Shawn has more than 15 years of experience in the financial services industry and has held leadership positions in both the broker dealer and RIA space. Shawn leverages his vast industry experience to help investment firms implement financial planning technology solutions which allow their clients achieve financial success.
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Over the past decade, many advisors have chosen to begin making the switch from a commission-based book of business and have begun doing more fee-based work. Generally, the fee structure that advisors choose to work with is the AUM model, where the advisor charges a percentage fee of the assets under management (AUM).
As this model has become more prevalent in the market, advisors have seen downward pressure on these AUM fees, meaning that the percentage that advisors can charge for asset management has decreased. With fee compression becoming a larger issue for advisors, it means that an advisor has to gather additional AUM just to keep revenue flat – and if an advisor is working to grow revenue, they have to become extremely efficient at bringing in new assets and finding additional sources of income.
The scenario laid out above is one that I witness on a daily basis, and one that thankfully Advicent can coach advisors through to help them to build stronger revenue streams, even in an industry where it seems all forces are working against that objective.
Here are three simple ways that Advicent can help advisors combat fee compression:
Creating financial plans
An overwhelming amount of clients do not have a written financial plan, as such, many advisors are focused on asset management, but without a clear path as to which goals they are trying to help their clients achieve. When you use financial planning software (FPS) to help a client understand their goals, an advisor has a roadmap of how investment allocations affect a client’s probability of achieving their goals. Advicent offers FPS that can help advisors create very simple plans in just a few minutes, but also has the ability to provide very detailed cash flow based plans to clients who have more complex situations. Spending some time during client meetings reviewing goals and providing client reports generated from the FPS (which shows progress toward client goals), is a great way to build new revenue streams from financial planning. Alternatively, if advisors choose to implement financial planning as a service included in the AUM fee, then it puts the advisor at a competitive advantage over the competition, providing more value for the client, and as a result protects the AUM fee being charged from the industry trend of fee compression.
Uncovering held-away assets
Through the use of account aggregation, an advisor can have their clients link their held-away accounts to a financial plan. When advisors can see the other accounts which their clients own, but don’t have the advisor servicing, it allows advisors to create a plan which includes held-away accounts. Being able to show clients a complete view of their assets as part of a financial plan, not only adds value to the relationship – but it also allows an advisors to have a conversation about how bringing those held-away assets to their firm will create a stronger financial plan. In the process, the advisor is working toward bringing in additional AUM that would have otherwise been unknown.
Generating more referrals
One of the greatest ways that advisors can find new client relationships and additional AUM is through client referrals. When an advisor makes it part of their practice to provide financial planning services, the client and advisor relationship is much stronger than a relationship that involves only asset management services. When stronger, more trusting relationships are in place, clients tend to speak highly of their financial advisor, which ultimately leads to more client referrals.
If fee compression is affecting your practice, let Advicent help you build stronger streams of revenue with the use of financial planning and account aggregation technology. By differentiating your practice from others in the industry, you can easily overcome the downward pressure on fees and begin to grow your business again.
Click here to download our whitepaper about how to increase your ROI with financial planning software.