Building Fee-Based Business

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Broker24's picture
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Joined: 2006-10-12

So, I am waiting in anticipation for the advisory service that EDJ is rolling out this summer.  I am looking for some feedback on people's experience with building their practices with fee-based business.  My biggest concern is trying to balance earning enough to eat NOW, versus building the fee-based assets.  Obviously, there is a big difference between getting a $500K account and making $10K off it today, and making $415 today, and then making that every month in perpetuity.
 
I don't need advice on "do what's right for the client".  I know all that stuff.  I am curious, especially for people that did not have a substantial book already when they "converted" to fee-based, how they managed to build it, and if they would do things differently.
 
I really want to build a sustainable practice that can reasonably serve 250-300 households, without resorting to some of the, shall we say, more "active" methods of generating income from clients.
 
Thanks for any feedback.

scrim67's picture
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Joined: 2005-04-28

I am building a fee based business from scratch since 2005.  Thank goodness my firm is really behind building a fee based business.   I did have to balance getting paid upfront vs perpetuity but fortunately my firm with its farsighted perspective was willing to pay me about 50-60% of what I would've made in a "transaction based" trade so it wasn't as big a sacrifice as you are describing.
I'm not sure I could've survived any other way.
 
Good Luck!
 
scrim

Broker24's picture
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Joined: 2006-10-12

Thanks Scrim.

Of course, I don't know how the model is going to be presented. Maybe they front-load the fees to us for the first year - who knows (basically give it to us like a C-share commission). Hopefully there will be some bump up-front. But I don't really know the way most firms handle these.

I know some of the people that developed our model came from AGE, so chances are it is similar to their structure. I guess I'll know in about a month or so.

theironhorse's picture
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Joined: 2007-03-03

i have been able to offset some of the smaller up front payouts with insurance sales.  focus on the investments, but also try to become a complete planner, throwing insurance in there now and then for some better immediate tickets.

now_indy's picture
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Joined: 2006-07-28

If you want to annuitize your revenue, but would still like a "pop" when you sell something, look into UITs.  If you stick to the 15 month UITs from Van Kampen and First Trust (which you CAN use at Jones), you will make about 2% upfront, and 1.2 or 1.3% every 15 months (which works out to about 1.04%/year).  There are some very nice UITs. First Trust now has the "Moderate Growth" UIT with a bond componet to it (1-ticket drop).  Just an idea.
 
I think both First Trust and Van Kampen have hypo software on their sites for UITs.
And, the UIT "roll" every 15 months forces you to call your client.

Broker24's picture
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Joined: 2006-10-12

N.I.-

Interesting. I have not spent much time looking at UIT's. But I know my friend over at AGE use them quite a bit. Not sure, but I thought Jones screws you on the UIT commissions. We are very limited with inventory that we can sell (unless I am wrong - I also haven't looked at them real close).

I'll look at it though.

Thanks.

IH -
I have been focusing more on insurance lately, as I really have embraced our planning concepts and hope to continue ramping that up. That will help.
Thanks.

donatello's picture
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Joined: 2007-12-22

Broker24-
Balance transactional with fee based. If you have a ton of A shares on the books, and it makes sense to pare down some of the profits, let the client taste it for a while. There are very good reasons to do fee based, but you don't have to loose your good sense. Use it as a tactical play....like maybe it follows a strategy that is very different from what you have been able to follow in the past. I can tell you my x-Jones clients love this approach, and the fees are well disclosed. I especially love the discretionary stock platform we have, but I am not sure you are going to get that, but you can really do some good with ETF's. Set your core percentage, and then use the rest of the money for tactical. When you have $250k automatically coming into your book every year, you will see some wonderful things happen! Good luck.

Cowboy93's picture
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Joined: 2005-05-10

Clients that have more $ tend to understand the fee model better---basically that you'll get paid for taking care of them instead of moving things or bringing in new clients. It is helpful to pick a size of account you'll lean towards a fee-based approach (say, potential to have $250k at some point). Then accounts that come in lower than that, you can still pick up the income on day 1. But yes, it hits your income in the short run...but it is worth it to realize you are clearly building a business that allows you to thoroughly service a set # of families at some point.

Spaceman Spiff's picture
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Joined: 2006-08-08

B24 - I think you can also look at things like VAs, bonds, individual stocks, and LTC to make up the difference.  In addition, we are going to get those clients that just simply don't have the $100K to put into the plan.  I think it will be more realistic than what you expect to hit your goals.   

Broker24's picture
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Joined: 2006-10-12

I agree with all of you.  I was just curious what obstacles people have run into in the past.  Spiff, you and Cowboy are correct - a lot of that other "stuff" will come.  I am fortunate in my area that there are a lot of people with wealth - I get a higher percentage of "large" accounts than EDJ guys in other areas, but landing those accounts are tough in the early years (lots of competition).  Given this fact, I realize that fee-based needs to be a component of what I do with this group.
 
Thanks for the feedback.

noggin's picture
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Joined: 2004-11-30

Broker24 wrote:I agree with all of you.  I was just curious what obstacles people have run into in the past.  Spiff, you and Cowboy are correct - a lot of that other "stuff" will come.  I am fortunate in my area that there are a lot of people with wealth - I get a higher percentage of "large" accounts than EDJ guys in other areas, but landing those accounts are tough in the early years (lots of competition).  Given this fact, I realize that fee-based needs to be a component of what I do with this group.
 
Thanks for the feedback.
Understand that at Jones you are limited to the Van kampen Uit's. The fee based at jones from what I hear isn't even in the same ballpark as the industry leaders. It will be limited to 160 funds from the preferred families and ETF's. It still is a major leap forward for jones,though. Can you imagine a guy fresh out of eval/grad saying yes we have fee based too......

now_indy's picture
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Joined: 2006-07-28

I was able to buy First Trust UITs when I was at Jones. I think that was around 2005.  You may want to check to see if they're still available.

noggin's picture
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Joined: 2004-11-30

I might be wrong.....

Broker24's picture
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Joined: 2006-10-12

We can buy First Trust UIT's. But, as Noggin mentioned, the inventory of what we can sell is very limited.

Noggin, you are probably right. I would bet it will be very limited and very structured. However, they are probably doing this from the outset so they can evaluate how it goes. They have said that they will eventually allow individual stocks as well, but after some time. As with most things, they are dipping their toes in after everyone else has swum a few laps. The program will likely be expanded after they have made it "work" for a while.

We'll see.

Spaceman Spiff's picture
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Joined: 2006-08-08

Actually, very few of the preferred funds will be in the fee based model.  The GP that is in charge of it spent some time with our region recently.  He said that 75% of the funds are going to be non preferred.  Some A shares LW, some no load, some ETFs.  And the number was 180.  There are all sorts of rumors flying around.  I've yet to talk with a MP conference attendee to get the real scoop.  Summer regionals (Indy this year) are coming up in June.  We'll find out then. 

babbling looney's picture
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Joined: 2004-12-02

Sounds like the Jones platform for fee based is going to be pretty limited and restricted.
 
I have several methods of fee based one which is a limited mutual wrap fund platform with risk rated portfolios consisting of funds from about 8 "strategic partner" families. This is mostly for clients with small amounts invested $25,000 minimum.
 
There is a MAP program for larger accounts  (minimum $100,000 equity accounts) with 3rd party management firms of which we have 6 to chose from.
 
The other platforms I use more often allow the advisor to pick the investment mix themselves.  Stocks, ETFs, UITs, Bonds, Funds load at NAV, Advisor Shares or No Loads.
I have over 300 fund families that I can pick from.  136 pages listing mutual funds available, no restrictions on stocks or other equities.  Client can pay the ticket charges or I can pick up those charges with a higher fee structure.  No firm held inventory of UITs or Bonds that I have to pick from.   Incredible report generating capabilities.
 
Makes me laugh when the Jones guy tells people that I can't do what he can do.......he's right....I can do so much more

Spaceman Spiff's picture
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Joined: 2006-08-08

babs, there's no doubt that you being indy means that you have the entire universe of funds to pick from.  I would also laugh if a Jones guy said that.  It's just retarded. 
 
The third option  you mentioned is the only one Jones won't have.  At least right now.  We have the MAP program that is an SMA platform similar to what you have.   We have 21 different managers in that one. 
 
The only restrictions I've heard about with the new platform is that if you want to build a portfolio yourself you have to use 10 different funds and hit a lot of, I'll call it styleboxes.  There will be model portfolios just like in annuities if you want to go that route.  It's at least a step in the right direction for Jones. 

NOLA_Advisor's picture
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Joined: 2008-04-23

Does anyone know when the Jones fee-based program is going to come to fruition?

Broker24's picture
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Joined: 2006-10-12

It was introduced at the Managing Partners Conf last week. Those people are now able to start using it. It will get introduced to the rest of the firm in June at Regionals. I believe it will be fully implemented between June and August, by region maybe? (most likely so Support staff has ramp-up time during rollout, as opposed to 11,000 people calling all at once).

Bear 34's picture
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Joined: 2008-05-12

Noggin,
I am looking into becoming a new financial advisor with EJ, and I had a question about your comment about new financial advisors and the fee based accounts.  Is it a benefit because it is a popular product line, or does it suck because you don't make much money up front?
 
Thanks for your help!

NOLA_Advisor's picture
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Joined: 2008-04-23

Bear 34 wrote: Noggin,
I am looking into becoming a new financial advisor with EJ, and I had a question about your comment about new financial advisors and the fee based accounts.  Is it a benefit because it is a popular product line, or does it suck because you don't make much money up front?
 
Thanks for your help!

One has nothing to do with the other.

Bear 34's picture
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Joined: 2008-05-12

 
 Can you imagine a guy fresh out of eval/grad saying yes we have fee based too......
 
 
Noggin seems to think it is either a positive or negative, I am wondering which.
Thanks, again

noggin's picture
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Joined: 2004-11-30

It is a positive for a veteran financial advisor and a negative for a new financial advisor.

lambda's picture
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Joined: 2005-07-20

Nog...what do you mean?

troll's picture
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Broker24's picture
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Joined: 2006-10-12

Though I haven't seen details, I am almost certain that there will be safeguards in place to prevent newbies from building all fee-based business (least of which is the 100K minimum account size).  The problem with Jones is that their new-FA compensation plan does not encourage fee business and asset gathering.  The wires will usually string you along long enough to generate sufficient fees to replace the salary.

freeman12's picture
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Joined: 2008-04-23

B24,
I am waiting for a flight to come in and am keeping myself entertained by reading posts. Here is a tip for building fee based at EDJ

1. Call Mort Browns department - SMA
2. Call Alliance Bernstein & request a meeting with their SMA wholesaler
3. Get involved in networking groups with indy advisors
4. Ramp up your insurance salesmanship

If you are going to build assets under fee based the SMA platform has a lot to offer and so will your Mutual fund platform as compared to what you have right now. Morts office has a lot of good material on building a fee based book. If Susan is still there she will even come to a region and train. Remember it is a difference in what you are doing. The commission broker does just that - makes a commission by selling you something. The fee advisor gives advice and receives a fee for it. Use the financial planning software. Plant the vision for the client that they are accumulating assets ( asset mgmt) and protecting assets (inusurance) against the consequences of lifes risks like disability, death, disease etc. Take a comprehensive approach and expect to move $500k at a time rather than the old $50k commission sell. It doesnt take long and with insurance to enhance and protect you will not feel much of a difference. If you have $70 mil the old EDJ way then in 18 months you will be blowing away your average numbers by just having $20mil in fee.

GT Key's picture
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Joined: 2008-01-15

I know some information about the "fee based" EJ platform is being leaked. I have heard the max fee is 1.35%. Can anyone confirm this? I had heard about 6 months ago that it would be under 1%.
Broker 24 I am very interested in how EJ is going to reward/punish newer FA's if they are pouring a lot of assets into this plan and subsequently falling below short term expectations.

Broker24's picture
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Joined: 2006-10-12

GT Key wrote:
I know some information about the "fee based" EJ platform is being leaked. I have heard the max fee is 1.35%. Can anyone confirm this? I had heard about 6 months ago that it would be under 1%.
Broker 24 I am very interested in how EJ is going to reward/punish newer FA's if they are pouring a lot of assets into this plan and subsequently falling below short term expectations.
 
See the other thread on the details (under What's up at Firms).
 
I don't think there will be reward/punishments, so to speak.  I do, however, expect that after Jones sees the level of use in the platform, they will have to modify the way they judge newbies.  I expect some sort of hybrid approach that will consider AUM, in addition to gross commissions.  I think it will be more like the wirehouses expectations.  I have not heard this, but that's what I would expect them to have to do at some point.  We will hear more at the Regionals this summer.

Magician's picture
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Joined: 2008-05-19

If a rookie can really get after it at Jones and build as much as he can fee-based, then he can utilize the salary for the first year and not really worry so much about eating. He might have to forego the milestone bonuses, but if he thinks long term, in his second year he'll have five times what a normal jones guy would have had in steady income.

diclaimer: I don't know much about building fee-based, so I can't really say for sure.

People in their second and third years might have it rough though.

jwcopper's picture
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Joined: 2008-05-14

The original poster asked about going to EDJ and building a fee based business.  My answer is to go to an establishment that has had fee based, a robust platform for many years.  Don't jump on with a firm that just rolled it out.  I don't know what the next big revolutionary change will be in the business, although retainers are making more sense to me these days, you don't want to be at a firm that takes over a decade to read the writing on the wall.

GT Key's picture
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Joined: 2008-01-15

I believe the original poster is already with EJ and is looking at how to better make the transition.
 
Either way, all of this stuff is noise. It doesn't matter what product or platform structure your firm has, what you say to people, how you prospect, or what your personal investing philosophies are. Just find enough people who trust you, believe in you, and have needs that they want addressed and do what is right for them and their situation.
 
Keep it simple stupid. I am stupid, so I keep it simple.

Broker24's picture
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Joined: 2006-10-12

Magician wrote:If a rookie can really get after it at Jones and build as much as he can fee-based, then he can utilize the salary for the first year and not really worry so much about eating. He might have to forego the milestone bonuses, but if he thinks long term, in his second year he'll have five times what a normal jones guy would have had in steady income. diclaimer: I don't know much about building fee-based, so I can't really say for sure. People in their second and third years might have it rough though.
 
I think you are spot on.  BUT, you need to make sure you can actually build it that first year or two.  Otherwise, you are going to be FUBAR.

Broker24's picture
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Joined: 2006-10-12

GT Key wrote:I believe the original poster is already with EJ and is looking at how to better make the transition.
 
Either way, all of this stuff is noise. It doesn't matter what product or platform structure your firm has, what you say to people, how you prospect, or what your personal investing philosophies are. Just find enough people who trust you, believe in you, and have needs that they want addressed and do what is right for them and their situation.
 
Keep it simple stupid. I am stupid, so I keep it simple.
 
Yup.  At the end of the day, it doesn't really matter about the firm (within reason).  It's all up to you.  I know guys at Jones with 150mm in AUM, with 40-50mm in SMA's, and they are looking at 700K in annuitized business (on top of their other business).  I don't think (as Copper put it) this is some "leap of faith" for people at Jones.    

Borker Boy's picture
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jwcopper wrote:... I don't know what the next big revolutionary change will be in the business, although retainers are making more sense to me these days, you don't want to be at a firm that takes over a decade to read the writing on the wall.
 
Expound on this, please.

jwcopper's picture
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Joined: 2008-05-14

Attorneys have done it for years, doctors are starting to charge retainers, and a lot of other professional firms have minimum fees to be a client of theirs.  The retainer concept is an annual minimum fee to provide services for a client.  Before people attack this concept, realize this is for fee based practices, providing comprehensive financial planning and advice.  Advice means tax and legal advice, along with investment management and everything that comes with comprehensive financial planning.  Firms that handle higher net worth, more advanced planning cases are going this route.  I have peers charging $1200 annual fee for maintaining their advice and planning services.  I have seen planning fees upward of $10,000.  I realize a lot of people can not provide these types of services due to B/D and their own licensing restrictions, I am not limited in those ways, so this may be pretty far off the radar screen for most reading.

Indyone's picture
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Joined: 2005-05-31

In reality, most Jones rookies are going to be heavily skewed toward pay-me-now products to meet production bogeys.  Only when you have a sufficient margin of safety (excess production over requirements) can you really begin to offer fee-based accounts as an alternative for clients to choose.  The bigger your margin of safety, the more often you should offer fee-based as an alternative.  Unfortunately, survival often comes necessarily before client choice, but the further out you get, the more you can afford to offer true customer choice.  Fee-based simply puts you on the same side of the table as the client.  The client no longer wonders when you call, if it's just to generate fresh commissions.  The level of trust increases dramatically.  Wealthy people, a generally low-trust group, tend to choose fee-based by a large margin.
 
I am at the point in my practice where I generally think fee first, although I generally give the client the choice, unless their particular situation strongly indicates one or the other.  Even when fee-based doesn't work, I often substitute something with less up front and a more significant trail, be it C-share mutual funds or L-share variable annuities.  L-share VAs  give me a 1% trail to service the account, as well as a 3.5-4% initial bonus compensating for the extra initial work to set things up.
 
Fee-based and trail accounts are nice, but a wise advisor considers both sides of the argument for both his/her own sake, as well as the client.

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