I got married more than 17 years ago. And one of my first lessons was not to vacuum when my spouse wasn’t home.
That’s because if she didn’t see me do it, she’d think it didn’t happen. That also applied to washing dishes and doing laundry. For me, attribution for these tasks was even more important than completing them.
I reflect on that stage of my life whenever the topic of transitioning to a fee-based business comes up; while CRM2 is largely pushing fee-based compensation models, it makes sense for advisors to move in that direction, so clients are aware of all the services they’re receiving.
But the shift to fee transparency is also introducing a new set of challenges.
Concerns with fee-based
Currently, my practice is 98% fee-based, and more than 60% of my client households are in discretionary accounts where I’m the primary portfolio manager. Also, we’re only taking on new clients via discretionary relationships, so we’re able to adopt a fee-based, transparent, CRM-friendly business model right from the start. Still, even though clients can see our monthly fees, it doesn’t mean they see everything we’re doing to manage their portfolios.
Here are some examples.
- We’re focused on management, rather than on trading, so a successful investment strategy involves few transactions.
- To satisfy due diligence requirements, we’re getting to know our favourite investments even better. But, again, that involves more back-end work and fewer transactions.
- In a discretionary service model, we make portfolio changes without alerting clients first. So, they’re somewhat disconnected from the work we’re doing on their behalf.
That means we’re vacuuming and doing the dishes regularly, but clients can’t see or acknowledge our work.
Going beyond fee-based
So how can we prove we’re doing everything we can to boost their portfolios without involving them more in the management process? They’ve hired us as discretionary managers precisely because they don’t want to be involved with their portfolios on a daily basis. The added challenge is we can’t depend on investment performance to showcase our diligence, given that it’s the one thing we can’t control.
So here’s what I came up with, inspired by my housekeeper. Now that I’m not doing the cleaning, I notice when things are moved around. It shows she’s been cleaning while I’ve been away.
In our line of work, we can also implement small changes in our process to show we’re helping clients regularly. This comes at the risk of annoying clients at first, but if we educate them on changes are being made, they’ll see why the new processes benefit them.
Below are five changes I’ve made.
- I use an ongoing financial planning model. Rather than try to figure out all their goals and solve all their financial problems during the discovery process, I itemize a number of steps in that process and stretch the creation of a financial plan over a few years. This involves reviewing, discussing and addressing each of a client’s concerns and desired outcomes, one at a time. So, rather than deliver one gigantic master plan early on, parts of the plan are created and managed each quarter.
- All my team members communicate with clients, rather than have clients assigned to a relationship manager based on their portfolio size and fees. For example, one associate is our Operations Specialist, while two others act as our Senior Financial Planner and Portfolio Specialist. As a result, clients can see how we all work together on their portfolios
- To educate clients about new research initiatives and process changes, we use social media. We’ve educated our clients on how to “follow” us on LinkedIn, Twitter and Facebook. That way, we can let them know how we’re improving our practice year-round, not just during appointments. We use Hearsay Social to ensure our social media messages are compliant, and we tweet, post and blog all from one platform.
- We’ve also started a blog to share the work we do on behalf of clients, which they may not normally see. This allows those who are keen to stay updated. Along with changes we make, we’ll also inform clients of the changes we decided not to make. We spend a lot of time looking at ideas—most of them bad—to find a few that are good. We often tell them when we buy and sell; we also have to remind them of when and why we decide to hold.
- A few times a year, I send clients a duplicate copy of their monthly statement, which includes handwritten comments. I’ll highlight how their favourite investments have performed, and make notes about particular holdings. The notes take time, but they show I’ve prepared and reviewed the document. And, they’re appreciated by clients—who are then more likely to read the document.
by Darren Coleman, PFP, CFP, FCSI, portfolio manager with Coleman Wealth of Raymond James Ltd. in Toronto. The views of the author do not necessarily reflect those of Raymond James.