you.  I assure you it wasn't.
 
My first couple of years in the business, the issue of commission did come up...but no more.  If a client doesn't want to listen to my counsel, I encourage them to move their account.  If I'm going to be responsible for the money, then the client needs to act on my advice.  Period. 
 
To be honest, now that my business is about 10 years old, the issue of commission very rarely comes up.  My clients know I'm acting in their best interest and don't question my recomendations.  I've tried to build by business by attracting folks who live their lives and let me handle their money.
 
As for your client, the one you encouraged to sell Financials, that was a very nice job of timing the market.  What did you move them into?
Mar 31, 2008 7:14 pm
So now you have been in the brokerage business for 10 years?  I call BS
Mar 31, 2008 7:19 pm

I am a current professional looking to become a FA.  I would like to keep my current job while I am going through the licensing process.  I have done some research and it appears that Ameriprise would allow me to do this.  My question is, if I allow Ameriprise to sponsor me to get my series 7 license, can I then move onto a firm such as ML, UBS, SB for a FA position and complete my training?  My other concern is that if I go to ML, UBS, SB now and they sponsor me for the exam, if I don't pass it the first time I am out of a job, and I would have had to quit my current job in order for them to sponsor me.  I am very passionate about becoming a FA but have a young family and am trying to risk manage the situation.  Any thoughts.


I call double BS
Mar 31, 2008 7:30 pm

I found out I passed the CFP test today also.  Very relieved. BILLYBOB 01/03/2008

 
this was posted 01/03/08.  You got your CFP before you were licensed.  Seems fishy.
I call triple BS
Mar 31, 2008 7:33 pm

Hmmmmmm, say Blue, something sounds fishy here.  You'd think someone who is used to making over $300k every year would be able to make sense and figure things out using their intuitive skills.


But I guess we all know that Monopoly money doesn't count towards your AGI.

Mar 31, 2008 9:05 pm

It does in La-La land

Apr 1, 2008 12:04 am
Bluetang:
So now you have been in the brokerage business for 10 years?  I call BS
 
I think I see where you are confused.  I'm BILLYBOB (all caps)...the above post, and two  you pasted below, are from billybob13 (lower case, with a '13').  In otherwords, you are taking the words of another poster and attributing them to me.  Go back and double check yourself.
 
I won't hold my breath for an apology.
 
I've been in the business for 11 years, I sat for and passed the November CFP test (the results arrived in Jan.), and for the first time, I made Presidents Council for A.G. Edwards/Wachovia this past year.  I started with and spent two years with EDJ before leaving for AGE, maybe that's why I'm a 100% commission based FC...I was trained under the Jones system of buy-and-hold AMerican Funds.  I've tried fee-based and don't care for it, I don't think it's the best thing for my clients.  Why should they pay 1% - 1.5% on a growing balance, when they can pay 2% once.
 
I feel really good about what I'm doing for my clients...and I'm doing well for my family (I live in the midwest where it's cheap).  I don't see how suddenly charging them a 1% fee to buy basically the same funds makes sense.  I've been very successful poaching accounts from ML and the banks (where fee-based rules) with this approach.
 
Please don't send me PM's...I'm not interested in being your friend...and your skin is far to thin to have an honest debate. 
 
 
Apr 1, 2008 6:50 am

oops, my bad.  I do apologize for attributing another persons posts to you.  Although as a broker, you should know that words and phrases such as "ordertaker", and "how do you add value" are fightin words and quite offensive.  I'm glad you feel good about what your doing for your clients, I do too.  Let's leave it at that shall we?