I have seen that video before.  In my opinion NAPFA went a little over the top with it.  The handful of cash to represent the commission based advisor, the happy couple running if front of a big new house to represent what would happen if you would use the fee-only guy.

While the entire video is nicely done and laid out well I think that it comes across on the same level as political advertisements.  Some will look at it and wholeheartedly accept the message while most will see it for what it is...an advertisement.

I might get beat up here, but my thought is this (and I haven't looked at the video yet, just adding my opinion): 

"Brokers" are the dinosaurs of the industry; it defines someone who is merely taking an order from a sale of a product or service and executing it for a customer.  "Advisors" are relationship managers and the good ones run their practice on that advisory level, not by pushing product.  They do what's right for the client, not what's right for them first and foremost.

Many of the people who call themselves "brokers" do so out of habit, I believe, as most people have adopted a more thorough, advice driven model.  Personally, I cringe when a client incorrectly refers to me as a "broker."  It doesn't happen much, thankfully, but to me it indicates I've failed to communicate my practice model to that client effectively.  

Honestly, the wealthy HATE salespeople, so why people who aspire to work with them try so hard to sell them is beyond me.  We do, however SELL OURSELVES and our SERVICE MODEL.  It's an entirely different ballgame.  

People may crucify me for this and I'm probably a lot less successful early in my career as many of the 'old time brokers,' but I do think my point stands that clients for the most part want a trusted advisor by their side and not some product shuckster.  Some clients, however by failing to understand what we do as an industry, merely treat financial advisors as investment salespeople and truthfully aren't suited for a comprehensive relationship with an advisor.  So, there's a fit for anyone in most cases, but my take is that our industry is shunning the "broker" stigma as a whole.  

Clients want three things -

Your success will be based on how well you are at a combination of these three things regardless of your broker/advisor title.

[quote=N.D.]

Clients want three things - 1. Don't lose their money 2. Make them more money than their buddies 3. Kiss their ass Your success will be based on how well you are at a combination of these three things regardless of your broker/advisor title.

[/quote]

amen

What is the definition of "lose money"?

Volatility is equal to a sum that is slightly > the most financially viable participant. Goldman Sachs, Bank of England, Merrill, Lehman, Wamu......

I always clarify between losing money, like "gone", to market related losses and volatility. Anyone that admits that volatility cannot be tolerated, never becomes a client. When a person laughs at volatility, and says no, I meant losing my money permanently, like zero. I'm ok with that...

I never fail to mention market volatility when selling bonds to a new client either. I explain exactly how it works, and that as soon as they buy the bond, the price will be 2-5pts lower on the statement... Tell them before, no prob, fail to mention.....and you will explain it later.

ND, I'd add that clients really like getting a paycheck. If a client fires me, they've lost their largest source of income. Therefore, they don't fire me... I bet Bond Guy doesn't get fired too often either.

/soap box

BFP - a financial statement that is lower in value than the previous one.

Notice I said a combination of those three things. If a client can deal with volatility then they typical are more concerned with higher returns.

As for your clients that receive a check, I guarantee if their statement continues to go down even thought they only withdraw 5% they will fire you before they run out of checks. All clients are concerned with SOME combination of the three items i mentioned previously.

duplicate post

[quote=N.D.]BFP - a financial statement that is lower in value than the previous one.

Notice I said a combination of those three things. If a client can deal with volatility then they typical are more concerned with higher returns.

As for your clients that receive a check, I guarantee if their statement continues to go down even thought they only withdraw 5% they will fire you before they run out of checks. All clients are concerned with SOME combination of the three items i mentioned previously.

[/quote]

ND, I think I understand you in theory, but anyone who’s been in the business longer than a month knows that it’s near impossible to NEVER have a statement lower from one period to the next.  Unless everyone is in some sort of fixed annuity or cash, it just not going to happen.  

I think you mean “not losing money,” more of a generic statement that we as advisors/“brokers”/financial managers, etc. attempt to do our best to not lose money in a client’s portfolio, but know full well it is going to happen on some level.  Over longer periods of time, the goal becomes more of a real possibility.  

My point is clients want a combination of the three things in my initial post. Clients that are ok with losing money (1) will want higher returns (2) and/or more ass kissing aka service (3).

Imagine all three choices as percentages. Without a control group we will assume each choice equals 33.3%. If a client wants more of any choice they will typically be ok with less of the other choices.

For example, if your client’s number one priority is principle preservation then they will typically not care if they beat there neighbor all equity account over the past 18 months or that you forgot their birthday again.

I'm probably echoing Nova02's thoughts here, but there is something I just dont get about the whole broker vs advisor thing, and about why its such a big deal that they are considering making "brokers" act as Fiduciaries.

Pretty much all of us do fee based business. When we do fee based business we are IAR's under the B/D's RIA. Unless we are indie and have our own RIA set up. So we are acting as Advisors. And we are Fiduciaries.

So whats the big deal? We are paid "commission" in the form of % of AUM. The only difference between Series 7 RR's and RIA's is that RIA's get to keep the whole fee, and we give part of it to our B/D for doing our billing, compliance, and their ADV. Other than that, we are the same.

I do fee based almost exclusively thru my B/D and i can use Vanguard, Fidelity (not just Fidelity Advisor), T Rowe Price, or Blackrock, Hartford, etc with trails rebated back to the client. I get paid the same whether i use any of those, or ETF's individual stocks, etc.

I charge a fee for a Financial Plan, and will do one for anyone who pays me, whether they are brining assets to me or not.

I know everyone knows this already, so i'll get to the point - whats the difference to the client between me, and an RIA?

Besides the fact an RIA is a business entity? I know you mean IAR though. At the end of the day, both business models are sales related and both can be exploited for personal gains regardless of the client's best interest.

Ultimately, I think that the sales aspect is often too emphasized within our profession.  The best practitioners conduct the "sales process" behind a curtain where it is invisible to the client/prospective client.  Those who come across as product salesmen or only interested in earning a commission I feel tend to do far worse in building a long term relationship with their client.  I myself am not rich (yet!), by any stretch, but I wouldn't want someone I consider to be a salesperson managing my money.  

That being said, I once heard a good quote that EVERYONE is in sales.  Sales is an element of relationships, no matter what you do in life or how you do it.  If you're on the dating scene, you're in sales.  If you're a teacher, you're in sales, etc.  So, while it is a critical element to what we do, it's equally or more important to disguise it as best as possible to the end user.  

@Sportsfreak - I'm going to start charging for plans as well, but was considering only charging clients who I don't manage assets for.  I'm curious how you've been able to pitch it to those you do manage money for - has it been successful or do you get a lot of pushback?  I'd be open to the idea if it works well.  

Nova - to answer your question.....

Charging for plans is something I've just recently instituted. When i talk to a prospect, i explain to them that i am no different than their accountant or attorney - in that i get paid for my time. I also tell them that after the plan is done, should they decide to execute the plan with me (i.e. bring in their assets) , i will reduce the fee for the plan by half.

I've decided that for existing clients, for whom i have already done a plan in the past for no charge (when i was at the wire) , i don't see how i start charging them for it, so i am telling them that i charge but they are grandfathered.(but that referrals they send to me should be looking for Financial Planning, for which i charge them)

But it depends on the client. I had a client ask me last week, if i do financial planning. This is someone who has a very small Rollover with me (i have his old companies 401k plan), way below my minimum. But its in a fee based account, and he is no trouble at all. I told him i do, and told him the cost, but also told him that if he was to consolidate other assets with me to get to my normal minimum, it would reduce the fee by half, (and also that it would make it easier to keep my arms around his entire situation.) he asked about reviews, and i told him that he could have me on retainer for $500 a year, which would include an annual review and open ended access to discuss anything they wanted in addition to their portfolio. 

Its the first time i tried that, and i liked it, but i think i sold myself short at $500 a year retainer. Hate to admit it, i was making that part up as i went along.

My goal, in charging for plans, is not to make a ton of money charging for plans, but to put myself on the same playing field as their other advisors, cpa, etc, as far as perception goes. And to not waste my time doing plans for people who dont bring in assets.

In the case i mentioned above, it takes a small client, and makes them much more worthwhile as far as revenue goes, even if they don't bring in more assets.

[quote=Sportsfreakbob]

Nova - to answer your question.....

Charging for plans is something I've just recently instituted. When i talk to a prospect, i explain to them that i am no different than their accountant or attorney - in that i get paid for my time. I also tell them that after the plan is done, should they decide to execute the plan with me (i.e. bring in their assets) , i will reduce the fee for the plan by half.

I've decided that for existing clients, for whom i have already done a plan in the past for no charge (when i was at the wire) , i don't see how i start charging them for it, so i am telling them that i charge but they are grandfathered.(but that referrals they send to me should be looking for Financial Planning, for which i charge them)

But it depends on the client. I had a client ask me last week, if i do financial planning. This is someone who has a very small Rollover with me (i have his old companies 401k plan), way below my minimum. But its in a fee based account, and he is no trouble at all. I told him i do, and told him the cost, but also told him that if he was to consolidate other assets with me to get to my normal minimum, it would reduce the fee by half, (and also that it would make it easier to keep my arms around his entire situation.) he asked about reviews, and i told him that he could have me on retainer for $500 a year, which would include an annual review and open ended access to discuss anything they wanted in addition to their portfolio. 

Its the first time i tried that, and i liked it, but i think i sold myself short at $500 a year retainer. Hate to admit it, i was making that part up as i went along.

My goal, in charging for plans, is not to make a ton of money charging for plans, but to put myself on the same playing field as their other advisors, cpa, etc, as far as perception goes. And to not waste my time doing plans for people who dont bring in assets.

In the case i mentioned above, it takes a small client, and makes them much more worthwhile as far as revenue goes, even if they don't bring in more assets.

[/quote]

Sportsfreak, thanks for the input and comically enough it seems like we're in very similar situations having just left a wire to go indy.  I pitched the hourly planning arrangement with someone recently and it went well, but I also sold myself short and discounted the hourly fee a bit (cold feet, I guess!).  Overall, these are clients who have their money tied up in a business right now, so the planning arrangement works well.  I do like your suggestion to charge clients a reduced planning fee depending on their asset level - makes a ton of sense, honestly so that we are fairly compensated for our work.  I know we all give away the farm more often than we'd like.

I also pitched a slightly higher annual fee on managed accounts (from 1% at the wire to 1.25% for accounts under 500k) and it went over REALLY well.  It basically just pays the Envestnet sponsor fee, so I really net 100 bps.  I was pleasantly  suprised that the client gave me zero pushback. 

Nova - i went Indy about 18 months ago, so I'm settled in by now. Took me a while to understand the whole advisory fee thing. I always did mostly fee based biz at the wire, for asset management. But never charged a fee for advice on assets held away. I am hoping to do that business in the 401k market as well.

As for fee based asset management, i do pretty much all discretionary, run to models that i put together, using Dorsey Wright. I charge 1.5% on the first 500k, then down to 1.25% up to a mill and 1% over a million. This is the scale no matter what the size of the account. One thing i dont sell myself short on is the fee for running money, since its my core discipline. I've always felt that we are going to eventually be in a 1% world, but so far no pushback, and I feel i am worth it.

Sportsfreak,

The biggest change for me on the indy side is actually understanding the "timing" of commission/fee payments, which is often done quarterly rather than smoothed over on a monthly basis like at the wire.  I'm approaching my first quarter end this month, which will be interesting!

I also run a similar, although not discretionary model using Envestnet as my program manager, and would agree that I think I once sold myself a bit short on fees, but now charge 1.25% for clients under 500k and 1.00% after that.  My old fees were 100 bps flat no matter the asset size, thinking the same as you did. 

Thats funny Nova. When my wire went to smoothing fees, i hated it. I never understood what the numbers were when i looked at my run. It took me about 2 years but i finally got comfortable with it. Now i come indy and i have a monster month every third month, and suck wind the other 2 months every quarter. It took some time, but i got used to that to. Be patient, it will come.

[quote=Sportsfreakbob]

Thats funny Nova. When my wire went to smoothing fees, i hated it. I never understood what the numbers were when i looked at my run. It took me about 2 years but i finally got comfortable with it. Now i come indy and i have a monster month every third month, and suck wind the other 2 months every quarter. It took some time, but i got used to that to. Be patient, it will come.

[/quote]

I hope you're right - this first quarter starting out Indy was a bit scary!  I did quite a bit of research, but never questioned timing of comp for some reason.  This is my "big quarter" month, so I'm hoping some of that non-fee based business starts to actually pay something!~