The importance of a “System” when converting to a fee-based financial planning practice model.



The time came when I was so fed up with my reliance on the need for “transactions” to generate “commissions” that I had to make a change.  The longer I stayed with the commission model, the further into the commission abyss I went – and the harder and harder it would become to get out.

So, I decided to pull the trigger and migrate my business to a fee-based model.  But, I did so with a very well thought out systematic approach to doing so.  Or so I thought…

I did the math.  I knew in the long-run things would be better, both for me and my clients.

So, my plan looked something like this:

  1. All new clients were charged a financial planning fee for the writing of a comprehensive financial plan.  I would not work with a client who did not want a comprehensive financial plan and who was not interested in paying a fee for this advice.  My motto was “you can go down the street and be sold a product or you can work with me to help you buy into a plan for you to accomplish your financial goals.
  2. When it comes time to “implementing” a financial plan, I would do so on a no-load basis and my fee for the investment oversight would be charged to the clients investment account.  Thus, full transparency was accomplished.
  3. I would meet with all of my clients and explain to them that our business model was focusing on comprehensive financial planning and for this advice (as any other professional would) we were going to be charging for our services.  However, because they were existing clients, we would grandfather them into our fee schedule at a reduced rate.

A simple and straight forward plan… I thought.

The day of my first meeting with a new prospect who was interested in my services was horrible.  I was nervous.  I was actually quite sick to my stomach.

The meeting began like all others.  I asked them to bring copies of their statements with them.  We reviewed their statements.  I explained how we could make things better for them by allowing us to “properly” select their mutual funds based on our expert analysis and how it would make for a better investment plan.  Then, came the part of the meeting where I had to explain to them our financial planning fee structure.  This is where the wheels fell off…

They had over $100,000 of investments they were looking for some assistance with.  They were unhappy with their current advisor.  Should have been a slam dunk!  They knew their investments were not setup properly and wanted a change.  I knew that once they became a client, we would be able to help them with all of their insurance needs.  It was going to be great.

However, when I began explaining the financial planning fees, they began to act funny.   The tone of the meeting changed – and for the worse.

The husband asked, “So, what was it that they got for the fee?”

I told them, my financial planning advice.

They told me that they weren’t paying for that now.

It seemed to me that the financial planning fee was getting in the way.

I told them that because we only implemented their investments through “no-load” investments that didn’t have any up front fees or any back end fees that they only paid for the advice and were never locked in to any fees should they decide that they needed to make an adjustment to their portfolio.  That this was better for them.

They never became a client.

Can you say I was frustrated!  Yes.  Part 1 and 2 of my conversion plan wasn’t working so hot.

Then, I had a meeting later that day with an existing client (a “B” client) who I was going to be converting to our new fee-based model.

The meeting went something like this:

Client: “So, what your telling me is that I am going to be billed for the advice I was getting for free up until now?”

Planner: “Well, yes and no.  Yes you are going to be billed for the advice but no, you weren’t getting it for free up until now.”

Client: “How was I paying for it?”

Planner: “Through the fees on your mutual fund accounts.”

Client: “What fees?  I haven’t seen any fees charged to my account”

And you can imaging how this conversation went.  And, it finally ended with the client saying: “Well, let me think about it and I’ll get back to you.”

And, guess what happened.

That’s right.  We got a transfer notice in the mail.  They were transferring their account to another advisor.

So, my first foray into fee-based financial planning was a crash and burn.

What went wrong?

Well, here is what I changed.

  1. The original system I put in place was for me, not for the client.  So, I changed my focus and created a financial planning system.  This system clearly showed prospects how I was different than the typical commission based advisor because my financial planning system analyzed not only their investments but also their Retirement Plan, Insurance Plan, Tax Plan, Estate Plan, Education Plan, Business Plan, etc…  They saw value in that and very quickly realized how I differed from their current advisor relationship.
  2. Specific investments with new clients were never discussed until their plan was finished.  Which makes sense because you can’t know what you need the investments to do until you have analyzed what needs to be done.  What I found was that by placing little importance on the investments up front, and placing my total focus on the planning, that I was in a class all to myself.  One that didn’t carry with it a “salesmen” stigma.  This was very refreshing.

Here is a true story:

During one of the very next meetings with an existing client who I was planing to migrate to our fee-based model, they looked at me and said “Thank you!”  I said, “I don’t think you heard me correctly.  I said I was going to start charging you a financial planning fee each year”.  They said, “Yes, I understand”.  I asked them why they thanked me.  And, do you know what they said?  They told me that they were always concerned that I would go out of business because they never saw any money coming out of their accounts to pay me for my services.

I didn’t see that one coming…

So, what’s the moral of the story?  Create a systematic financial planning approach to your business and promote that.  Emphasize the importance of regular review meetings and put a system in place to ensure all clients are invited back in for a full-year and mid-year review meeting.  And always remember, the product your selling is your service.

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