Clients fight to keep embedded commissions

The industry may have grossly underestimated the challenge of converting embedded-commission clients over to fees, says one advisor who’s tried and has the war stories to prove it.

Clients fight to keep embedded commissions
Converting embedded-commission clients over to the fee-based model isn’t as easy as transparency advocates make it out to be, cautions one advisor.

“The vast majority of clients still want commissions,” says Jason Abbott,a financial planner with and dual-licensee. “If I look at my book it’s probably upper-middle-market. Even the clients with more than half-a-million-dollars with me they still don’t ask for it [fee-based].”

No two words in the English language have generated as much disagreement in the wealth management industry than have “embedded commissions;” and with the push to CRM2, those words have been vilified by some. Transactional advisors such as Abbott have moved to offer clients a choice between that longstanding model and the fee-based one. But takers for the latter option have been fewer than many fee-based proponents would suggest, say critics.

Those players who are willing to make the jump with their clients are finding even opposition among the well-heeled investors who balk at paying a bill specifically for advice, no matter how valuable.

Where Abbott has found clients embracing fees is usually for a specific reason allowing them to see past writing a cheque.

“I’ve got some clients that do fee-based accounts because they’ll say, ‘You know I can deduct the fee on a non-registered account,’” says Abbott. “Maybe it’s the sticker shock and they know I need to get paid but they really don’t care.”

Those types of clients are in the minority and Abbott says the notion of doing away with embedded commissions would not jive with what clients perceive as in their best interests. Still embedded commissions are in many cases, and objectively speaking, a better option.

“At the end of the day people ask me what types of load structures do you charge?, says Abbott. “It depends on the size of the assets or the amount of work. If someone brings a small account to me and actually needs a little bit of work such as reviewing a pension option, well what am I going to do, bill them hourly?”

In these instances Abbott argues, DSC funds make sense – embedded commissions and all.

“So, that’s where loads come into play. For the small client under $50,000, advisors such as myself wouldn’t even entertain taking these clients [otherwise].”