The financial services industry is changing rapidly, and firms must adapt if they’re to remain relevant and competitive. Shifting consumer preferences, increasing regulatory pressure and the fintech revolution, which is attracting new and formidable competitors, are combining to force firms like ours to rethink how we do business.      

The staple of the broker-dealer branch firm model is recruiting, training and supporting advisors in building independent practices, and then living off the sales commission/grid payout margin they create for the firm. With margins rapidly narrowing and few economies of scale available from trying to help advisors market and compete effectively in disparate target markets, it has become clear that the old way of doing business is rapidly coming to an end.     

With all this in mind, my firm, AspenCross Wealth Management, a fee-based financial advisory and investment management firm, fundamentally changed its business model in 2015. An integral part of this transformation was to do something many firms’ principals would consider unthinkable: changing advisor compensation from commission to salary. We offered our advisors a choice of becoming salaried employees or continue to build their practices.     

Of course, working for a salary is anathema to many advisors, so some advisors ended up leaving. We quickly recruited replacements who were attracted to our salary-based advisor model. This model focuses on delivering unbiased, fee-based advice in a work environment that fosters openness, collaboration and intellectual honesty.

Since this shaking-out period, the change to salaries has been instrumental in differentiating our firm from competitors, attracting quality new advisors and helping address the potential conflicts of the commission-based model. This outdated model has these impacts on:

• Advisors: Many new advisors are attracted to the industry by the prospect of earning an unlimited income, the autonomy to build their own practices and an enticing vision of work-life balance. The reality is that about 80 percent of them fail after five years, according to Cerulli Associates. Many receive poor training, and most lack a sustainable process for gaining new clients (friends and family only go so far). Commission-based income often leads to a short-term focus and a treadmill-like existence.

• Clients: Independent advisors tend to make their own decisions regarding what’s best for their clients, from asset allocation to product selection. Unfortunately, their biases, training (or lack thereof) and experience can have a signficiant impact on their client solutions. Moreover, high advisor turnover often results in clients dealing with multiple advisors over time, leading to inconsistent advice. Clients may find themselves accumulating a disjointed array of insurance and investment products that have little or no link to any form of long-term plan or strategy. These clients may be ill-served by conflicts of interest, stemming from the current regulatory suitability standard, involving  tiered grid compensation systems that reward advisors based on the amount and types of products they sell.

• Firms: High advisor turnover increases recruiting and training costs while decreasing client satisfaction and retention. The higher an advisor climbs on the payout grid, the less margin is available to the firm for training, marketing, technology and operations.

We knew we had to change how we operate if we wanted to address these issues. Here’s what we did:  

• We created a fee-based, advice-oriented culture with salaried advisors replacing the commission-driven, product-centric model, and concomitantly changed from the suitability standard to a fiduciary standard.

• With our advisors no longer building independent practices and instead working together to deliver highly personalized service, we created client service teams composed of a lead advisor, a support advisor and a dedicated client service associate. Our firm’s financial planners and investment management committee work closely with these teams to devise appropriate investing and planning solutions; those decisions are no longer made by a single advisor.

• We established defined career paths with clear opportunities for growth, both in responsibility and income potential. Advisor salaries currently range from $50,000 (for inexperienced people) to $165,000, with potential for bonuses based on career development, client satisfaction, and firm profitability. New advisors start as para-planners and then progress to associate advisor, lead advisor and ultimately, potentially to partner. They are also eligible for comprehensive employee benefits, including a 401(k) plan.

• We now market as a firm, not as numerous independent practices. This allows us to control our brand messaging and implement highly effective social media, email and video marketing strategies, all aimed at providing our advisors a steady flow of new clients. 

These changes to our business model have made us a far more client-focused organization, enabling us to deliver vastly improved and consistent levels of service. While it’s too soon to have meaningful comparative data, there are early, anecdotal indications that client retention and satisfaction is improving. Existing and prospective clients like the idea of working with salaried advisors.

Advisors now feel a stronger sense of purpose and commonality with their co-workers, and all strive to accomplish the same  objectives. Not worrying about where their next sale or client is coming from empowers them to focus on why they chose this career in the first place: to help people make better financial and investing decisions.       

Eric C. Jansen, ChFC, is the founder, president and chief investment officer of Westborough, Mass.-based AspenCross Wealth Management. Registered representative/securities and investment advisory services are offered through Signator Investors Inc., member FINRA, SIPC, a registered investment advisor. AspenCross is independent of Signator.