What to consider when moving from commission-based to fee-based practice

Ian Green, Dip FPS

There are many steps involved in transitioning your business from being commission-based to fee-based. Ian Green, Dip FPS, an 18-year MDRT member from London, England, with 10 Top of the Table qualifications, surveyed some fellow UK-based Top of the Table advisors and asked, “What are the top things to consider and expect when moving from an insurance and commissions practice to a fee-based practice incorporating asset management?”

These were the top five answers:

1. Value. Have a clearly defined fee structure and what clients get for their money, and make sure that you know how to articulate it. Value, not cost or time.
2. Client base. Use it as an opportunity to reclassify and decide with whom you want to work.
3. Service. As opposed to a product, there is now greater incentive to stay connected with the client beyond the initial sale.
4. Fee over free. Don’t give away your valuable, tried-and-tested, and accumulated-over-a-number-of-years wisdom for free. Don’t overpromise. Clients love fees. If you provide a valuable service, clients expect to pay. Remuneration via commission or free advice never made sense.
5. Confidence. If you don’t believe you are worth what you charge, how can you expect a client to? It will be easier than you think.

He also asked about the pitfalls of the transition. Here are the top four he heard:

1. Cash flow. The different basis of charging will inevitably alter the characteristics of the business. A much lower initial level of income is earned than with the old model, which needs to be worked through.
2. Need for knowledge. Severing links with insurance companies may threaten support services. An advisor stepping into the fee-based and service model must make sure that she or he would be able to give advice without a risk of ignorance undermining them.
3. Showing your work. If the client thinks advice is free, the challenge is deconstructing the product for the client to explain how the charges were made and the agent was paid.
4. It’s none of their business. How much the advisor is paid has nothing to do with the clients. As long as they are happy with the insurance, what’s the problem?

Read more about making this transition in Green’s 2014 Annual Meeting presentation.

Written by Matt Pais, MDRT Content Specialist