Thinking about moving your accounts from commissions to fees, annuitizing your business and earning a steady paycheck?
It won't work, says David Bromelkamp, a Minneapolis-based rep and a member of Dain Rauscher's consulting group. Your approach is all wrong.
"Don't think about transitioning from commissions to fees--transition yourself from being an investment sales representative to being an investment consulting professional," he says.
Instead of focusing on your clients, focus on reinventing yourself and sharpening your skills, Bromelkamp says. With the proper training, you will deliver a disciplined investment approach that will win and keep clients.
"High-net-worth individuals are attracted to a disciplined investment process like a magnet," Bromelkamp says. He should know.
Ten years ago, Bromelkamp was a struggling rookie, working 12-hour days to serve 400 clients and generating just 150,000 dollars in gross production (mostly from commissions).
This year Bromelkamp's team will gross more than 1 million dollars, 90 percent from managed account fees, he says. And he has plenty of time to attend his children's soccer games.
Read how Bromelkamp's transformation unfolds:
1990--One year after joining Dain Rauscher as a financial adviser, Bromelkamp puts his nose to the grindstone. Like many rookies, he is obsessed with opening new accounts and ramping up his production.
"I was a good account-opener but really had no form or fashion relative to my own advice," he says. "When you start in this business you're just looking for clients, and everybody who walks through the door becomes a client." Bromelkamp's book grows to an unwieldy 400 accounts.
He notices that his handful of managed accounts are outperforming other client accounts. He decides to increase his percentage of managed accounts from its lowly 10 percent share of revenue.
"Most clients just don't have any investment strategy or discipline," Bromelkamp says. "A professional investment manager has that.
"The natural instinct among investors is to buy high and sell low--they buy when they're excited and sell when they're depressed. It's too hard for a rookie broker to fight that emotionally," he continues. "I realized that I had to use professional money managers or I was never going to keep clients."
1993--Bromelkamp starts improving his consulting skills in earnest. He researches the Institute for Investment Management Consultants, which has since been renamed the Institute for Certified Investment Management Consultants (www.icimc.org), and the Investment Management Consultants Association (www.imca.org) to learn more about asset allocation, money management styles and other professional consulting issues. Both groups offer certifications.
As a former CPA, Bromelkamp knows how persuasive a professional designation can be. "Everybody respects CPAs because they passed the exam," he says. "Anybody in the world can call themselves an accountant, but you can't call yourself a CPA unless you pass the exam.
"I looked at our industry and asked myself how I could become a true professional," Bromelkamp says. "I needed to know a lot more about consulting."
1995--Bromelkamp joins the IIMC and introduces professional money managers to some larger clients.
He moves slowly. "I was still doing some of the silly stock trading with my smaller accounts, and wasting my time on things that weren't very productive, either for me or the client."
1996--Bromelkamp passes both portions of the IIMC's Certified Investment Management Consultant (CIMC) exam.
"That's really when my fee-based production started to become consistent, and the transition became real," he says. "I knew I had the foundation in place to really thrive. I was leaving the stock trades, mutual fund sales and all those production-building concerns behind me."
However, one unexpected problem emerges. "You can't really be an effective consultant all by yourself," he says. "There's a lot more work involved in the consulting process than there is in just picking up the phone and telling somebody to buy 100 shares of Merck."
So Bromelkamp hires his first full-time assistant to help with performance reporting and office administration. "If you want to be a consultant and really do comprehensive consulting for large clients, it requires more hands."
1997--Bromelkamp's vision of a consulting team takes root after reading a book called "The E-Myth" by Michael Gerber. "I started to systematize the business and made plans to build an investment consulting team," he says.
Bromelkamp adopts the standard six-step process that is the foundation of any investment consulting practice: 1) establish and clarify the client's goals, 2) develop an investment policy, 3) develop an asset allocation strategy, 4) introduce professional money managers, 5) monitor portfolio performance, and 6) perform ongoing due diligence on money managers.
"The problem is that not everybody delivers the process with the same quality, and that's where we believe we can distinguish ourselves," he says.
The first step--establishing and clarifying the client's goals--is one that most brokers transitioning to fees stumble on, he says. They dismiss it as a no-brainer.
"You have to clarify the client's investment goals so well that both you and the client know exactly what you're doing and why," Bromelkamp says. "If you don't do that, everything else in the process falls apart."
Bromelkamp lectures other Dain Rauscher brokers about fee businesses. He tells them that if a client isn't interested in a managed account, it's probably because the rep approached the conversation from the wrong end of the process.
"A broker says, 'Hey, I've got this great money manager who's doing like 25 percent a year for the past five years, this is going to be good for you, Joe,'" Bromelkamp says. "Then the client wants to know how much it costs. When the broker tells him 2 percent a year, the conversation is over."
1998--Jeremy Graff, CIMA, joins Bromelkamp's group and his vision of a team starts to materialize. Graff works on asset allocation and investment strategy implementation.
Bromelkamp also gets guidance from coach Jeff Staggs of Jeff Staggs and Associates in Mound, Minn. Under Staggs' direction, Bromelkamp requires formal asset allocation plans for every client, establishes a 1 million dollars minimum account and begins the painful process of trimming his book.
"If somebody's paying you a fee, they are going to demand value for that fee," Bromelkamp says. "And there is no way you can give good service to an unlimited number of clients."
Staggs tells him to give away three-quarters of his clients. Bromelkamp reassigns hundreds of his smaller accounts to other brokers in the office. He tells the clients that a different broker with fewer accounts should be able to serve them better.
The process is emotionally draining. "Intellectually, I was on board," he says. "But it was a traumatic thing for me."
He reduces his client list from 650 to 200 accounts in 18 months.
1999--Bromelkamp hires Sue Johnson as a senior registered client associate whose responsibilities revolve solely around improving service. She calls clients to inquire how the team can serve them better and remembers the niceties, such as flowers on birthdays.
He also hires Pat Jirak, a senior registered client associate. The two fill and expand the role left open when Bromelkamp's first assistant left in late 1998.
The group gels. "We are truly an investment consulting team delivering the investment consulting process to our clients," Bromelkamp says. "Everyone on the team has to contribute to make the practice a success."
2000--Bromelkamp joins the Investment Management Consultants Association and registers to take the Certified Investment Management Analyst (CIMA) examination in August 2001.
By the end of 2000, Bromelkamp expects more than 90 percent of his 1 million-plus dollars in gross production to come from fees, mostly managed accounts. He has 200 million dollars in assets under management.
"We'll never be 100 percent fees because we always want to accommodate somebody who wants to make a transaction," he says.
However, like many producers who make the transition to fee-based business, Bromelkamp has an apocalyptic view of traditional stockbrokers.
The end is near, he says. "You don't have a choice but to take a more consultative route," he says. "There's no way you can compete with me, or somebody like me, if your client understands what professional money managers are doing for ordinary investors out there."