Veteran advisor discusses his arduous journey from one compensation model to another. Those making the move might want to read this.
Veteran advisor discusses his arduous journey from one compensation model to another. Those making the move might want to read this.
Burgeonvest Bick Securities’ advisor John DeGoey’s been helping clients with their investments for more than 20 years. Recently, WP came across an article written by DeGoey himself from January 2002 detailing the difficulties involved in moving clients from a commission-based compensation structure to that of a fee-based model.
It’s an eye-opener for sure which got us wondering if anything has changed between now and then that would make it easier for advisors contemplating the move.
“I started the move in January 2001 and by the end of 2005 I had 100 percent moved,” says DeGoey.
“But you can’t do it all at once… anybody using DSC mutual funds, which I had been using until the summer of 1999; I mean you could do it quickly by having the client eat the DSC but that’s not particularly honourable.”
So, if you’re thinking about it, take some time to consider what type of products you currently provide your clients because that will dictate the pace at which you can do the move.
“People who are brokers who are using individual stocks – they can just flip a switch and stop charging commissions and charge a fee instead. It’s easy for them. But most people reading Wealth Professional would be using mutual funds and as a result, that’s a constraint [using DSC funds] they’re dealing with. ”
#pb#
When it comes to mutual funds sold with loads, advisors are using more front-end opposed to DSC; stats from IFIC back this up. In 2007, 58 per cent of the funds sold were done with the DSC option compared to just 37 per cent in 2014.
So, how long would it take to make this move today? Not nearly as long according to DeGoey.
“I think it will take a year or two less, so two to four years. Most mutual fund advisors have been using front-end zero for some time now and for the most part there’s less DSC on the books than when I made the decision to move in 1999.”
In addition to having the DSC bugaboo to overcome, DeGoey mentions two other problems that hampered his ability to move clients.
First, at the time no one else was moving clients from the one business model (commission-based) to the other (fee-based) so it was a difficult task simply convincing clients to start paying a bill, which was exacerbated by the fact the markets had just been through a significant correction in 2000-2001, making it incredibly difficult to ask this of clients when they’ve just seen their portfolios shredded.
“In 2002, I’d guess that approximately 5 per cent of advisors charged asset based fees. Today that number is likely closer to 35 per cent,” says DeGoey.
So, for the remaining 65 percent contemplating a move, remember that others like DeGoey have paved the way for an easier transition.
Burgeonvest Bick Securities’ advisor John DeGoey’s been helping clients with their investments for more than 20 years. Recently, WP came across an article written by DeGoey himself from January 2002 detailing the difficulties involved in moving clients from a commission-based compensation structure to that of a fee-based model.
It’s an eye-opener for sure which got us wondering if anything has changed between now and then that would make it easier for advisors contemplating the move.
“I started the move in January 2001 and by the end of 2005 I had 100 percent moved,” says DeGoey.
“But you can’t do it all at once… anybody using DSC mutual funds, which I had been using until the summer of 1999; I mean you could do it quickly by having the client eat the DSC but that’s not particularly honourable.”
So, if you’re thinking about it, take some time to consider what type of products you currently provide your clients because that will dictate the pace at which you can do the move.
“People who are brokers who are using individual stocks – they can just flip a switch and stop charging commissions and charge a fee instead. It’s easy for them. But most people reading Wealth Professional would be using mutual funds and as a result, that’s a constraint [using DSC funds] they’re dealing with. ”
#pb#
When it comes to mutual funds sold with loads, advisors are using more front-end opposed to DSC; stats from IFIC back this up. In 2007, 58 per cent of the funds sold were done with the DSC option compared to just 37 per cent in 2014.
So, how long would it take to make this move today? Not nearly as long according to DeGoey.
“I think it will take a year or two less, so two to four years. Most mutual fund advisors have been using front-end zero for some time now and for the most part there’s less DSC on the books than when I made the decision to move in 1999.”
In addition to having the DSC bugaboo to overcome, DeGoey mentions two other problems that hampered his ability to move clients.
First, at the time no one else was moving clients from the one business model (commission-based) to the other (fee-based) so it was a difficult task simply convincing clients to start paying a bill, which was exacerbated by the fact the markets had just been through a significant correction in 2000-2001, making it incredibly difficult to ask this of clients when they’ve just seen their portfolios shredded.
“In 2002, I’d guess that approximately 5 per cent of advisors charged asset based fees. Today that number is likely closer to 35 per cent,” says DeGoey.
So, for the remaining 65 percent contemplating a move, remember that others like DeGoey have paved the way for an easier transition.
