Does the client objection about fee-based accounts exist only in your own mind?

One of the most important discussions an investment professional has is the value of transitioning transaction-based businesses to a fee-based model. The most common feedback investment professionals give is the client objections they hear when they introduce the idea of converting their accounts to a fee-based account, including:

• “I already paid a commission on these assets.”
• “I thought you already provided these planning services.”
• “I think paying a one-time transaction fee is more economical.”

However, the question is raised whether this insurmountable client resistance, in fact, more about advisors being unconvinced of the value to their clients of converting commission-based accounts to advisory relationships?

Feeing is Believing

To successfully convert transaction-based accounts to fee-based accounts requires a belief on the part of the investment professional that a conversion benefits their clients. Without that belief, no financial advisor can or should convert their book of business.

While transaction-based relationships may have represented the best approach in the past, advisors should consider whether changes in their clients’ lives make an advisory relationship the better choice, such as in the cases of:

1. Preventive Prescription—There are two certainties in retirement: cognitive decline and death. Converting investment accounts to a fee-based arrangement protects clients from making investment decisions that they may no longer be equipped to make, as well as protecting advisors from claims by adult children of exploiting that condition. A fee-based account also provides assurance that, should the “financial decision maker” in the household predecease the spouse with less investment experience, the surviving spouse will not be burdened with making decisions that he or she is ill-equipped to make.

2. The Accumulation Phase has Come to an End—One might argue that a buy-and-hold strategy is most efficiently executed with upfront transaction costs. However, the buy-and-hold approach for retirees or near retirees may not be as appropriate in the decumulation phase. Portfolios need to be more dynamic at this stage in an investor’s life. They need to be responsive to withdrawal requirements, risk management techniques that may involve more transactions to limit downside risks and evolving the portfolio over time to adjust to a changing risk tolerance or a pivot in objective from income to legacy.

3. A Lifestyle Choice—How many retirees truly want to put in the work required to manage a traditional brokerage account? Most would say they have better, more fulfilling things to do. An advisory arrangement allows them to enjoy retirement unencumbered by watching the markets, monitoring portfolios and making investment decisions.

This conversation isn’t easy for investment professionals and clients alike; however, it is definitely time well spent. Only when the doors of communication are left open can new levels of trust and opportunity be reached.

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