Roman has no doubt that Cambridge was instrumental in his conversation process. "I went through a one-week training program and came out the other end providing fee-only services to clients," he says. Cambridge made available to Roman, as it does all of its members, its "directed portfolio" of recommended mutual funds, formulated and frequently reviewed by the Cambridge investment committee. Roman also received a sample contract, ADV, a variety of internal operating systems and access to Cambridge's members. Says Roman, "I can call other members and ask for advice because [we're spread out geographically and] no one is in competition with anyone else."
Two issues arise for many planners moving to fees for the first time. One is controlling their personal and business costs while income is temporarily depressed, and the other is overcoming the psychological challenges posed by fees. Marino, who had anticipated a 70% drop in income, took control of the first issue. "My family moved to a cheaper residence-from the typical corner lot home with a pool to a townhome. I simply didn't know how long it would take me to build [my income] back up. We also traded down cars." As mentioned earlier, Marino was back to his previous level of income and lifestyle in about two-and-a-half years.
It's critical that one brush off and revise his own financial plan, just as Marino did, before making a quantum leap like this. Start by determining how little income you can get by with and how much liquid savings you can draw on. Think about cost-cutting measures such as working out of your house initially or outsourcing tasks that are too costly to perform in-house.
Those new to fees have another potential obstacle: learning how to pitch the fee to the client. Unlike commissions, the process of quoting fees taps directly into issues of self-worth. Value must be provided to justify charging fees, so the planner who fears his fee proposal will be rejected often worries clients are questioning his value, exposing him to feelings of personal rejection. New fee adherents will need to do some self-examination and confidence-building to understand they offer good advice (not just products) and to be able to quote a fee to a prospective client that may sound high but, nonetheless, represents a good value. A planner who doesn't understand this dynamic will often undercharge-not the right foot to step off on when trying to rebuild revenues as quickly as possible.
Linda Leitz of Pinnacle Financial Concepts Inc. in Colorado Springs, Colo., understands this well. "We transitioned our two-planner firm to fee-only in August 2000 and took the opportunity to enhance our services to our clients and be properly compensated for it. We presented the change to our clients, who were already happy with us, as an exciting innovation in service and compensation. In most cases, the clients who chose to remain with us now receive more service directly from our firm and pay less than they previously did." Yet Leitz enjoys a growing income vis-a-vis her previous employment arrangement.
These planners' experiences suggest the key to conversion is to become your own client. Realize that the transition to fees is not much different than many of the life-altering goals you help your own clients achieve. How would you guide your client if he were you? You wouldn't hesitate to have him openly discuss his disappointment with his current state of affairs and his fears and hesitations about leaving it. You would invite the viewpoint and-hopefully-the support of his spouse. You would help him inventory his skills and financial resources, figure out his bare-bones cash flow needs, map out a timeline and coach him to take the first step on his journey.
So, what are you waiting for? Just apply that process to yourself.
David J. Drucker, MBA, CFP ([email protected]), a fee-only financial advisor since 1981, is co-author of the book Virtual Office Tools for the High-Margin Practice (Bloomberg Press, 2002) and Virtual Office News newsletter, both available at www.virtualofficetools.net.