Five ways to charge fees for Financial Advisory Services

abril 20, 2013 · Imprimir este artículo

Five ways to charge fees
By Brent Welch

The future is looking more and more like a fee-only world for financial advisory services. Did you know that in England (and soon in Australia) commission income is banned for insurance and financial advisors?

This afternoon I visited with a friend from England who said that no one can be paid commissions anymore for insurance and financial advisory services in the U.K. My friend told me that over the last 10 years the number of financial advisors in the U.K. has decreased 90 percent, from 300,000 down to 30,000 advisors today. Imagine being a young advisor trying to start a company from scratch on a fee basis. The runway for takeoff would be very long indeed.

In Australia, starting July 1, commissions are becoming extinct. No longer can an advisor sell an insurance or investment product and be paid from the company that is manufacturing the products. The Australian Securities and Investment Commission said this on its website:

“The ban on conflicted remuneration is part of the Future of Financial Advice (FOFA) reforms and applies to both personal and general advice given to retail clients about any financial product, including managed investments, superannuation and platforms. The ban applies to commissions, volume-based payments, soft dollar benefits and volume-based shelf space fees.”1

I am writing this article now because I believe in you. Advisors and agents, like you, are the reason why millions of Americans may be able to retire with financial security. If the SEC towers over FINRA and you are forced into a fee-only world, you must be able to survive. Think about it. If America, like Australia, says, on July 1, 2014, you will no longer be able to receive commissions or soft-dollar benefits because it is considered “conflict remuneration,” you may be out of business.

So what are you going to do about it?

You can wait until this happens, if it happens. You can wait until the year you are going to be given a deadline … or you can begin the transition now. You might want to begin making the changes earlier and be proactive about the way the world around you is changing. My friend from England gave me five ways that he charges fees.

1. Discovery fee. Typically he gives the first visit at his expense. Note that he doesn’t give his first visit for free. Instead, he gives this first meeting at his expense.

2. Joining fee. Just like you join a club or fitness center, a prospect must pay a joining fee to become part of his wealth advisor community. This joining fee is the same for all individuals. Consider it a setup fee for new business.

3. Planning fee. This fee is what is charged to do the comprehensive wealth plan for the new client. The comprehensive plan includes recommendations for the new client that the client may approve in part, in whole or not at all. This fee is calculated based on the net worth of the client. Maybe you will charge 0.10 percent on the value of the estate or on the investible assets. This fee is charged every time you update the plan.

4. Implementation fee. The client needs to pay to have the recommendations implemented. You should charge this fee as a set fee for each client based on a time estimation.

5. Service fee. Consider charging a different fee for one review, two reviews or three reviews per year. The more reviews you have, the higher the fee will be. Of course, if you manage money for a client, you may want to charge an asset management fee as well. If you do so, you need to do this type of work through a Registered Investment Advisor as an IA representative.

I am writing this to get you in touch with what is going on in this world this year. It is now a reality in England and Australia. Will you be ready if there is a change here in America?

Fuente: LifeHealthPro, 19/04/13.


Commissions don’t create conflict of interest
By Marvin Feldman

Ellen Schultz of the Wall Street Journal recently wrote an article about retirement mistakes people make («Five Big Retirement Mistakes,» Dec. 29, 2012). These included not paying for financial advice; investing in something you don’t understand; supporting your adult children; lowballing elder-care costs; and underestimating how much you will need for retirement.

While I agree with most of what she stated, I do disagree with her comments pertaining to agents and advisors who accept commissions and, in her opinion, have a conflict of interest. Really! All the professionals I know always recommend what is in the best interest of the client, regardless of commissions. Yes, there may be a few “bad apples “out there, but they are rare and do not represent the career agents, brokers and financial advisers who accept commissions.

If Schultz had read the MDRT or NAIFA code of ethics, she would have seen that the members of these organizations must make clients’ interests the priority when making recommendations.

Commissions do not create a conflict of interest. Bad judgment does. Just look at Bernie Madoff. In his case, there were no commissions involved, only fees.

And speaking of fees, the upper-middle class may be willing and able to pay the fees charged by investment advisors, but research has determined that the middle class feels the appropriate fee for advice would be $100. The typical fee-only advisor has a minimum fee of $2,500.

The problem is not the fee or the commission, but the shrinking number of agents and advisors clients can look to for insurance and financial advice. The U.K. and several other countries have outlawed insurance commissions, and this has precipitated a rapid decline in the number of advisors and agents available for consumers to turn to for insurance and investment advice.

Accepting commissions does not automatically make you unethical or create a conflict of interest. It does allow a segment of the economy to have access to advice and products they may not otherwise learn about or use. Our industry’s goal is to encourage the consumer to take personal financial responsibility through the use of life insurance and related products through whatever distribution systems are required to deliver this information along with appropriate products.

Fuente: LifeHealthPro, 11/01/13.



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