TV

The mere thought of transitioning clients to fees is enough to give even the most seasoned transactional advisors pause. But that needn't be the case, argue industry players in this episode of WP TV as they examine the issue from the client's perspective.

Video transcript below:

Reporter:  The debate over commission and fees continues.  Advisors don’t know whether it will build or break client relationships.  But what does the client really want today? 

Daniel Hanzelka, Managing Partner, Financial Advocate, The Wealthgate Group
Daniel Hanzelka:  People want to have a full disclosure.  They want to know what they are paying for and what advice are they really getting and they don’t to be sold at the end.  They want to make sure that they do get the best solution that they can.  So people moving to fee based, I think that’s one of the reasons for me that I started looking at that going.  If I really want to go and give advice to people and be unbiased, I can be bare hoping to get paid by the commissions that are going to be generated by the product. 

Now I think more and more people specially in this day and age are getting more informed about that and most people have no clue or an idea how we get paid, when we will pay them the commission.  So part of it is demystifying that, but when you take that out of the equation, people are a lot more open, they know what they are going to, you know what they are going to pay for, for the advice they know what they are going to be charged for, so they are more open even with the information coming forward.  So definitely brings the relationship to a whole another level, where people are not only getting better advice, by me offering it to them and being unbiased, but they are I think are more open on the other side, so your relationship moves to kind of another level and a much closer relationship.

Reporter:  The transition from commission to fee based model has been slow, very slow.  Is it fear or perhaps uncertainty, whatever the reason fees are the future.

Patrick Kennedy, VP Product and Client Group, PriceMetrix
Patrick Kennedy:  This is I think one of the most important strategic decisions that every advisor faces which is, you know it’s like if I want to move from more of a transactional model to a fee based one, how do I do it, how quickly should I do it and how literally how do I approach clients and have that discussion.  In terms of the when, the study we did looked at advisors who will transition [their books] at different rates.  What we noticed is that it was the advisors who moved most aggressively who actually outgrew their peers in both assets and production growth.  That was surprising to us and I think a lot of advisors believe that they actually need to put their business building efforts on hold while they transition about the fee.  The data suggested otherwise, but the move itself can actually help prompt or re-energise your business.  The most important thing in the advice business you have to remember it’s like any other business, moving to a fee based model is, it’s a different way of doing business, it’s a different product and if you are going to introduce a new product, the first thing you want to do is talk to your market, listen to your market.  You know spend some time in this case, talk to your best clients, tell them you are thinking about the transition, you know get some reaction to that different model doing business and when and if it comes time to make the transition it will be little bit easier to bring those folks on board.

Reporter:  It’s not a case of one or the other.  The industry says it’s time to learn to service both product lines.

Patrick Kennedy:  If you think about it most every [broker] is in some sort of a state of transition from a commission model to a fee model and I think as advisors today it’s important to understand how to service both product lines.  In fact increasingly in a big fish study, we identified a characteristic amongst high net worth clients who actually hold both fee and transactional accounts in the same relationship.  So it’s something that I think the advisors need to have their finger on the pulse of is, transitioning from purely commission to purely fee based is very rare.  You know most books operate in some sort of [equal amount].