ARE YOU CONSIDERING A REVENUE MODEL CHANGE NEXT YEAR?
An article written by Bob Veres, published on Monday by Advisor Perspectives discusses what Mr. Veres believes are the five challenges advisors facing advisors in 2019. Click here for the full article.
For the challenges Mr. Veres outlines, he also offers an action plan recommendation. For purposes of this week’s post, I have selected one of the five challenges that Mr. Veres outlines in his article.
Over the last year or so, we have discussed revenue model changes with both current as well as prospective advisors of Dynamic Wealth. Often those discussions have been about moving away from an AUM-based fee and charging a flat annual fee to ultra-high net worth clients (typically $10 million in assets and above) as well as with emerging affluent clients.
Mr. Veres believes that the trigger for a larger migration away from AUM-based fees could be with the next bear market. The reason he cites for this is the impact on revenue with a downturn in the value of client assets. And we believe this is something to be concerned with as well. In a bear market, the number of hours needed to serve clients will not decrease, however, there is less revenue for the business.
Of course, the easy part is identifying the challenge or issue. It is an entirely different conversation to take steps to evolve one’s practice to be less susceptible to market fluctuations. Mr. Veres suggestion is to create a simple spreadsheet that allows you to estimate the profitability of each of your client relationships and look to make changes with your least profitable relationships first.
Earlier this year, I and other members of the Dynamic Wealth team who offer practice management consultations, assisted a current advisor with implementing a minimum annual fee strategy.
One might also want to take it a step further when reviewing their profitability spreadsheet and look at their most profitable clients, too. If the number of hours spent servicing the relationship and the revenue generated are not consistent with your approximate hourly fee – there may be an opportunity to migrate to another revenue model.
When looking at your business in the long term, it is important to consider the groups that will make up most of your client base going forward; Generation X and Millennial clients. A Guardian Life Insurance press release from July of this year suggested that millennials want more access to advisors, and value advice. You can read the press release here.
In closing, it may be some time before the majority of advisors move away from the AUM-based model, but it might be worth considering a gradual move in that direction as we move into 2019 and beyond.
About Dynamic Wealth Advisors
Dynamic is recognized as a premier provider of essential resources to professional wealth management practices. Its turnkey practice platform includes asset management and enables wealth advisors to save money and focus on clients while positioning themselves for success and growth. With myVirtualPractice, a suite of wealth management practice solutions, Dynamic hands the professional wealth advisor the keys to a comprehensive custom-built virtual office and practice complete with staff, back/middle office, accounting/billing, compliance and even a Virtual Assistant. The wealth advisor need only add clients and a laptop, and they are up-and-running instantly. For many breakaways and independent wealth advisors, being part of a nationwide community of like-minded professionals is one of the most valuable components of their affiliation with Dynamic.