By Asvin Chauhan
Today we are going to learn about how to make a profitable transition from commission-only sales to a fee-based financial planning practice….How do we start and how does it work?
First, design a client-facing advice process. This advice process should be a clear communication of what the client should expect. We have to identify the component parts of the work we do for our clients:
1. Establish our clients' short-, medium-, and long-term goals in life.
2. Work out what assets and liabilities they have.
3. Analyze and evaluate their financial status.
4. Develop a plan of action for them.
5. Implement their plan of action.
6. Monitor their plan and make necessary adjustments by reviews.
Having done all the valuable work through Stages 1 to 4, traditionally we only actually get paid at Stage 5. This has never really sat well in my mind, but this was how we got remunerated for our work, wasn't it? Or is there another way?
Second, if we are offering a monitoring and review, design a back office process in order for the work to flow systematically within our organization. Our teams need to understand clearly who is responsible for what when a client file hits their desk. Write clear processes and procedures for each part of the client journey and client-file journey that all our teams sign up, too.
Third, how do you communicate the process to our teams? Written processes speak a thousand words. Some of our teams will need this reinforced by having a meeting with us to explain exactly how we want this new advice structure to work. Better still, we could work with our teams and have them contribute to the new way of working and documenting of the new processes.
Fourth, ongoing review processes such as investment reviews. We need to decide what platform we are going to register the client investments on, create a process for risk assessment, asset allocation, fund selection criteria, and portfolio review processes. It is essential that this is completely process driven.
What to charge
Fifth and finally, what do we charge for our new service? For example, fees for research, recommendations, and implementation. This is really an area where our creativity can flow.
There are so many different models we can adopt, and each one works if we believe it's right for our client banks and believe in it ourselves.
I adopted a charging structure of a low initial meeting fee of $137. At this meeting, we will discuss the clients' worries, concerns, goals, and objectives, and discover the hard and soft facts that we need to know before we offer a framework to the solutions to remove their worries and concerns and achieve their goals and objectives.
My goal at the end of this meeting is to have understood the clients' requirements sufficiently, discussed with them a framework of solutions for their particular circumstances, and agreed on our research and reporting fee for the next part of the advice process.
We then follow up with the research and writing a report. The reporting fee is $357 with the research broken into component parts of what types and how many plans we are analyzing. Typically, the total fee for this section works out to $825. We then follow up with an implementation fee, which is 2 percent to 3.5 percent of the funds being invested, or we take standard commissions for protection business, which is still currently available in the U.K. marketplace.
As with any long-term client relationship, it's important to review the current affairs systematically. We charge a standard fee for systematic portfolio review, quarterly or annual investment reviews, and implementation of any changes. The fees are 1 percent per annum of the funds under management plus a quarterly fee of $297 or annual fee of $587 depending on how often we rebalance the investments, review the asset allocation and the underlying funds for each portfolio....
During my first 16 years in this business, having sold a number of financial products, I had accrued a meager renewal income of $15,000 per annum.
During the last 5 1/2 years, through small incremental changes, bite size steps, my recurring income is now 15 times bigger. This income pays for the entire running costs of my firm, which include comfortable offices, two high quality staff, a nice vehicle for me to travel to my clients in, and a genuinely suitable retirement provision for me and my family.
We actually have a business where most of its income comes by way of clients who pay for the relationship of financial planning and the process of investment management, not by product sales.
As for the future, I expect to have a process-driven business where my role is simply a function of business oversight and client-facing advice—and highly profitable.
Asvin Chauhan, Cert DipFA, MIFS, is managing director of Ashleigh Court Private Client Wealth Management Ltd., Coventry, England, where he advises on wealth creation, investment management and estate planning. A 15-year member of MDRT, he has earned six Court of the Table qualifications, is a Gold Knight of the MDRT Foundation and is the current MCC Zone Chair for Southern and Western Europe. The above excerpts are from his talk at MDRT 2013 in Philadelphia, where he discussed how to make a “Profitable Transition from Commissions to Fee-Based.”