Transitioning to a fee-for-value practice

In many ways, Complete Financial Balance (CFB) went through a kind of self-imposed mini-Trowbridge way back in 2007. Although it was before my time, what the CFB management team at that time saw were the benefits of implementing a hybrid and level commissions remuneration model, as opposed to an upfront model or a combination of both.

As part of the process we went through in 2007, we arrived at what we call a ‘fee-for-value’ model. In this model, fees are charged for services provided, particularly where no products are written. If products are recommended and accepted by the client then, from a commission perspective, each adviser may not exceed a 35 per cent threshold of upfront commissions when writing new business.

The emphasis is given to hybrid and/or level commission structures that add value to the future of the business while promoting client retention. If one of our advisers exceeds the 35 per cent upfront threshold, they lose their entitlement to things like bonuses.

It’s a model we have had in place for about four years and what we are seeing as a result is an increased trail base that assists in the sustainability and profitability of our business as a whole.

But we are not so much about our commission structure; rather, we consistently review our service offering to clients – because we believe the success of a fee-for-value model hinges on being able to demonstrate value to clients.

Transitioning to this model requires us to understand the value we give our clients, express it in a meaningful way and then demonstrate it. It really is as simple and as difficult as that, because getting into the mindset of how we demonstrate value and how we then ask for a fee based on that value has a lot to do with how we see ourselves. We have to know ourselves well and be confident in what we do and the value we give.

Then we have to make value meaningful for the client – and therein lies the challenge. Making value meaningful comes about only after discussion and communication with the client. Every client is different and must be treated as such. What we are doing is trying to understand – and make our clients understand – how we make their lives better, through wealth protection or through wealth creation or both. There is a great deal of value in that.

People who don’t see value are going to be less inclined to pay a fee. As harsh as it may seem, advisers need to ask whether they really want, as clients, people who don’t see value in the service they offer and therefore are reluctant to pay for that service.

We believe making a fee-for-value service work requires commitment on the part of the whole team. The adviser has the privilege of representing the team, but is only one element of that team.

The power of CFB’s capability is having an advisory group, a paraplanning group, a CSO group and what I call an enabling support group – made up of a receptionist, marketing, payroll and myself. At CFB, advice is a team sport. All members of our team have the same underlying value set, we all have the same understanding that the client is our collective unifying purpose. We have created an adaptive mindset in our employees where change is not only a constant, it is an expectation of all within the business since it will keep us fresh and relevant. And that makes us, as a business, far more valuable to the client.

Demonstrating value to clients will be an ongoing challenge. Value is not found in the transaction, it is found in the relationship. Robo-advice can sell a product but, I would argue, cannot relate to the client in the same way that you as a valued adviser will; nor will they be engaged with them for the journey ahead. And it is about providing meaningful service to clients today, tomorrow and in 10 years time.

Going through a Trowbridge-like process in 2007 has helped us to move towards a fee-for-value service - but in saying that, our revenue lines will be hit, as will those of everyone in the industry. But they will be harder hit if we don’t adapt. To borrow from the ancient Greek philosopher, Heraclitus, nothing is as constant as change. As an industry, as a profession, as businesses, our challenge is not found in our ability to embrace the change of today, rather it is found in being the architects and change champions of tomorrow.

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Brendan Cox is the general manager of Complete Financial Balance