Get your client to switch to fee based service
Financial advisors are continuing the slow but steady move toward fee compensation. The transition is however not an easy one for both the advisor and his clients.
With recent changes, Sebi has indicated that they wanted the agent and the investor to negotiate and arrive at a commission, which the investor could pay the agent by issuing a separate cheque. While the move has been controversial, it did bring to forefront the issue of fee based services v/s commission based services.
If you are one of the financial advisors who are thinking about becoming fee based, here are some tips for you.
Give your clients more value
In the conversion to a fee-based business structure, gradually shift the relationship with the clients from a sales role to an advisory function. If required, learn new skills. Identify what more you can do for your clients and be prepared to communicate this clearly with them.
Clients who are accustomed to paying embedded commissions often resist the idea of being billed for advice when they’ve never received a bill previously.
Fee-based financial planning - whether it’s a fee for service or a fee based on assets - offers clients distinct advantages over commission-based advice. But introducing such a major change into your practice is sure to meet some resistance.
Introduce it gradually
Propose the fee model to clients many months before you begin making the transition, rather than waiting until the last minute to get them on board
The first thing to realize is that you shouldn’t convert all your clients at once. Instead, look at your client list and try to decide which of your clients will be most interested in ongoing financial planning and paying fees rather than commissions. Then you sit down with your clients and explain the new services that you want to offer.
Give clients a few months to get used to the transition
Prepare yourself for the questions
By explaining the reasons for the change and the advantages of fee-based advice, you may find that clients more open to the new structure. This change in structure isn’t something you can simply announce to your clients in a letter or on the phone. You need to sit down with each client and take an hour to explain the new service structure and its benefits.
Emphasize the importance of unbiased advice
You need to reemphasise that under the fee-based structure, the client’s goals and distribution actions are in sync.
Point to potential cost savings
Draw out the numbers and show clients how much they were paying in charges and commissions under your previous model and compare that to the amount they’ll pay in fees. They will see the benefits themselves.
The transitioning to a fee based business can dramatically increase an advisor's workload. Responsibilities like researching investments, creating portfolios, monitoring investments, making trades, reporting, and communicating with clients are all labor-intensive activities.
Asking clients for a fee is a challenge but a methodical process and systematic approach can help you in converting your clients.
(Shalini is an MBA by qualification and a writer by profession, specialising in personal finance and investing.)