Fee-based model complicates business, says advisor

Fee-based model complicates business, says advisor

Fee-based model complicates business, says advisor By: Mark David

A top advisor believes that only a small fraction of advisors would be willing to switch to the fee-based model, despite the controversial CRM reforms set to increase reporting disclosure requirements.

Nathan Leibowitz of Assante Wealth Management in Montreal predicts that “around 20 per cent” of advisors would be willing to transfer their clients to fees, rather than opt for full transactional disclosure. He attributes this to the fact that that the fee-based structure requires a complete overhaul of a firm’s business practice.

“I think that a lot of practices are fee-disclosed already, or moving in that direction,” says Leibowitz, who recently made WP’s Top 50 Advisors in Canada list. “The clients understand what they’re paying for and what value they’re getting.”

Leibowitz views the fee-based system as one that could complicate things for advisors, whereas the fee-disclosed model allows advisors to go about their business as usual, while ensuring clients understand what they are paying for.

 “A fee-based practice is a basically a whole new business model,” he says. “But (with the fee-disclosed model), you’re keeping the same traditional business model, except you’re making them (clients) aware of what you’re charging.”

Looking ahead, Leibowitz believes there may be discrepancy across the industry over what the term 'fee disclosure' actually means, especially regarding what needs to be disclosed to clients and what does not. 

“The only thing that may change is what “fee disclosure” means,” he says. “This would include what the advisor is being paid, what the investor is actually paying, transaction costs, and so on.”

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2 Comments
  • Brett D. Rees 2014-02-05 2:39:07 PM
    I agree with Nathans sentiments entirely. For the larger producers with office support staff, the transition, if any, would not be a headache. But what about the smaller Advisor, The one who only has 5,10, 15 million AUM. How is he/she going to transition his/her business and not incurr either extra costs or extra administraiton time. Other countries that have tried to implement "no comm" have seen the service to the most needy of the population, diminish because it isn't "financial viable or rewarding " for agents to spend anytime with them.
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  • Bob White 2014-02-05 3:59:33 PM
    Full disclosure is simple and can be compared with all models. A 1% fee is very easily compared to a 1.5% fee., you do not need to compare dollar costs. When comparing dollars, you can play games, percentages are pretty clear.

    I have been talking with clients about the pending changes and the different models and the majority would rather the fees are coming out of the investments vs. as a fee for service. That said I have converted my larger client accounts to fee for service accounts in order to benefit for tax deductions and eliminate trustee fees. I always position the down side, is that they will see the fees and most people do not like to see the fees.

    I believe that full disclosure of the compensation method and fees and charges, such as DSC, Low Load, FE 0-5 and fee for service accounts is imperative. If you want a planning account management fee regardless not tied to the asset value, then I think the cost would increase, because it will be a time and overhead costing fee. I for one can not imagine charging a fee to a client to do a beneficiary change or address change on accounts, but that is what would have to happen, or the advisor would be out of business real quick

    Just my thoughts

    Cheers


    Bob White, CLU
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