Case Study Background

Name: Lee Foster                                                             Occupation: Financial Advisor

Age: 57                                                                                Years of Experience: 32

Number of Clients: 762; 96 percent individuals        Assets Under Management (AUM): $177 million

Revenue Composition: Commissions—81 percent    Asset-Based Fees—12 percent    Other—7 percent

Scenario: Lee is looking to retire in eight years, at which point he plans on selling his practice to help fund retirement and legacy objectives.

Reasons for Converting to Fee-Based Model

• Recognized that his practice will be two to three times more valuable if revenues are sourced from more predictable asset-based fees, rather than volatile commission-based revenues.
• Wanted to ensure that clients’ assets are left in good hands long after his retirement.
• Understood that, with some upfront work on converting to a fee-based model, his workload in later years would be lightened.

The Conversion Process

1. Decide Managed Account Platform

Lee understood that selecting the right platform was critical to a successful conversion.  His top priorities were:

• the platform provider’s investment management experience
• their due diligence and monitoring capabilities
• the asset classes and investment managers offered
• the platform capabilities
• commitment to reinvesting in technology
• advisor servicing reputation

2. Create Client Value Proposition

Lee knew that he would be contacting the bulk of his clients over a 12-18 month period to effect this transition. Before he began his client conversations, however, he developed a set of talking points to address:

• Why he was asking them to convert to a professionally-managed account (e.g., “the ability to provide higher level of service to my best clients”)
• The benefits clients would realize from this conversion
• The fees and services associated with the advisory program

He also mapped out any concerns that clients might raise and developed responses for them.

3. Execution

With nearly 800 clients, Lee segmented his client base to prioritize his outreach efforts.  Lee divided his clients into three groups, based on size of account:

• Households with $300,000 or more in assets
• Households with assets between $150,000 and $300,000
• Households with less than $150,000

He elected to approach his best clients first for two reasons: 1) They were ideal candidates for an investment advisory program; and 2) They represented only 25 percent of his clients, but 83 percent of his AUM.

Upon completing his first outreach, he contacted the next client tier with the mutual fund advisory program as the product lead.  Once he finished both tiers, Lee began his communications to reassign the smaller accounts in order to devote greater attention to his higher value clients.

This case study serves only as an example of how one financial advisor might begin the process of converting to a fee-based business.  Processes might differ depending upon the needs of each advisor.  American Portfolios is here to help.

See referenced disclosure (2) (4) at https://blog-dev.americanportfolios.com/disclosures/