Here’s a rundown on the changes of keenest interest to insurance advisors...
My Big Debate with Fees
By Juli McNeely
Reproduced from the January 2013 edition of InsuranceNewsNet.
In struggling with a decision of whether to begin the process of exploring a fee-based practice, we had to start with the knowledge that serving our clients is our top priority -- but we had to ask ourselves which business model does that best.
Our agency was founded 45 years ago by my father, who recently retired. We have always operated in the independent channel and have been solely a commission-based firm. We have traditionally served “Main Street” clients who could be classified as middle income with varying amounts of assets. So, would changing our business model potentially threaten our ability to serve the very clients who helped us become who we are today? If you asked my father that question, his answer would be emphatically, “Yes – don’t even consider it!”
Change is not something any of us handle well, especially after 45 years of operating in a specific way. Commission-based selling has been how we have built our firm. It is what we know. It is what our clients know. In my 16 years in the financial services industry, one of the most significant things I’ve come to realize is that we all must continue to learn and adapt to the changing industry. Sometimes that means changing how we do things. At the very least, it means considering adjustments from time to time. The option to shift to a fee-based practice has been an internal debate of mine for a couple years. Recently, I began to explore the pros and cons more outwardly. Here are the highlights of my debate:
· Size of Accounts – We service many smaller accounts and we realize that every potential investor must start somewhere. We have clients who invest $50-100/month and we believe that these accounts are our “bread and butter.” These accounts are not likely to be a good fit for a fee-based option -- at least until they grow. However, they are not accounts we are willing to turn away, because we believe these clients need our advice the most. So I asked myself: Do we have any accounts that have grown in size over the years and might be a good fit for a fee-based environment?
· Complexity of Financial Situations– Many of our clients find themselves in more complex financial situations. Although we live in an “Information Era” and consumers can often research their options online, they continue to reach out to us for advice and guidance. They want someone to be their trusted advisor and financial consultant. They are not comfortable going it alone and sometimes are simply looking for someone to help assure them that they are on track. So I asked myself: Do we have clients who come to us often to get our assistance in navigating their complex financial situation (personal or business) and often times simply want our advice?
· Relational vs. Transactional– Perhaps initially, we operated in more of a transaction fashion as the firm was being built. Today, we are sometimes working with the third generation in a family. A strong relationship has been built with our clients and many want to meet on a regular basis to review their financial picture. So I asked myself: Have we developed more and more long-term relationships with our clients that require consistent, ongoing contact to maintain the connection?
· Expertise/Knowledge– The more our knowledge and expertise grows, the more valuable we are to those we serve. Clients connect with us and may even pay money for our expertise. The best way to deliver this is to meet regularly and review the client’s situation and share our knowledge. We are an asset to our clients. It took real effort to accumulate the wealth of information we carry in our heads. Our own intellectual property is obtained by taking classes, earning designations and “on the job” learning. So I asked myself: Do we find that are constantly giving advice and sharing what we know for “free?”
· Client Preference– We have actually had some clients ask about whether we offer a fee-based option or if we they could pay us for our advice or our time. As other advisors move toward a combination commission/fee practice, I suspect we will continue to get these types of requests. Having the ability to serve our clients how they want to be served is critical, in my opinion. So I asked myself: Have we had a client request to pay for our services via a fee-based arrangement?
If you were able to answer “yes” to any or all of the above questions, perhaps you need to explore the pros and cons of a fee-based practice as well. We can answer “yes” to all of these questions. Therefore, we continue to explore our options as a firm, but we will not be making this shift quickly. We may slowly test the waters by charging a flat fee for a service provided, for example, compiling a financial plan. I’m fairly certain that we will never be solely a fee-based practice. We pride ourselves in assisting our clients with all aspects of their financial plans and that includes both risk-based products (insurance) and investments. We will also continue to serve all clients, no matter the asset size. The last thing I would want to do would be to disenfranchise any clients or potential clients simply because they don’t fit into the client box created by a “one-size-fits-all” strategy.
My sincere hope is that we will always be allowed to serve the client utilizing the business model that fits their needs. That might mean we will need to explore other models to determine if they are the right fit. After all, what we do is serve our clients, help them build a secure financial future and help them find greater peace of mind. I wish you great success!
Juli McNeely, CFP, CLU, LUTCF, is vice president/treasurer of McNeely Financial Services, Spencer, Wis., and is secretary of the National Association of Insurance and Financial Advisors (NAIFA). Securities and Advisory Services offered through SII Investments, member FINRA, SIPC and a Registered Investment Advisor. You can reach Juli at email@example.com.
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