The percentage of financial advisory business in the bank channel that is being done on a fee basis hit a high point last year of just 14% of revenue, as reported in a new survey by BISRA. And however slowly, that percentage is on the rise.

Moreover, those bank-based advisors who are doing more fee-based business than that say it’s the future of the industry. The following are tips from advisors who have made this shift, and the benefits they’ve seen.

  • Coming up, see our exclusive slideshow on the top bank advisors in fee-based business.

Rob Reich, an advisor with Wells Fargo Private Bank in McClean, Va., says he and his colleagues began shifting their business from a transaction-based model to a fee-based model back in 2005. Today, he says, 80-90% of his business is fee-based.
“We were doing $2.2 million in volume back in 2005/2006 and to grow, we realized we needed to shift to a fee-based model, providing more in-depth service to a smaller group of clients -- to become more of a wealth management operation,” he says. He adds that the shift “made sense” to many of his clients, because “they’d just been through the tech crash, and were becoming more risk averse.” Those who didn’t like the idea, he adds, were transitioned to other advisors.

“It was a fundamental shift,” he recalls, “and it took three to four years to do, but it didn’t hurt our business.” For one thing, he explains that 80% of his revenue had been coming from 20% of his clients, mostly wealthier ones. “And most of them shifted readily to the fee-based platform we were offering them,” he says. He admits there was a short period where gross revenue “pulled back,” but he says part of that was the result of his moving in 2008 from Bank of America to Wells Fargo. Production over that down period did not decline, though. At the same time, his client base during the changeover to Wells Fargo and to a fee-based operation dropped from 200 families to 65, with a decided move up the asset ladder from mass-affluent to affluent.

Meanwhile, up in Marshall, Minn., Mark Buss, an advisor at Bremer Bank also made the transition over the last six years from a wholly transaction-based practice to one that is now 50% fee-based. (Raymond James is the third-party marketer for Bremer Bank.) He says the driver for him was having a mutual fund he had been heavily using drop from a four-star to a two-star Morningstar rating six months before he even realized it had problems. “I thought, ‘That’s not good’!” he recalls.

Buss likes that his new heavily fee-based business allows him to spend more time with clients and build deeper relationships. And it also allows him to spend more time with bank colleagues, which he says “really helps with referrals.”

Bremer Bank offered him no incentive to shift his business to a fee-based model, and he says he did have one year -- 2010 -- when his revenues and production dipped because of a drop in his A-share mutual fund volume, but that turned around quickly. Today, his assets under management are up to $66 million, up from just $19 million at the end of 2009. He admits he did get an “under-perform” mark on his 2010 annual review, which he notes will “always remain in my file.”

That little blot doesn’t sting much though. As a result of all his fee-based business, he says that not only is his gross revenue up from $170,000 in 2007 to $520,000 in 2013, but that $370,000 of that is recurring revenue. “If I just sat back and did nothing but meet with clients, I’d still be making that money,” he says.

“I think every advisor should go fee-based,” says Buss. “It attracts higher-net-worth clients, and you can be a lot less pushy.” He explains, “I used to be pretty aggressive about trying to get that commission. Now I’m not worrying about the next big sale. I’m working with clients to help them achieve their goals.”

Wells Fargo’s Reich agrees that advisors should be moving to a fee-based model, but he phrases it as a warning: “I’d tell anyone you can do this, but if you don’t, you’d better go home and pray each night that your clients don’t run into a guy like me, because they will want to make the change to fee-based.”          

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