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Transitioning to Fee-Based Business: Creating and Implementing a Plan

Issue 6 - May 2009

Our last issue focused on the reasons investment professionals are switching to a fee-based advice model. If you’ve decided that is the right move for your business, the next step is to create a plan to make the process as efficient as possible.

As with any major decision, the key is to have a well-thought out plan. It is important to consider your business, your office and your clients. A good transition plan includes:

  1. Business analysis
  2. Review of your client base
  3. Establishment of an advisory services framework
  4. Financial preparation

Business Analysis

During the business analysis step, take the time to review the history of your practice and determine the direction you would like to take. Fee-based advisors often have a deep relationship with their clients, and offer them advice on a range of issues from retirement savings, to helping with real estate financing or complex estate planning issues. You will need to determine if now is the right time to expand your range of advice-based services.

Client Base

As you review your client base, consider which clients might be appropriate to transition—keeping in mind that smaller clients, though seemingly easier to transition, may not be worthwhile to convert as the fees received on their assets are minimal. Remember that a fee-based advice model often means expanded client interaction, so be sure you have a good working relationship with those clients you plan to transition.

Establishment of an Advisory Services Framework

As you establish an advisory services framework, consider steps one and two to determine the types of products and services you will utilize. Some investment professionals find they enjoy managing complex portfolios, while other investment professionals prefer to outsource investment management to a third-party provider. In an outsourced model they leverage mutual fund advisory, exchange-traded funds (ETF) advisory and separately-managed account options which free up time to focus on providing additional wealth management services such as financial planning and cash management.

Financial Preparation

The financial aspects of transitioning to a fee-based business can include projections of income based on current clients’ transitioning, as well as time management reviews to determine the value of your time and understanding which daily processes can be outsourced or delegated.

Investment professionals who are most successful transitioning to a fee-based business report that they employed a step-by-step approach—retaining a portion of their commission-based business to keep inflows steady as they transitioned larger clients to a fee-based schedule. To learn more, each of these steps is reviewed in detail in Transitioning to Fees: An Investment Professional's Guide .

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