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Client articles that discuss the advantages of dealing with a fee-advisor.
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Good help is hard to
find,
by Bruce Gillespie, Financial Post
Find a fee-only financial planner,
by Duncan Hood, Canadian Business Online
Financial Planner Compensation: The Inside
Story,
by Daniel E. Gooding, CFP, West Virginia
Executive
Commission vs. fee-based vs. fee-only,
Mutual Fund Insight by Dan Hallett,
GlobeAdvisor.com
Putting the client first, by Peter Diekmeyer, Montreal Gazette
Ask SmartMoney
Fee or Commission: Which Is Best?
To fee or not to fee, some customers prefer their investment advice come with a fee attached, by Rachel Sams, Baltimore Business Journal
Commission vs. Fee–Based Advisors: Which Cost More?, by Jeffrey D. Voudrie, Guarding Your Wealth™
Manager or Fund? Fee or Commission?, by Dan Jamieson, Registered Rep
Introduction to Fee-Based Brokerage Accounts, by Jim McWhinney, Investopidia.com
Fee-based advice has merits, by Ellen Roseman, The Toronto Star
Taking the bias out of investing advice, by Ellen Roseman, The Toronto Star
The Rise Of The Fee-Only Financial Advisor,
by
Jason Van Bergen, Investopedia.com
How Do You Pay for Your
Investment Advice?,
by Mark Williams, ProfessionalReferrals.ca
Time to chuck commissions?
by Rob Carrick, Globeadvisor.com
Your Consumer Guide to Fee-based Financial Advice
by Marc Lamontagne, CFP, R.F.P., FMA, CSA,
To Fee or Not to Fee
To fee or not to fee, that is the
question,
by By ROB STOCK - NZ Sunday Star Times
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Do Not Be
Afraid to Talk about Fees, SpectremAdvisors,
2008,
At the beginning of this decade, there was
an effort made by some financial
institutions to move from a
transaction-based to a fee-based business
model to protect consumers from baseless
transactions made only to generate sales
commissions. Because nearly six in ten
affluent investors have a primary financial
advisor, (someone whom they rely upon for
financial advice and counsel) this change in
fee structure affected most affluent
investors and most advisors to the
affluent.
Moving FEE-LY,
Clients
seeking quality are leaning toward
customized fee-based service, by Warren
Balwin, CFP, R.F.P., CIM, Advisor's Edge
Report, June 2008,
As a fee-only personal financial advisor and
investment counsellor who’s kept the faith,
I’m pleased that during the past 10 years
the investment and advisory industry has
shown a strong trend toward fees. At first,
it was exploratory, but now many advisors in
Canada have started moving seriously toward
relationships that include a platform
featuring fees as a way for clients to
engage services.
Click here for the
full article
MDRT: Switching over to
a fee-based practice is a marathon, not a
sprint, By Neil Acharya, Investment
Executive, June 2008,
For financial
advisors considering a move to a fee-based
business practice, David Wingar’s message is
blunt. “You have to work smarter, not
harder,” he said at the Million Dollar Round
Table annual meeting in Toronto on
Wednesday.
Wingar, an independent financial advisor who
runs Future Asset Management LLP in
Bridgend, Wales, was motivated to switch to
a fee-based system after he got fed up with
not getting remunerated for everything he
did.
“It’s not about commissions or fees, it is
about getting paid. As a professional
person, if I give advice, I expect to get
paid. A lot of the advice I give might not
end up with a product, which is the old way
of getting being remunerated in financial
services.”
High-Quality
Financial Advice Wanted! by Ralph Bluethgen,
Steffen Meyer, Andreas Hackethal, February
2008,
The crucial
finding of this paper is that when seeking
high-quality financial advice,
private investors should pay great attention
to advisors' compensation scheme
and their sophistication/ rationality as
these two variables prove to be highly
predictive in terms of the quality measures
analyzed in this paper. In contrast, solely
focusing on advisor experience or advisor
education might lead to adverse results.
click here for the full paper
F-class mutual funds
-- why now is a good time to take a second
look
By Marc Lamontagne, CFP, R.F.P., FMA, CSA
Quick, what
dubious distinction does Canada’s mutual
fund industry have compared to the rest of
the planet? If you said we have the highest
Management Expense Ratios (MER) in the
world, then you would be absolutely right
(according to the Tufano study Mutual
Fund Fees Around the World (May 2007)!
Now imagine, if you can, explaining that to
a client. Not fun. But what if you could
offer a way to reduce their cost without
negatively affecting their rate of return,
or severely limiting their investment
options, or even affecting your
compensation? What would your client say to
that? Probably, “Tell me more.”
click here
for the full article
In 1999, a
somewhat unwelcome research paper published
by
Undiscovered Managers
predicted that the industry’s benign
existence was about to change. The study
asserted that the current business
environment was due primarily to an excess
supply of clients relative to industry
participants’ ability to capture and service
them. And a combination of factors including
new competitors, greater capacity of
existing participants and the expanded use
of technology would correct this imbalance
and force the industry to rationalize over
the next decade.
The structure
of the industry would likewise change and
from a highly fragmented industry made up of
competitors of all sizes would emerge a
small group (40 to 50 organizations) of
dominant competitors: highly profitable,
large firms that would “look like multi-user
family offices for the semi-affluent.” These
firms would have at least $15 billion — $20
billion in assets under management and some
would be much larger.
While there
would still be numerous smaller firms, only
one type — mid-sized niche competitors —
would flourish. These high-profit specialist
firms would provide sophisticated services
that solve complex problems for select
groups of individuals. Thousands of other
small firms would continue to exist, but
their owners would find that they had to
work much harder, would earn far less than
they did in 1999 and their businesses would
possess little enterprise value.
Given that it
is now just after the midpoint of the
advisory business’ predicted decade-long
evolution, we decided to revisit the issue
of the industry’s future. A joint
JPMorgan /
Undiscovered Managers
team of researchers spent twelve months
studying its current state and those forces
that now confront it.
Click
here for the full report
Commission-based model undervalues
advice, Investment Executive, November 2007,
Defenders of
the status quo in the Canadian retail
financial services industry must be either
hopelessly naïve or utterly disingenuous.
In a recent editorial, Investment Executive
argued that commission-based compensation
structures may not be in the best interests
of either clients or advisors over the long
run.
To fee or not to fee? Ageing
clientele will impose new demands, by
Jonathan Chevreau, Financial Post, October
16, 2007,
The dilemma facing advisors is a variant of
what Shakespeare's Hamlet agonized over: "To
fee or not to fee." Brayman says the
industry is in transition from a product
focus to selling products with advice on
request and ultimately making advice
preeminent. Mutual fund sales people are in
the middle category: If clients ask for
financial plans, advisors generate them but
they're still stuck in the commission mode.
Most advisors are stuck there, Brayman said
in an interview, "They started out to become
financial planners but never really got out
of product mode."
Ultimately, "advice
makes more money,"
Brayman says. The
ideal is a
compensation model
where advisors are
paid a fee for their
time or on client
assets under
management. Five
years after this
transition, fee-only
or fee-based
advisors can make
four times more
revenue and 60% more
profits. They also
attract larger
clients: the same
well-heeled
clientele mentioned
by Sjogren.
click here for the full
article
Bridging the Trust
Divide: Advisor Best Practices for
Communicating Value and
Discussing Fees, State Street and
Knowledge@Wharton,
At one time,
financial advice usually came folded into
another service, sometimes in the form of
suggestions from a tax accountant, more
frequently in the form of stock tips offered
by a broker-dealer. Often, it was good
advice. At times, however, it was
conflicted, because moving particular
products sometimes took precedence over
doing what was right for the client.
Over the last
15 years, that model has changed. First,
advances in technology and regulatory
reforms led to the rise of discount brokers,
making it difficult for the old-fashioned
stockbroker to sustain the same fee
structure. Later, partly in response to that
assault, the financial services industry
looked to develop a more stable and less
cyclical revenue stream. This fit in neatly
with consumer concerns about conflicts of
interest and has led to a new paradigm in
financial
advice—the movement toward offering
consultative services instead of product
pushes and straightforward fee structures
rather than complex or opaque ones.
In this
report, State Street and Knowledge@Wharton
look at how financial advisors are
negotiating the boundaries of this evolving
relationship. Specifically, the report
examines how advisors can:
1. Strengthen relationships by engendering
trust;
2. Best communicate the value they bring to
their clients given how clients generally
perceive value; and
3. Successfully discuss fees with
clients.
click here for the full
report
Mutual Fund Fees -
Are we paying too much? by Dave Paterson,
CFA, June 2007,
If you ever
want to see Personal Finance columnists from
the various media outlets
froth at the mouth, bring up the topic of
mutual fund fees. They will climb on top of
their pulpits and shout about the evils of
the MER to any and all that would listen.
While
I poke fun at them, they do have an
extremely valid point. Fund fees in Canada
are
high. In fact, according to a recent study
released by Peter Tufano, Ajay Khorana, and
Henri Servaes, Canada’s mutual fund fees are
the highest in the world.
click here for the full article
Factory-gate pricing
'brings advice
transparency', by
Emily Perryman,
ifaonline.co.uk,
March 2007,
A move to
factory-gate
pricing¹
could answer the
(UK) Financial
Services Authority's
(FSA) concerns
about the
transparency and
sustainability
of financial advice,
suggests the ABI.
The FSA has
raised
concerns
about the
retail
distribution
model on
several
occasions,
most notably
in November
last year
when Bruce
Robson,
manager of
the asset
management
sector,
described it
as being
unreliable,
untrustworthy
and failing
to establish
long-term
relationships.
Alex Roy,
assistant
director of
distribution
reform for
the ABI,
believes the
fact
providers
are paying
advisers to
sell
products has
created a
“significant
perception
problem” on
the part of
consumers
and a
factory-gate
pricing
model could
help to
address this
problem.
click here
for the full
article
¹
Factory-gate
pricing
is a
term UK
advisers
use to
describe
financial
products
that
leave
the
product
provider
without
any
remuneration
from the
intermediary
built-in.
Any
commission/fees
for
advice
are then
deducted
directly
from the
product.
This
makes
things
very
clear as
the
client
can then
see
precisely
where
adviser
remuneration
is
coming
from.
Martin
Bamford BA
(Hons) APFS AIFP,
Informed
Choice
Ltd
Platform Choice: New Fee-Based Accounts Make
It Easier for MFDA-licenced Advisors To
Transition to Fees,
by Marc Lamontagne, CFP, R.F.P.,
FMA, CSA, December 2006.
If you’ve ever
considered transitioning to the fee model,
and most surveys suggest you already have or
will in the future, you quickly see the
three major obstacles to your success:
1. The psychological fear that your clients
will balk at paying a fee;
2. Concern that your income will drastically
decline in the early years;
3. Structural issues such as the services to
charge for and how to collect your fees.
The first two issues will be explored in
subsequent articles. The last point,
specifically how to collect your fees, needs
to be established early on in the transition
planning process.
click here for the full article (PDF)
Transitioning to a Fee-based Business, by
American Century Investments.
American
Century is a U.S. mutual fund company who
produced this white paper for their clients.
It provides a step by step guide on how to
approach the transition to the fee model.
Though there are many strategies (we cover
four in our workshops), this one is based on
the slow and steady to avoid any sharp
decline in income.
click here for the full article (PDF)
Find your Value Proposition before
Transitioning to a Fee-Based Practice,
by Marc Lamontagne, CFP, R.F.P.,
FMA, CSA, October 2006.
In the UK, the
Financial Services Authority (FSA) imposed
the following rule starting in June 2005:
“Financial advisors wishing to call
themselves independent must give their
clients the option to pay by fee”.
Unfortunately, this new rule was a
regulatory response to a number of
miss-selling scandals and a call for a more
transparent way of doing business.
How advisors in the UK responded, though, is
certainly food for thought for the financial
industry here in Canada, particularly for
those advisors contemplating a transition to
the fee model.
click here for the full article (PDF)
Is Timing Anything? When To Move To A Fee
Model,
by Marc Lamontagne, CFP, R.F.P.,
FMA, CSA, July 2006.
So you’ve done
all the research and your due diligence.
You’ve decided it makes good sense to change
your business to a fee model.
The only decision left is “Should I do it
now, or is there a better time?”
The most common assumption is that you
should wait until your book is large enough
to make it financially worthwhile. However,
this may not be the case. In our
rapidly-evolving industry with stiff
competition from the banks and
ever-increasing demands from clients,
“today” is often the best choice.
The following questions might help you with
your decision about timing.
click here for the full article (PDF)
DE-COMMISSION MISSION, Educating clients is
the first step in switching to a fee-based
practice,
by John De Goey, CIM, FCSI, CFP,
Advisor's Edge Magazine, March 2006
This has to be one the best articles on the
actual client process of transitioning to a
fee model. De Goey's candor on the steps he
took and on his pricing model is certainly
refreshing.
click here for the full article (PDF)
Strategies for Building a Successful
Wealth Management Firm, Market
Knowledge Tools, Schwab
Institutional, December 2004.
Wealth
management has become one of the
biggest buzzwords in the financial
services industry; the topic
increasingly is being addressed in
books, magazines and at investment
conferences across the country.
It’s
easy to see why wealth management is
getting so much attention. The
investment management business, and
the investors it serves, are
undergoing a series of dramatic
changes that rapidly are reshaping
the financial services landscape. In
this dynamic market environment,
competition for clients is
fierce—and investors’ expectations
are high.
Many advisors are responding to
these challenges by shifting their
traditional asset-focused business
models to a more comprehensive
wealth management (financial
planning) approach, with the intent
to capture and retain higher value
clients who demand broader services
and to increase share of wallet with
existing clients.
click here for the full article
(PDF)
The Great Fee Debate (continues),
And why I learned to love the letter
of engagement,
by Marc Lamontagne, CFP, R.F.P.,
FMA, CSA.
I
recently sent out an email broadcast
requesting commission-based
financial planner/advisors to
respond to a very short survey. I
was trying to devise a fair revenue
comparison model to further my
research into the transition from a
commission-based practice to a
fee-based one. Since I haven’t been
commission-based in 10 years, I
needed a little re-education to
understand the current financial
implications of a transition to
fees.
Well two things happened that really
surprised me. The first was that
about a third of the responses were
from fee advisors, front-end 0%
advisors, or those in the process of
transitioning to fees who implied
that commissions are bad. The second
was the number of advisors who
asked: "What exactly is a fee?"
Click here for the full article
(PDF)
An
Industry in Transition, by Peter
Wheeler, CLU, CFP, ChFC, CIMC.
This paper discusses the current
trend in the financial services
industry away from single discipline
practices such as accounting,
banking, trust services, investment
management, etc., to comprehensive
wealth management as exemplified in
the family office model. The focus
of the analysis was on those in
transition, i.e. the advisor moving
to the more comprehensive model, not
on the already existing traditional
family office. It considers how
advisors will respond to this change
and what the future is for advisors
and the industry as this trend
continues.
Click here for the full article
Advice the American way; For some
clients, commissions are the best choice,
for others, fees are the favoured option. In
the US, where there has been a move towards
fee-based advice for the past 10 years, the
debate and evolution goes on. Investment
Adviser; 8/26/2002 by Bob Barry. The
Financial Services Authority (UK) proposals
to push independent financial advisers into
a "defined payment," or fee-based system, is
no doubt unsettling for advisers who have
earned commission on products they sell.
What impact would Consultation Paper 121
have on profitability? Would the public be
willing to pay fees? What impact would it
have on the relationship between advisers
and their clients, and between advisers and
their product intermediaries? How would it
affect the quality of advice? In short, can
Independent Financial Advisors (IFA) survive
under this system?
A look at the US experience, where many
financial planners have voluntarily shifted
to a fee-based model in the past decade, may
prove instructive.
Click here for the full article (PDF)
Survey on the
quality of financial planning advice,
February 2003. Every few
years the Australian Consumers Association
(publishers of Choice Magazine), in
conjunction with ASIC (Australian Securities
and Investments Commission) conduct a survey
of financial planners by sending out
volunteers to get comprehensive financial
plans (without of course telling the adviser
that they are part of the survey).
These
volunteers are real financial services
consumers who get an actual plan prepared
according to their own requirements and
these plans are then judged by a panel of
experts who grade the plans on legal
compliance, suitability, clear explanation
etc.
One of the
conclusions were that commission based
advisers performed significantly worse than
fee-for-service or fee plus commission
advisers, 44% of commission only plans were
graded poor or very poor.
A summary of the report is available by
clicking here.
The full report is available at ASIC's
consumer web site by clicking here (PDF)
Study of Canadians’ Attitudes Toward Financial Planning — Wave II — May, 2003 — by Lynn Gordon research, prepared for: Financial Planners Standards Council. The current study (Wave II) was undertaken in early 2003 to look at changes in attitudes and behaviour related to financial planning, and to assess how Canadians' confidence in the economy may have impacted their use, assessment and understanding of professional planning services.
Click here for the full report
Canadian Wealth Management Survey 2002, Dr. Brian Metcalfe, PricewaterhouseCoopers. The purpose of this survey is to raise awareness of key trends, challenges, and opportunities in the wealth management industry. This survey also benchmarks against two other wealth management surveys: the North American Private Banking/Wealth Management Survey, which includes a few large Canadian participants, and the European Private Banking/Wealth Management Survey.
This survey provides valuable insights for industry leaders on the thinking and strategic direction of many of their peers throughout the Canadian marketplace.
Click here for the full report
(PDF)
Hypercompetition, The dynamic future of financial planning in Australia, Tony Thomas and Associates, 2001 This paper is focused on the business side of financial planning - building profitable businesses where clients are happy to pay for planning services.
Click here for the full report (PDF)
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