As the Fiduciary rule is being finalized, financial advisors can greatly benefit from initiating the changes they’ll have to make sooner than later. Waiting to transition your business practices could significantly impact your clients and income.
Understand the areas of your business that will need to change
If you choose to continue to operate under production and commission models, there will be many things that will change about your business. The Department of Labor has watered down the final ruling and allowed brokers to still receive commissions after a Best Interest Contract Exemption has been presented and signed by the investor and advisor. Although commissions are still allowed, understand that this contract may be timely and costly to implement. Your clients might not like what’s enclosed in the contract as well and it could impact your bottom line.
Identify all avenues of your income
Determine if your income is mostly coming from commissions and/or fees. By identifying your income avenues, you can develop a better understanding of just how much you might be affected by the new rule. Your sources of revenue could vary between commissions and reoccurring revenue. If you charge fees your revenue is reoccurring. If you’re mostly commissioned based, you receive a one-time commission for the sale of a product and therefore have to work harder to keep producing.
Mitigate risk by identifying possible conflicts of interest
Understand that your clients might not be keen on the details included within the contract your required by law to sign. Ask yourself if there is products or platforms that can be implemented to avoid conflicts of interest and maximize your market position.
Decide on a business model
There are multiple business model options available to advisors where you can start to think as an entrepreneur not a sales producer. Whatever model you choose, you don’t want to be the last one in the industry to do it. If you’re going to start implementing new business practices it would be in your best interest to start sooner than later.
Fee-based advisors operate under a hybrid model of commissions and fees. They charge assets under management fees and sometimes receive commissions for products they sale. This model might be more appropriate for advisors who want to slowly transition to fee-only.
A fee-only advisor operates by charging fees to their client. We believe this model has the least amount of conflicts of interest and increases trust and transparency to your clients. By operating as fee-only your business may grow slower but the foundation will be much stronger.
Fee-only can initially sound scary to advisors. It might take more time to build your income and client base, but you have more control and freedom over your business. As an employee of a broker dealer you’re like a franchise owner of a hamburger restaurant. You’re not allowed to start selling tacos under their franchise contract and must operate within certain guidelines. As a fee-only advisor you own your very own restaurant. You operate as an entrepreneur free to operate, recommend, and charge bases upon regulation and what is in the best interest of your clients.
Seek out the Experts
We understand that turning your business model on its head is scary. There’s compliance and building a client base and so much more- where do you even begin? True measure invites you to take part in our coaching program. Mentors, resources, videos, compliance procedures, support and much more are made available to you so you can freely operate your own successful business.