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I genuinely wish you all the best. I've met with firm owner who are trying to drive "fee compression" lower client cost. As an industry maybe we should be careful of the race to the bottom. This idea of doing everything as cheaply as possible might sound good on the surface but it can distroy industries and customer service right along with it. We work in a noble industry and deserve to be fairly compensated for our time. You would never see lawyers, doctors, dentist or engineerings talking like this so why should we? Is it really in our clients best interest for us to be paid so little that we have no incentive to truely service them? A fair days pay for a fair days work, works best for all. Just my 2 cents.
As a partner in an RIA, this my third career. First I was an engineer, then a business and management consultant, and then merged that with an RIA to offer a very differentiated business model. All three paths have been very different but with a few common traits and one of those is no matter the business I have been in, I have always faced competition that sold on price, and while at times I have lost clients because of it, ultimately my book of business was healthier for it because I offered people what they were ultimately looking for: value, relationship and performance. We are a fee only RIA, sell absolutely no products, transparent with ALL our fees and our clients are happy that we are successful because they have also benefitted from it, on all counts. And btw, our client count per advisor? Well under 100.
I'm having a hard time imagining how your clients will ultimately benefit with your model. If I were to hazard a guess, I'd say is your ulterior motive is to gather as many assets as possible under your model and then sell to some large institution, assuming it passes muster with all the DOL issues highlighted by many of the other commenters.
All that said, I think being innovative is great but one other thing I have learned in the various biz models is there is a big difference between the leading edge and the bleeding edge. Good luck with that but I think you are heading for tough sledding. Further, no one has even mentioned what happens to your model during the next significant correction. 0% fees will mean nothing to your 1750 clients when they are freaking out and looking for assurance to stay the course. I think it may be a shit show in the waiting.
Ummm...what? So how does money go from your clients to you?
You may get the work, but you and your advisors won’t be making any money.
My clients all hope I get grossly rich.
Something is only expensive in the absence of value.
You win the Fishbowl FA Troll award!
Lots of people have gambled it all away thinking they have thought up a system that can be beat! i.e. “We take a loss on each job we do but we make it up in volume!” (The Uber strategy! lol)
Free services leave no money for growth and ultimately lead to a low standard of customer service, lack of resources will drown you and lack of experienced advisors will lead to a bad rep. The advisors will be hungry and potentially lead you to bad news. Good luck but sounds like a potential addition to adding to the negative impact our industry is going down by endorsing cheap services.
Why?
Client pays internal expenses of the managed mutual funds which get rebated, in portion, to the firm. Also, firm will have many “A La Cart” services, like insurance, which will not be mandatory. Ultimately, your thinking is correct in that if a client uses all ETFs we will basically make nothing. It’s a risk in that we’re assuming clients will elect to use many of the other services which will be majority of the revenue. Ultimately, my end goal is to cash out and sell the firms assets but in a time when fees are all the craze, I think it can turn out to be a good move. Time will tell.
The 12 advisors will be bringing over their clients. They all understand this will be a very low profit producing firm initially but it’s all based around the idea that we can gather significant assets. 4 of the guys are insurance only guys which are working on the insurance A La Cart services. Understand it’s a startup concept which I think is the future of financial services anyways.
Voya, you are correct. I don’t think clients will come running to us from every advisor simply because we charge no fee. I do think that it will be incredibly persuasive to a client with 1 million in assets paying 10k a year in a fee to move over and pay 0. That is what our initial marketing campaign will be built around and that is our target client - 1 million paying 0% to the firm. “Why pay 10k a year when you can pay 0 with the same investments and service, you can even keep the investments you currently have”. Service will be tough at scale but right now our model is minimum 250k assets and 1750 clients per Advisor. As we grow we add advisors. All of my advisors work on salary + commission. There’s a huge market for advisors who do not like commission only.
In our business like all others, there is only Price, Quality, and Service. You can only get two out of the three. Selecting Price means that you will be forgoing Quality or Service.
These are fundamental business realities.
You stated you want to get rich selling this business....who would buy it. Underserved clients or those that accept low quality may not be that bankable.
My two cents
I think some have miss understand the fee model. It sounds like he will charge 12-b only so on a million yhey get 2500. Now what he doesn't understand is that if your doing a managed account with the new DOL rules that will most likely be implemented if your doing a managed account the rules will require you to use some kind of advisor class that is strips out 12-bs. You will also have to pay the broker dealer. Saying you will make your money on A La Carte services will just tell people your going to get paid in the back end. So I would ask myself did i need that or did he need get paid and A mi paying more for this since I didn't pay for the other. You will be hard pressed that you even get that through compliance at end of day. Ad for 1750 clients per fa are you sane. To give the level of service a client deserves the experts say that an fa can at best manage 200 to 400 clients per fa if your not just turning and burning. Stupid plan.
Am I missing where you're making a change for the best interest of the client? Fees have very little to do with what's in the clients best interest,imo. I think of you gave a client a choice between paying zero and having 100 - 70% of the draw down of market loss vs paying 1-2 % and taking 0-10% of Market loss,you'd be hard pressed to find large numbers of people choosing the no load route. Just my two cents. Guess it depends on your core motive for this change.
FA6 said it better...
No way in hell I’d change my Advisory business of 70mm at between 1-1.75% and take that fee away! Life is too good.
By charging based on your costs, you make it all about you. Ultimately, the client wants good value. It's all about after-cost benefit.
Not sure why you are even managing money if your income is going to be off of sales and other services? Why use your time and skills around managing $$ if that's not what you are earning a living? Ultimately you will find that you are losing money in the money management services and your focus will not be there. Bad for you and in the long run, it'll be bad do client if you're not focuses on it.
Interesting concept I look forward to hearing how things plan out
Initially but believe we can build a firm doing this but giving the client the independent personal advisor as well. I have 12 reps on bored and planning to take it to every city in America. I’m a firm believer that no matter how much people “like” their advisor, we will be able to beat them bc of our pricing model. 1 million managed at 1% cost you 10k a year just in managed fee. You automatically save 10k a year at my firm. Client are very happy and I believe we can build a multi billion dollar firm doing this. If you’re in a big city and interested in starting an office for my firm in your area, let’s talk. Initial concept is in Atlanta.