I had lunch yesterday with an FA that I had not met before, but was introduced to him by another FA with the same broker/dealer for whom I do the tax work for about 10 clients. The guy I met yesterday is looking for someone to help some of his clients as "his CPA guy" is retiring at year end.

Anyways we were talking about his model and he said he rarely, if ever does fee only. I thought this was odd so I asked him about it, and he said something very interesting.

I'm paraphrasing, but he said if you put people in good investments and have a good understanding of their risk tolerance, then you don't need to buy or sell investments often, and thus, you don't earn much commissions. Therefore, his clients pay less on a commission model, than they would paying a % of assets every quarter, a fee that never stops.

I think the knock is most commission based advisors are bad because of the propensity to churn. But if you don't churn... maybe it works?

3 ...

Report Post

Posted by lynxcat

Member since Jan 2008

24267 posts

Posted on 11/19/19 at 4:00 pm to LSUFanHouston

I think these services can be decoupled.

1) Building a financial plan and fielding X number of sessions annually for touchbases against said plan = fixed rate fee (e.g., $1,500 for plan plus a few meetings annually).

2) Fees related to asset management that emerges as a need coming out of #1.

0 ...

Report Post

Posted by Shepherd88

Member since Dec 2013

4615 posts

Posted on 11/19/19 at 8:00 pm to LSUFanHouston

quote:
think the knock is most commission based advisors are bad because of the propensity to churn. But if you don't churn... maybe it works?

I’ll take a stab at this since we have the option to work as a broker or fiduciary where we are. The option is always presented to the client in how they would like to work together and id say 9/10 times the client would prefer to work with us in a fiduciary manner. More than likely, If the client is looking for a broker, then we won’t be a good fit for them anyway.

Anyway, a “fee based” plan or fiduciary work is a lot like driving the vehicle for the client while they sit in the back. More of less your the chauffeur. A brokered relationship is a lot like letting the client drive the vehicle while you sit in the passenger seat and tell them when to change lanes or prevent themselves from having a wreck.

So having said that of course a fiduciary relationship will cost more, but if the advisor is doing the appropriate thing, the client will get a much better experience from the relationship. Deservedly so.

Most times in a brokered relationship when someone buys American funds for example and never changes them (low cost, low maintenance). A) they never really hear from the advisor again bc he doesn’t have to work for his keep (he’s been paid), B) they don’t get any additional detailed planning for their estate, legacy, or insurnace needs and C) they end up with an exorbitant cap gain that makes it really difficult to rebalance the portfolio for life changes without having big tax consequences.

I could go on with this but just wanted to point that out. Just like with everything else in this world, a better way to do things does evolve every now and then.

Edit: I can have 250 solid relationships and be able to serve all my clients deeply by charging a fee based manner. It would take at least 4x that amount of clientele for me to make the same amount of recurring revenue with a commission based approach. Having more than 350 households gets unserviceable and things start to fall through the cracks.

This post was edited on 11/19/19 at 8:08 pm

1 ...

Report Post

Posted by bayoubullish

Lafayette, LA

Member since Nov 2018

24 posts

Posted on 11/21/19 at 2:09 pm to LSUFanHouston

LSUFanHouston: I've held that same theory, but was proven wrong many times over. commission is obviously cheaper than annual fee, but that's only in theory. One day there will be one reason or another to make a costly change. It's basically making a bet that you'll stick with the "mutual fund of the month" for an extremely long period of time

0 ...

Report Post

Money Talk - Replies to Post

Return To Board

Page 1

Return To Board