Avoiding The Middle of the Road

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David R. Evanson

The Career Advisor, Winter, 2005

Chris Becks, founder and principal of what is now Strategic Financial Consultants, Longwood, FL, had reached a critical juncture in his practice. “I wanted to provide my clients with a more comprehensive level of service, both in terms of investment management and financial planning,” says the one time commission only planner. “Obviously there was much more to this than just firing my B/D and calling myself an independent RIA.”

There is almost universal agreement that fee based planning services are the optimum
model for most financial planning practices. There is however less agreement on how to transition from commissions to fees; each pilgrim must find their own way.

One of the real dangers of this however is not completing the journey and ending up somewhere in the middle: operating on multiple platforms, charging fees for some things, collecting commissions for others. The problems with this are manifold. First, you work too much because having part of each model means you must administer more systems. Second, it’s confusing to clients. Third, anything that confuses clients, ultimately hampers your marketing. Fourth and finally, you miss the opportunity to optimize the profitability of your practice that often occurs with committing to a single model.

It’s easy to see how this can happen though. You have a husband and wife client. Their joint brokerage account easily passes the minimums for the managed account platforms you have selected. However they have a number of custodial accounts that do not. So, in the interim, you manage these differently. And because this arrangement worked for one client, you do for the next, and the next. Soon, the interim becomes the de facto, and your practice is a patchwork of systems, procedures and products. You are officially lost in transition.

According to Brent Hicks, founder of FocusPoint Solutions, which offers a web-based, turnkey solution for fee only advisors, planners can avoid being caught in the middle with a well thought out strategy for the transition.

First, says Hicks, “You’ve got to make a full commitment to making the transition.” Anything less, he says, such as a ‘We’ll try this on an experimental basis to see how it works,’ is a formula for failure. When discussing the required commitment, Hicks bring up the “V” word. “You must have an absolutely clear vision that this is right for you as well as your clients. If you cannot develop this vision

Next, engage in business planning. “You are in essence starting a new business,” says Hicks, “you should take the time to think it through very carefully and write a business plan.” This is the hard part for advisors, says, Hicks, not because they can’t do it, but because of the time commitment it requires.

For Becks, one of the key components of his research was finding a total solution for his new platform, something that could handle all the different kinds of accounts he was going to handle. “I didnzzt want to piece together multiple solutions that had gaps or would overlap. Most of my considerable research was spent looking for a total solution.”

Also time consuming says Hicks, is the commitment to communicate with clients about the change. “Sitting down with all of your clients and explaining to them what your vision is for the change in how you charge for your services, though time consuming, is vital, ” he says. Even though this may take time, such an exercise has merit outside your transition. This notion is rooted in nothing more than the idea that outreach to clients, if it’s done in a consistent and sincere manner, to explain what you believe will result an improvement for them, almost always pays a dividend.

Finally, outsource as much as you can. Hicks says that ultimately, “You can outsource just about everything.” The beauty of achieving a high level or ultimate level of outsourcing, says Hicks, is that you are not managing money, personnel, technology, or even bookkeeping.

What you are managing however is the most important and vital ingredient in any financial planning practice: the acquisition and management of clients. However, it’s important to keep in mind that you may be able to do this while reducing some or all of your personnel expenses. “We regularly work with advisors who have as much as $40 million under management with no employees whatsoever.”

Becks sought out as much outsourcing as he could (ultimately choosing the one stop solution offered by Hicks’ FocusPoint Solutions). “I would not be able to successfully operate as an independent RIA if I tried to do everything myself. Providing the kind of investment management services and portfolio supervision I envisioned for my clients would take up most of my time.” Becks estimates that he was able to outsource the work of approximately four employees and now runs his practice with the assistance of a leased employee who works about 20 hours a week for him.”

Though he makes it sound easy, none of this came easily for Becks, and likely will not come easily for anyone else who makes the shift. The transition requires not just the vision that it’s the best alternative for you and your clients, but also the commitment to see it through and realize the ultimate benefits which it offers.