Building Fee-Based Business

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May 8, 2008 4:14 pm

So, I am waiting in anticipation for the advisory service that EDJ is rolling out this summer.  I am looking for some feedback on people's experience with building their practices with fee-based business.  My biggest concern is trying to balance earning enough to eat NOW, versus building the fee-based assets.  Obviously, there is a big difference between getting a $500K account and making $10K off it today, and making $415 today, and then making that every month in perpetuity.

 
I don't need advice on "do what's right for the client".  I know all that stuff.  I am curious, especially for people that did not have a substantial book already when they "converted" to fee-based, how they managed to build it, and if they would do things differently.
 
I really want to build a sustainable practice that can reasonably serve 250-300 households, without resorting to some of the, shall we say, more "active" methods of generating income from clients.
 
Thanks for any feedback.
May 8, 2008 5:10 pm

I am building a fee based business from scratch since 2005.  Thank goodness my firm is really behind building a fee based business.   I did have to balance getting paid upfront vs perpetuity but fortunately my firm with its farsighted perspective was willing to pay me about 50-60% of what I would've made in a "transaction based" trade so it wasn't as big a sacrifice as you are describing.


I'm not sure I could've survived any other way.
 
Good Luck!
 
scrim
May 8, 2008 5:25 pm

Thanks Scrim.



Of course, I don't know how the model is going to be presented. Maybe they front-load the fees to us for the first year - who knows (basically give it to us like a C-share commission). Hopefully there will be some bump up-front. But I don't really know the way most firms handle these.



I know some of the people that developed our model came from AGE, so chances are it is similar to their structure. I guess I'll know in about a month or so.

May 8, 2008 6:04 pm

i have been able to offset some of the smaller up front payouts with insurance sales.  focus on the investments, but also try to become a complete planner, throwing insurance in there now and then for some better immediate tickets.

May 8, 2008 7:22 pm

If you want to annuitize your revenue, but would still like a "pop" when you sell something, look into UITs.  If you stick to the 15 month UITs from Van Kampen and First Trust (which you CAN use at Jones), you will make about 2% upfront, and 1.2 or 1.3% every 15 months (which works out to about 1.04%/year).  There are some very nice UITs. First Trust now has the "Moderate Growth" UIT with a bond componet to it (1-ticket drop).  Just an idea.

 
I think both First Trust and Van Kampen have hypo software on their sites for UITs.
And, the UIT "roll" every 15 months forces you to call your client.
May 8, 2008 7:58 pm

N.I.-



Interesting. I have not spent much time looking at UIT's. But I know my friend over at AGE use them quite a bit. Not sure, but I thought Jones screws you on the UIT commissions. We are very limited with inventory that we can sell (unless I am wrong - I also haven't looked at them real close).



I'll look at it though.



Thanks.



IH -

I have been focusing more on insurance lately, as I really have embraced our planning concepts and hope to continue ramping that up. That will help.

Thanks.

May 8, 2008 11:03 pm

Broker24-

Balance transactional with fee based. If you have a ton of A shares on the books, and it makes sense to pare down some of the profits, let the client taste it for a while. There are very good reasons to do fee based, but you don't have to loose your good sense. Use it as a tactical play....like maybe it follows a strategy that is very different from what you have been able to follow in the past. I can tell you my x-Jones clients love this approach, and the fees are well disclosed. I especially love the discretionary stock platform we have, but I am not sure you are going to get that, but you can really do some good with ETF's. Set your core percentage, and then use the rest of the money for tactical. When you have $250k automatically coming into your book every year, you will see some wonderful things happen! Good luck.
May 8, 2008 11:09 pm

Clients that have more $ tend to understand the fee model better---basically that you'll get paid for taking care of them instead of moving things or bringing in new clients. It is helpful to pick a size of account you'll lean towards a fee-based approach (say, potential to have $250k at some point). Then accounts that come in lower than that, you can still pick up the income on day 1. But yes, it hits your income in the short run...but it is worth it to realize you are clearly building a business that allows you to thoroughly service a set # of families at some point.

May 9, 2008 10:19 am

B24 - I think you can also look at things like VAs, bonds, individual stocks, and LTC to make up the difference.  In addition, we are going to get those clients that just simply don't have the $100K to put into the plan.  I think it will be more realistic than what you expect to hit your goals.   

May 9, 2008 1:26 pm

I agree with all of you.  I was just curious what obstacles people have run into in the past.  Spiff, you and Cowboy are correct - a lot of that other "stuff" will come.  I am fortunate in my area that there are a lot of people with wealth - I get a higher percentage of "large" accounts than EDJ guys in other areas, but landing those accounts are tough in the early years (lots of competition).  Given this fact, I realize that fee-based needs to be a component of what I do with this group.

 
Thanks for the feedback.
May 9, 2008 9:28 pm
Broker24:

I agree with all of you.  I was just curious what obstacles people have run into in the past.  Spiff, you and Cowboy are correct - a lot of that other "stuff" will come.  I am fortunate in my area that there are a lot of people with wealth - I get a higher percentage of "large" accounts than EDJ guys in other areas, but landing those accounts are tough in the early years (lots of competition).  Given this fact, I realize that fee-based needs to be a component of what I do with this group.

 
Thanks for the feedback.
Understand that at Jones you are limited to the Van kampen Uit's. The fee based at jones from what I hear isn't even in the same ballpark as the industry leaders. It will be limited to 160 funds from the preferred families and ETF's. It still is a major leap forward for jones,though. Can you imagine a guy fresh out of eval/grad saying yes we have fee based too......
May 9, 2008 9:37 pm

I was able to buy First Trust UITs when I was at Jones. I think that was around 2005.  You may want to check to see if they're still available.

May 9, 2008 10:27 pm

I might be wrong.....

May 11, 2008 8:58 am

We can buy First Trust UIT's. But, as Noggin mentioned, the inventory of what we can sell is very limited.



Noggin, you are probably right. I would bet it will be very limited and very structured. However, they are probably doing this from the outset so they can evaluate how it goes. They have said that they will eventually allow individual stocks as well, but after some time. As with most things, they are dipping their toes in after everyone else has swum a few laps. The program will likely be expanded after they have made it "work" for a while.



We'll see.

May 12, 2008 10:22 am

Actually, very few of the preferred funds will be in the fee based model.  The GP that is in charge of it spent some time with our region recently.  He said that 75% of the funds are going to be non preferred.  Some A shares LW, some no load, some ETFs.  And the number was 180.  There are all sorts of rumors flying around.  I've yet to talk with a MP conference attendee to get the real scoop.  Summer regionals (Indy this year) are coming up in June.  We'll find out then. 

May 12, 2008 2:00 pm

Sounds like the Jones platform for fee based is going to be pretty limited and restricted.

 
I have several methods of fee based one which is a limited mutual wrap fund platform with risk rated portfolios consisting of funds from about 8 "strategic partner" families. This is mostly for clients with small amounts invested $25,000 minimum.
 
There is a MAP program for larger accounts  (minimum $100,000 equity accounts) with 3rd party management firms of which we have 6 to chose from.
 
The other platforms I use more often allow the advisor to pick the investment mix themselves.  Stocks, ETFs, UITs, Bonds, Funds load at NAV, Advisor Shares or No Loads.
I have over 300 fund families that I can pick from.  136 pages listing mutual funds available, no restrictions on stocks or other equities.  Client can pay the ticket charges or I can pick up those charges with a higher fee structure.  No firm held inventory of UITs or Bonds that I have to pick from.   Incredible report generating capabilities.
 
Makes me laugh when the Jones guy tells people that I can't do what he can do.......he's right....I can do so much more
May 12, 2008 2:17 pm

babs, there's no doubt that you being indy means that you have the entire universe of funds to pick from.  I would also laugh if a Jones guy said that.  It's just retarded. 

 
The third option  you mentioned is the only one Jones won't have.  At least right now.  We have the MAP program that is an SMA platform similar to what you have.   We have 21 different managers in that one. 
 
The only restrictions I've heard about with the new platform is that if you want to build a portfolio yourself you have to use 10 different funds and hit a lot of, I'll call it styleboxes.  There will be model portfolios just like in annuities if you want to go that route.  It's at least a step in the right direction for Jones. 
May 12, 2008 8:01 pm

Does anyone know when the Jones fee-based program is going to come to fruition?

May 12, 2008 9:13 pm

It was introduced at the Managing Partners Conf last week. Those people are now able to start using it. It will get introduced to the rest of the firm in June at Regionals. I believe it will be fully implemented between June and August, by region maybe? (most likely so Support staff has ramp-up time during rollout, as opposed to 11,000 people calling all at once).

May 12, 2008 10:42 pm

Noggin,

I am looking into becoming a new financial advisor with EJ, and I had a question about your comment about new financial advisors and the fee based accounts.  Is it a benefit because it is a popular product line, or does it suck because you don't make much money up front?
 
Thanks for your help!