Advice Based Fee Model
Published on Jan 31, 2016
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PRESENTATION OUTLINE
Popular Revenue Model - AUM
- Annuitizes a practice
- Demographics from 20-30 years
- Based on accumulation, not distribution
- Draw of making money is a powerful motivator
- Talks only about performance and products
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Better Revenue Model - Advice Based Fees
- Built on assets under distribution
- Addresses common concerns: Healthcare costs; Long life; Lifestyle
- ABM caters to a value-based relationship, customer lifetime value
- Provides more comprehensive services to clients
Photo by cliff1066™
Benefits of Advice-Based Model
- Protection from regulation
- Generates renewable revenue
- Focuses on controllable client behavior; less on uncontrollable market performance
- Changes narrative to areas clients can control: How much client's spend & save
Photo by Abdullah AL-Naser
KEY POINTS TO AN ABM REVENUE MODEL
- Fees should be based on advice, not on assets
- Marketing message focused more on client behavior; less market performance
- Behavioral advice key to implementing change to charge for advice
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Focus of Client Conversations
- Talk about what clients CAN control
- Message lets clients know you are equipped to help & plan for this new future - future full of uncertainty
- More about what is right for their future goals, not portfolio performance
Photo by Ame Otoko
Market Performance
- What the markets do and which investments are best, don't have much of an impact on portfolio performance
- More than 85% of portfolio growth depends on savings and behavior - more than asset allocation, investment selection and market timing combined!
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Keys to Building an ABM Organization
- USP - Unique Selling Proposition
- Premium Package Pricing
- Advice-based pricing: Having a low entry price (not a low price entry)
- Systematize and scalable
- Integration & alignment
Photo by PorterSIPs
