If You Give An Advisor a New Business Model: Changes in Fee Structure Require Other Changes As Well

In a well-known children’s book called If You Give a Mouse a Cookie, a boy’s initial decision to give a mouse a cookie sets off a domino effect of one new requirement after another. It’s a great story about unintended consequences and the need to take responsibility for them.

The story is a useful lens through which to view the early momentum for moving away from an AUM-based fee to a recurring fee. Three recent articles highlighted this shift: two addressing discussions at LPL Focus (one from Financial Advisor and one from Wealthmanagement.com) and one sharing the results of a survey.

Without a doubt, recurring fees – and the steady revenue they produce – can be an attractive business model. Just ask Netflix or Salesforce. The appeal may be even greater if you’re an advisor whose primary alternative is a model in which you make less money when the market dives while you’re working even harder to satisfy clients who are unhappy with their portfolio losses.

But here’s the catch: You can’t shift to a recurring, subscription-like fee and still do the same things as before. Why? Because charging a monthly fee and delivering tangible value only two or four times a year means you’ll likely end up with unhappy and angry clients. Two totally unintended consequences.

If you decide to make the shift to a recurring fee, you also need to change two key elements: value delivery and measurement of client satisfaction:

Value Delivery. It’s entirely reasonable for a person who pays a fee every month to expect to realize value for that fee on a monthly basis. If Netflix didn’t spend millions of dollars on content and instead only offered old movies, you would cancel your subscription. If you could never get to the gym because you didn’t have time or there was a pandemic, you’d cancel your membership. Advisors have always had to face the question of “what am I getting for my money and is it worth it?” Under a recurring fees system, it’s even more important that the answer to that question is “yes”. Advisors need to ensure that they are explicitly delivering value to their clients on a regular, ongoing basis.

Client Satisfaction. If an advisor charges a fee based on AUM, it’s reasonable to assume that the client’s satisfaction will be driven by the growth of his/her portfolio. Shifting away from this fee model requires also moving away from the assumption about satisfaction. Portfolio performance will undoubtedly always be a piece of the equation when it comes to assessing the health of client relationships, but under a recurring fee model with ongoing value delivery, it can’t be the only piece. Client relationship health will increasingly be based on the frequency and quality of communications, the accessibility and easy use of technology tools, and the availability of ad hoc support and guidance.

The bottom line: People pay and assess satisfaction based on the value they receive. If advisors who shift to a recurring fee don’t acknowledge this reality of human nature, they will undoubtably face the unintended consequences of losing clients and referrals.

Five Strategies for Turning a Virtual “Oh Well” Event into a Success

Almost six months into our new reality of social distancing and virtual everything, we are now seeing articles, including a recent one from Wealth Management , wondering whether in-person conferences are dead. This speculation is fueled by questions about when it will be safe to mingle inside with hundreds of other people and by a growing recognition that virtual conferences – when executed creatively and thoughtfully – not only can have advantages over in-person but that there are ways to mitigate the disadvantages. The key, as we discussed in a previous post, is to think about virtual not as a “better-than-nothing” substitute, but as a viable alternative.

In this vein, we have developed a list of the key components for developing a strong virtual conference strategy that can help sponsors and speakers to maximize their value:

  • Get intimate. To a great extent, conference experiences are defined by physical limitations of space: 50 breakout sessions with 5 people in each or 100 one-on-one private discussion sessions would be very difficult to manage. But, within reason, you can in a virtual environment. Speakers can break an hour-long session into three 20-minute sessions each serving a smaller, more homogenous audience. Speakers and sponsors can also set up and promote virtual office hours for private discussions.
  • Short and sweet. Combat the disengagement effects of distractions and lack of physical proximity by making the presenting part of sessions shorter and the Q&A longer. Leverage the polling and “hand raise” features of most virtual meeting platforms to solicit and field comments and feedback to better engage the audience. (Pro tip: If you’re a speaker, make sure you have some “friendly” attendees who will get the interaction started with questions in case other attendees are hesitant.)
  • No limits. In a virtual world, time and space are no longer a barrier to engagement. Sponsors should powerfully leverage more senior management, who only need to make themselves available for short periods rather than committing to days of travel and attendance. Speakers are also likely to obtain greater participation from a broader range of partners and panelists who don’t have to weigh the benefits against the days out of the office.
  • The Journey not just The Destination. With live conferences, there’s a tendency to under-leverage the pre- and post-conference opportunity because you know that the time spent together in (fill in hotel in Florida here) will be what makes the event worthwhile. Sponsors can work to make up for the loss of that capstone opportunity by making better use of the pre- through post-conference communications to engage and spur conversation. Pre-conference, ask attendees what they want to get out of the conference and develop a connection to a sales resource. During the conference, use social media to initiate conversations. Post-conference, ask what they found valuable and send out related content.
  • Value-added on-demand. One of the best things about virtual conferences is that everything can be recorded and shared afterwards. Sponsors can use that as an opportunity not only to broaden the reach of their content, but also to further engage with their customers. Consider offering commentary and curated lists of sessions/topics that would be of interest, both to customers who registered/attended and even those that did not.

The bottom line is that many 2021 conferences have already announced as virtual. For B2B companies, the investment in these events is too great to just cross our fingers and hope that things return to normal soon. Necessity is the mother of invention: It’s time to develop approaches that make the most of our “new normal”.

“…after they’ve seen Paree”: The challenge for financial marketers post-pandemic

There was a popular song at the end of World War I, “How Ya Gonna Keep ‘Em Down on the Farm,” about how soldiers returning to rural America might be restless after having seen the wonders of Paris (“How ya gonna keep ’em down on the farm after they’ve seen Paree [Paris]”). We believe financial marketers should be feeling a similar anxiety about their customers today, who during the new reality of our social isolation have experienced very different ways of interacting with their financial vendors.

There’s absolutely no question that none of us want to continue living the way we have since mid-March, but customers’ experiences with new ways of conducting business are changing their expectations and needs with respect to financial services companies. Certainly, some of these experiences have been far from positive, but the forced disruption of the status quo has opened people’s eyes to new possibilities and has elevated new and different attributes to important and valuable parts of their financial services relationships. For example:

  • Financial advisors and brokers may not welcome as many wholesalers into their offices after finding that virtual conversations work just fine.
  • Small businesses may set a higher bar for their banks to provide digital support and services after going through the pain of PPP.
  • Middle market companies may not welcome one-on-one conversations with prospective commercial lenders.
  • Consumers may place even more importance on the availability and quality of phone and online customer support — enough to overcome their normal bank-switching inertia.

EMI is currently conducting research, in partnership with The Gramercy Institute, among asset management firm marketing leaders to understand how they are providing support to socially-distanced sales teams. This research has revealed many different approaches (which we’ll share in future blog posts), but a common thread is that these marketing leaders believe that many of the adaptations forced by social isolation are likely to drive greater alignment between marketing and sales. Whether or not rose-colored glasses are playing a part in these assessments, this positive outlook indicates that at least some of the new approaches will carry on even when our world begins to open up.

On the one hand, it’s a good sign that firms may be more inclined to challenge assumptions and “standard operating procedures” in favor of new ideas that could better serve client needs. On the other hand, there is danger in greenlighting even well-intentioned new ideas if they aren’t subject to any more validation of their effectiveness than the old ways of doing things. It is therefore vitally important that financial marketers treat our current reality as a testing opportunity, not just an exercise in making the best of a bad situation. The key to this testing mindset will be analyzing data for answers to questions like:

  • Has the volume of sales opportunities gone up or down?
  • Have salespeople had more or fewer direct interactions with customers and prospects?
  • Has the quantity of inbound inquiries increased or decreased?
  • Have customers and prospects interacted more or less with digital communications?

Many or even most of the new virtual and digital approaches have the virtue of being cheaper than their pre-pandemic equivalents. That is why it is so important for financial marketers to not only “feel” that a new approach has been a success, but also quantify the increases or decreases in sales performance and customer satisfaction. Failing to do this runs the risk of marketers waking up in a world of lower budgets (“you proved that you don’t need to do as many expensive things”) and even more unobtainable objectives. In short, unless marketers can provide an alternative narrative, senior management may easily assume that marketing really can do more with less — and make budget allocation decisions that are disastrous for financial marketers and their companies.