Critical First Steps Before Transitioning to a Fee Based Model | FEE043 – Transcript
True or false? You, as a financial advisor, are suffering through a totally sceptical and mistrusting public, primarily caused by the avalanche of negative articles and reports of scandals in the media. And the resulting compliance panic at the home offices has made an already tough marketing and promotion situation nearly impossible.
Now, I think you’d have to agree that that’s a true statement. And, it’s just a reality; it’s a reality we’re at today.
So what messages then are you getting from your home office, or your head office. What are they saying to you? The dealers in head offices that I am hearing comments from and hearing other people who are saying “This is what they’re telling me,“ that sort of thing, they are all saying “You need to reinvent yourself,” you need to be able to prove your value and articulate it in such a way to justify the embedded revenues you’re receiving.
The industry is working its way into a commoditized frenzy and in my opinion they’re encouraging you to race to the bottom. Better fees are being challenged and, in many respects, this is a good thing. However, nobody is showing advisors how to reinvent themselves. Dealers and head offices, they’re quick to tell you what you’re doing wrong but they have no idea how you can do it right.
New reps in the industry, the ones that us veterans are supposed to pass our torture on to, are dying painful deaths. Experienced advisors are seeing their incomes drop, seasoned veterans who’ve really not embraced the idea that you must build a business and not a job, are holding on for dear life for as long as they can. Then, they retire with very little to show for it. It’s actually a sad thing.
In our industry, we can’t build this industry on this; it can’t be built on this type of foundation. We can’t move forward on this type of a footing. It needs to be built on a more solid footing. Some people are calling for our industry to be seen as a profession. I personally don’t think this is possible in our industry right now with the way that it’s set up but using the idea as a profession as a beacon to aim for is really not a bad idea.
Let’s look at the medical profession. Let me ask you how this scenario would go over if it was ever followed: You walk into a doctor’s office with a stomach-ache. Your doctor says that he’s come across this amazing medication that he wants to talk to you about that has shown to help with mental alertness. He tells you that he has done a lot of research on the mental alertness medication and he feels that it would be a great solution for you to consider. So, what does he do? He prescribes it to you and you take his lead, I mean he’s your doctor after all.
After following your doctor’s orders, you take his prescription, your stomach still hurts but you also kind of feel more mentally alert. Is this a success? Well, let’s see. You went to the doctor’s because you had a stomach-ache. You were prescribed something for mental alertness which I guess is a good thing although you still have a stomach-ache. What if I told you that the doctor you went to wasn’t affiliated with a company that helped people with stomach-aches which is why he gave you the best medication he had for mental alertness? I think you’d be frustrated. What if I told you the doctor generated a commission from prescribing to you the mental alertness medication? You’d probably question his motivation for prescribing it to you. Well, what if a few years later you found out that the mental alertness medication now had side effects that nobody knew about before? Well, you’d be wondering probably how much a lawyer would cost to sue this doctor for malpractice.
Now, this is a common situation, this example – obviously not an example of what happens in the medical profession, but then the medical industry is a profession – now let’s look at how this situation could be fixed.
So, you go to the doctor because you have a stomach-ache. The doctor reviews a full series of questions with you to determine if it makes sense for you and he to be working together because you only want to work with a doctor who can help you with a stomach-ache and the doctor really only wants to work with you if he feels that he can be of service to you. So, you have an initial meeting to do a high level review. During that review the doctor touches on some other things, others items that you realise were kind of bugging you, but you’d learned to live with. The doctor also touches on things you didn’t know you should be concerned about. In other words, the doctor allowed to learn about things you didn’t know you didn’t know. You both feel it makes sense to explore the main issue that you came in to see him about, which is your stomach-ache, but also to look at some other things that may relate not only to your stomach-ache but to your overall health. The doctor sends you home with a checklist of information to gather together, put it all together, to bring it with you to the next meeting.
Now, between your first and second meeting you receive a letter from your doctor’s office stating the key items that you discussed at the meeting, and the letter also identifies some other areas that you’re going to be discussing about in the next meeting. How are you feeling right now? Are you feeling pretty confident with the doctor’s approach? You bet you are.
Now, you show up to your next meeting with all of the information he asked for and you’ve got a pretty big stack of information. So what do you do? You review everything. You discuss the main areas of your concern which, remember, was your stomach-ache. You discuss some of the other areas that deal with your overall health because that’s part of what was in the letter and that’s part of what the doctor wanted to talk to you about, and you realise that there is a high probability that your stomach-ache is being caused by some of the other health issues that you’re facing. The doctor indicates that they feel that he’ll be able to assist you with your stomach-ache but more than that, your overall health and wellness. So then the doctor then presents to you a process that they’d like to work with you through to ensure that no area of your overall health is overlooked and that not only your stomach-ache is fixed but your health is benchmarked so you can monitor whether you’re getting healthier or sicker each year.
This way you can make adjustments along the way to always ensure that you’re moving closer to optimal health. Now, isn’t that what you’re looking for? How do you feel when the doctor indicates that they can assist you with all of this through their customized health and wellness program? Basically, in my opinion, you feel that as long as the value you’re going to be receiving is higher than the fee that they’re charging for the process, you’re all over it. Isn’t optimal health really what you’re looking for? This type of approach is a much better approach because now, after going through the program, you’ll have a much better understanding as to why something might be prescribed for you. In essence, you’ll see exactly why you need the prescription. So, your confidence is high, your trust is high, you’re now excited because not only do you see the light at the end of the tunnel for the issue that you had with regards to your stomach-ache, but you see that this process will help you with your overall health. That’s awesome! I mean, pretty much you’re basically asking ‘where do I sign?’
So, why then do mutual fund dealers, securities dealers and insurance companies you work for never show you how to do this? Well, I think the answer is quite simple. The product manufacturers, which is what they are, they’re not advisors. They’re product manufacturers. The dealers don’t know how to regulate advice and they kind of find financial planning is a threat to the proper oversight of their products which is what they’re being asked to do. Clients, however, they want this type of process to feel comfortable, that the solutions they’re implementing are the right ones for them. The bottom line is that this is what you will use to move you toward your ability to properly articulate your value to your clients to justify the revenue you’re receiving. Provide clients this type of process and they will value their relationship with you, far beyond the rate of return being generated for them.
So, I’m hoping now that I’ve got you thinking. Thinking about you, your clients, and your business, thinking about everything you would like to have in your business and everything you would like to get rid of in your business. Gain clarity on this because once you do you will be able to take the information I’m going to deliver to you and run with it. You’ll actually have a track to run on that really has a vault filled with gold at the end of the journey. You won’t just be re-facing your business, which is really what a lot of people are trying to get you to do, is just make it look a little different. You won’t be re-facing your business with this process. I’m going to help you really try to make it go deeper with it. You’re going to change the core essence of your business to make it become a true extension of you and your uniqueness. You’re going to be taking control of your business in doing what YOU love to do, not what your compliance officer says you have to do. You won’t be living in fear at the next compliance audit.
You’ll, for the first time in your life, actually see what it means to build a business instead of a glorified job. You’ll actually feel that feeling which, I don’t know that you’ve ever felt it before, of what it feels like to truly make a profit. Not just eeking out a little more money each year with nothing left at the end of the year but an actual true profit. A profit which you can reinvest back in your business for future expansion, for future value, for future whatever you want to do but it’s the actual idea of making a profit, having something left over. You won’t be trying to fit your business around the mountain of compliance headaches that are being downloaded to you, and you won’t be sideswiped by your dealer telling you that you can no longer do what you’ve been doing for years. You’ll develop a business model that everybody wins with.
You see, this is some of the things that people are saying to me. They’re saying ‘Listen, my dealer now says I can’t do this, my dealer says I can no longer use that particular investment solution, my dealer says I can’t charge fees for my financial planning.’ But you know what, that’s wrong because clients want that, clients want to be able to know that the advice they’re receiving is the best advice they can get and is not advice that is just simply ear-marking them or rodding them through to buying more products. They want the financial planning advice and the advocacy that comes from that financial planning process.
So, how then do we migrate our business away from the malpractice model – which is what I think the current solution is of malpractice models basically solutions before advice – to the advocacy model of advice before solutions? How do we create a business that isn’t just a glorified job? How do we build true wealth for our sales, not on the backs of our clients but in conjunction with them? Well, I’ve studied this topic and continue to do so and over the next little while I’m going to be focusing on everything you need to know to take action, to be able to set up a plan so that by the end of the next six months – and yes, it only takes six months to do this – you’ll be 100% migrated over from your current either commission model or the current business model that you have right now to a fee based financial planning model. Your clients will actually be saying ‘Thank you for the transition opportunity.’ Your confidence is going to soar. Your revenue will take a drastic increase. Your referrals will increase and your life will take on a whole new meaning. Life as you know it will be great. My goal here is to provide you with all of MY real-life examples. You see, I’ve done all this before so I’m not speaking from ‘this is what I think you should do,’ I’m actually speaking from ‘this is what I’ve done, this is what I’ve experienced and this is what I know works.’
I’m going to give you my real-life example of what I went through in transitioning my business not only to a fee based business model but to a fee based business model without the need for an investment licence. So, stay tuned as we take this journey together. Soon, you’ll be out there building yourself a better business.
At the outset, I said that your first step was to choose your exit date. So, why is choosing first this date, why is choosing at first so important? The whole process will take as long as you give it, so give it a deadline. You see I kind of liken this to a few different examples, one would be if the best thing you can do if you want to get healthy, or if you want to lose some weight or whatever, is book yourself a race. So, for example, let’s say you wanted to get into to doing some running or you wanted to-, whatever happens to be, you wanted to just live a healthier lifestyle. The best thing you can do is go and find a race that is taking place in three months or six months or whenever it happens to be and actually book yourself into that race, and pay your registration fee and everything that goes along with it. The reason being is that now all of a sudden you’ve got a date you’ve got to aim for. Without that date, you kind of, yeah-, it might not get you out of bed, it might not get you to do the training, it might not get you to do the extra work, and this does take work, this does take some focused effort, but if you don’t book that date at the end, then you’re never going to do it. I mean, this will take as long as you give it.
When I did it – I’m saying here you want to do this over a six month time period – I did this in three months. I transitioned 100% of our practice in three months, and it was a busy time, but it’s because I was focused and I knew exactly what I needed to do AND I gave myself a date. So, book that date, you’ve got to look into the future and I’m giving you six months, book that date into the future, mark it down, and earmark everything. Everything is now focused on getting ready for that particular day. So, as I say, my recommendation is to choose a date from today, for about six months from today. It’s enough time to actually have two meetings with your key relationships and this is one of the reason why I feel it’s important to do the six month approach because when I did, it was really-, it was quicker than I think-, anyways it was quick. I did a little bit of-, when I go back and think about how I transitioned, we had been planting the seed earlier on so it allowed us to do it a three month transition pretty well, plus we were really focused on financial planning and comprehensive financial planning and I’ll get into more of that in a moment. Definitely six months would give you enough time to have two really good quality meetings with your clients. So what happens at these meetings? I’m going to go over them briefly. I’m going to go over them in more detail in later discussions. Basically right now let’s look at meeting number one.
This is where you do what I call planting the seed and when you’re planting the seed here you’re going to initiate your discussion around really focusing on and answering your client’s questions by always relating back to your financial plan. Now, when I talk about planting the seed I’m not talking about sort of dripping in topics of what you’re planning on doing. No, I’m talking about planting the seed on giving them an experience as to what your new model is going to be like to them and by doing so you’re just basically putting them in that model and you’re going to be having discussions as if you were in that model. So, what I mean by that, is initiate your discussions around really focusing on answering your client’s questions by always relating back to a financial planned discussion.
What it does is that it really reinforces the importance of a financial plan and the financial planning process. So if a client-, let’s say they-, or even somebody you’re meeting with for the first time, say ‘I want a better investment return,’ well, the response to that is ‘Why?.’ The response to this is ‘Why is it you want a better return?,’ ‘Do you know what your required rate, what your rate of return, is for your plan to be successful?.’ Well, often times they’re going to say ‘No.’ I would venture a guess that every time somebody is going to say ‘No, I don’t know what my required rate of return is’ and ‘I know what I want but I don’t know what my required rate of return is.’ But then you can say ‘Wait a minute, you just said you know what you want, you want an x% rate of return. Why do you want that return? What’s significant about that number?’ Well, they’re going to have to come back with a reason. Chances are the reason is they just want a higher rate of return.
What I find is that people will always gravitate to rate of return when they don’t know what else they need to be looking for. And, they always look for a higher rate of return than they feel they really need because they’d rather have too much than too little. The problem with that, as you and I both know, is that they will be taking on more risks and they don’t really realise what the risks are. So, by bringing it back to the financial planning discussion saying ‘Listen, one of the things that we feel that is important to do is to determine what your required rate of return is. The only way we can do that is by establishing what-, by getting a clear understanding of what your overall financial picture looks like and developing a comprehensive financial plan for you. By doing that we can determine not only what your required rate of return is, we can then take a look at the risks that you need to take on the various portions of your net worth. Maybe there’s a portion of your net worth that we know that this particular dollar value of your liquid net worth is required to support the retirement income cash flow that you need during your retirement years; but anything above that is not kind of needed for that cash flow so really the question is ‘Who are you investing it for?’ Maybe you’re investing it for your beneficiaries because if we’ve determined that you’re probably never going to use that money, then you’ve got to answer the question: who are you investing it for? So that then gives you a clear understanding about what percentage of your portfolio needs to be in investment solution A, what percentage needs to be in investment solution B and you can start to get very clear on that all on the financial plan.
So, by bringing your conversation always back to the financial plan it really reinforces the need for a financial plan so maybe you don’t have a comprehensive financial plan for your clients right now, and that’s fine. You know, a lot of people probably won’t have what I would consider a comprehensive financial plan. Maybe you’ve done some rough calculations, that sort of thing, but you don’t really have a plan that you’re going back to on a regular basis.
This is your opportunity to now start going back to that and really provide clients with an inside as to what they’re on track for. So you kind of do a once-over review of every area of their financial plan and that’s really what this next meeting is going to be all about, is doing that once over. Identifying all the opportunities that you now need to work on, so if you do a comprehensive plan. Because if there’s an existing client for you and you’re reviewing meetings right now, you know all about them and so, what I would recommend you do, is you sit down and you put all the information together in your financial planning program that you’re using. If you don’t have all the information well then the first step for that review meeting is saying ‘Listen, I just want to do a double-check, I want to do an overview of where things are at with you today because I want to make sure that you’re very clear what you’re on track for.’
By going through that process they’re going to start telling you about everything because they will quickly recognise that if they don’t tell you about something, maybe they haven’t told you about something or, something has changed, you just haven’t had that discussion in the past, they’ll realise that if they don’t give you that information then the results they’re going to get are going to be kind of flawed or tainted without that information in it. What it allows you to do is that now you can start to identify some opportunities that you can begin to work on with this client. This goes back to an understanding that, in order to migrate to this type of a process and this type of a business model, you really do need to be-, to have a desire to focus on financial planning.
If your focus and your desire is just to really manage assets, then going to a comprehensive financial planning business model, a fee based business model, is probably not the best thing for you because it’s going to cause more headache than anything. But if your focus is really on financial planning first and you recognise that the implementation solutions, we can do that, but that’s the least of our concerns right now; the most important thing is really developing a comprehensive plan to identify what we need to be working on to put in-, to solve your problems, or to make things better for you and it all comes back to the financial planning process. But by doing that, now what you’re doing is that you’re building a list of all the opportunities that you could be working on with this client, so maybe you identify other investment opportunities, maybe there are some life insurance opportunities, maybe there are some living benefit opportunities, and maybe there are some mortgage analysis opportunities. The list goes on and on and it’s amazing how having this initial meeting and going through a once-over with their financial plan, which again maybe you haven’t done this before, but by doing this, it really gives the client a real sense of ‘wow, they’re really looking at everything and they’re really making sure that everything is on track.’ Maybe at the end of it you say ‘OK, there are no opportunities to work on’ but the reality is you’re probably going to find something.
So what you’re going to be doing during this meeting is logging all of the opportunities that you’ve identified and you’re going be getting your client to kind of rec the importance of them. Which ones of these opportunities? If there’s more than one of two, you can’t do everything at once. You’re going to say ‘Listen, obviously we can’t solve all these problems right away, we’re going to have to work on them over time.’ But which one is the most important one that you want to be working on first? And they’ll come back and they’ll explain which one is most important to them. If you identify some opportunities, chose the most important one and once the client has chosen the most important one, book a meeting to review the results of your findings on that opportunity. Don’t answer the questions right then and there.
Often times I find that financial advisors will try to answer everything right then and there to be very very efficient with their meetings, because they feel that’s how they can add value by making it simple, by compressing it into doing everything as quickly as possible, and that efficiency is where they’re feeling like they’re adding value. What I found in reality is that efficiency of going that route actually detracts from the value, because sometimes clients feel like it’s being looked over very very quickly just to get to a product sale.
So, what I recommend you do is you say ‘OK, I want to go through a full review of this with you. We can’t do it all right now, there’s too much information I need to look into first of all so why don’t we book a time to do this and you know what, we can even do it online.’ I recommend obviously a face-to-face meeting is great but, if you’re doing a lot of these opportunity reviews, sometimes it’s-, the conversation might be a 20 minute/half-hour conversation and for somebody to have to drive in to your office or you to go over there it might be a little much. So what I recommend you do is you consider using an electronic online meeting. I happen to use GoToMeeting and I love it. I use it all the time and clients actually ask for GoToMeeting meetings as we go forward.
So this process will not only begin to fill up your calendar with revenue opportunities, but it’s going to reinforce with your clients the importance of a comprehensive financial plan to help them in making better financial decisions, because, remember, you’re always bringing it back to ‘Let’s determine if that’s going to-, that decision you have to make, let’s go and take a look at the plan because we can maybe say if we do this it’s going to make you-, move you closer to or further to your ultimate goals.’ So it’s constantly bringing it back to those financial planning goals.
Completing this process with a client will really show your level of comprehensiveness to your approach and really reinforce the need for comprehensive financial planning. And probably-, you may ever hear them say things like ’Wow, I didn’t know you did so much’ or ‘I didn’t even know you did that.’ And this is one of the things that-, these are some of the responses that I’ve had from other financial advisors who’ve gone down this route is their clients would say ‘I didn’t know you did life insurance or mortgage analysis or anything like that. I wasn’t aware of that.’ And it probably was because you just didn’t bring it up at the time, so by going through this overall once-over it gives you an opportunity to do that. What’s it’s also doing is that it leaves your clients really really happy with what you’re doing for them and, that happiness will go well beyond just the investment focus because a lot of people are just investment focused because they don’t have anything else to look at. By doing it this way it just makes them feel like you’re looking at so much more and you’re being so much more comprehensive.
So, that’s kind of the tone and we’ll go into much more detail as to actually execute this first meeting later on, but that’s kind of the tone of the first meeting. Now, you’re going to have a second meeting and the second meeting will probably be four/five months after the first meeting and it’s actually-, you know-, you may have a lot of opportunities that you’re going to be working on in between the first and second meeting, so, who knows, you may have had two or three meetings with these clients along the way. The nice thing is that most of these meetings are going to be revenue generating meetings so it’s not going to be necessarily a waste of your time.
Now, meeting number 2, and this is where you have sort of those core meetings.
– Meeting number one which is what I call ‘planting the seed’ through the financial planning approach.
– Meeting number two: this is where you’re going to reveal to your clients how you’ve been doing some research, and that you’d like to share the results of that research with them so, it’s going to provide you with kind of a story to walk with them through-, to walk them through and it’s going to allow you to frame and position kind of the next chapter of your relationship together. I’m going to go as they say-, into greater detail on this later when we’re going to dive right through what to say at each meeting. But I want you to be aware of how the whole process really does take two meetings.
It’s at meeting number two where your clients will be listening but at the end of that meeting they’re going to say ‘Listen, I’d like to be a part of your new business model.’ They’re going to be excited to pay you a fee, they’re going to say things like ‘Thank you for charging me for making me aware of this new business model. Thank you for doing such a great job and sort of moving your business to this particular model and in qualifying, in allowing me to participate in that.’ It’s a great meeting and the beginning of your clients receiving so much more value and you receiving more revenue as a result. I mean, it’s really where everybody wins. And so, it’s at that second meeting where you’re actually going to be doing that transitioning, getting them buying to transition to this new model. And as I say, we’ll go through exactly what to say and how to say it and how to articulate all that information to clients during that time.
Now, again, using that six months from today kind of approach and choosing that end date is enough time to put in place what you need to put in place, because this is where now we’re going to start building, we’re going to start-, all the heavy lifting is going to begin. We’re going to start a process where we’re going to go through mapping out what needs to be done, so that you can hit these meetings, you can start booking the meetings, you’re going to know what you’re talking about, but you’re also going to start putting some of the foundation in place. So, it’s also enough time to continue running your existing business alongside of your new business, because remember this whole process of transitioning is actually transitioning to a new business, a new business model.
And you can’t-, you don’t want to do it necessarily cold-turkey, although you can, but you do need to sort of run the two simultaneously together because you do have to pay your bills. You do need to make ends meet so you can run these two in tandem. It is just like one of my favourite authors, who you’ve probably heard me talk about before, Mike Michalowicz, it’s kind of like what he said, and I’m really kind of paraphrasing in this, in his book The Pumpkin Plan: ‘It’s enough time to plant your seeds, weed your garden, water and nurture the pumpkins with the highest probability of success to grow them and to grow the best pumpkins you’ve ever grown.’ This new business is your pumpkin patch.
So, this whole process is really just like that. It’s going to be identifying the-, you’re going to be planting your seeds, you’re going to be weeding the garden a little bit, weeding your business out for getting rid of the stuff you don’t want. You’re going to be nurturing and watering the areas of the business that really are valuable to you. And that’s going to give you the highest probability of success, and really, once you start going down this route you can see that really it’s not-, there’s really no way you can fail by doing this because it’s better for everybody, and it allows to just work with the best pumpkins, grow the best pumpkins and really focus on the best opportunities that you have within your business and this is your new business, this is your pumpkin patch so to speak. So, chose that date and put that deadline in place so, really, what I want you to do is take some time and look six months out and say ‘You know what, is that-, am I committed now to making that change? Because if I am, let’s choose that date and let’s get things started.’
Now, the goal of migrating your business to a fee based model, and again my goal is to show you that migrating to a fee based model is one thing, but I am really actually going to show how to migrate to a fee based model without the year investment licence, without the need for your investment licence, and how that process is actually more profitable than just moving to a fee based model. One thing I recognise is that it is terrifying upfront. I know, I’ve been there. I’ve done it, I know the anxiety that you go through.
But the thing about this goal that actually makes it easier than you think, is you know-, it comes back to one of the coaches who I worked with, Dan Sullivan, he said at one point-, he says ‘When you want to grow two times you can probably do so with a lot of the same infrastructure you have in place today. But when you want to grow your business ten times you need a whole new foundation and it’s easier to build a new foundation from scratch than it is to fix and mend the existing one to do the job.’ You know that’s exactly-, so true. It’s easier to say ‘You know what, if I’m going to build a business – and remember, most people who are in this industry don’t build businesses, they just build glorified jobs – if I’m going to build a business then I need a whole new set of foundation. I need a whole new support, a structure in place.
And so now it just changes your thinking, it allows you to focus on that structure, and it allows you to really say ‘You know what, if I’m going to do this again, this is kind of a do-over, I’m going to do it right this time.’ And for those of you who’ve been in the industry for a while, it’s going to be so much easier because you know what you like, you know what you don’t like. For those of you just starting out, you kind of have an idea of what you want to do and if you’ve been my-, if this message resonates with you, then you kind of have some perspective on what you’d like to accomplish. The nice thing is you don’t have all the BS that goes along with the commission based side of things. So it’s really going to allow you to build that foundation, to put that support structure in place, and build on it. And again, you can do it alongside your existing business.
So, chose you exit date for about six months from today, and when I say ‘exit date’ it’s the date of your transition day. Mark it down in your calendar and stay tuned because my goal for the next little while is to show you exactly how to build your business so that your clients will receive over ten times the value for the price that they have paid to work with you.
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