August 9, 2010
I first obtained my insurance licenses 18 yrs ago and have steadly further developed my business practice to better serve my clients. I have a practice that includes my 65, 6, life health licenses. My geographical area of practice is primarily in the northern half of Utah. I specialize in the creation and distribution of income. I use a lot of term life insurance and brokerage accounts for the creation, the accumulation, side of income. I use a lot of varible annuities and managed accounts for the distribution side of income. Term is used to keep expense down while saving, but the VA is used to insure life long income. Both of these products are a direct illustration of why "fee only" won't work. People don't have enough to save and then they don't have enough to retire on when they stop saving. To ask all clients to pay fees from their pockets would lead to less planning not to better planning. I inform clients that for everything they purchase the manufacture/distributor prices in total costs. Some of these costs the stores controls, but some costs are beyond their control. The same is true with financial products. I need to get paid for my work whether its by them directly or from the manufactor of what they purchase. I then tell them I don't charge an additional fee to them if I will get paid by internal costs that I do not have control over, sales charges commissions. I also tell my clients that it would be unethical not to address their needs prior to recommending a solution and that some solutions include my compensation already in the purchase and with other solutions we'll need to agree on my compensation for the work rendered. I have experienced many clients who choose one solution over another because my compensation was paid through the manufactor and not by the client.
I have witnessed one of america's smartest, Steven B., fail in business because he wanted to implement a fee only business model, but the public wouldn't pay. Steven had his doctorite in economics and obtained his 6, LUTCF, CLU, ChFC and CFP all within less than two years. I was able to attend split cases with him and his mind and recommendations were very very comprehensive, but he could not get enough in fees to justify providing the services so he left the industry. This is another direct illustration of why "fee only" won't work.
Consider this, most all investors and insurance purchasers do not pay management/planning fees. You want to disrupt the purchasing paying pattern among the vast majority.
My recommendation would be a study. Require all professionals who use the CFP desgination to only charge fees starting 01/01/12 and maintain that business model for a 5 year period or until they no longer use the CFP designation, whichever is shorter. The outcome of this, I am certain, will give you insight of how distructive a fee only model will be to the public by them loosing their advisors. Your study would only include some of the brightest in the industry and if they can't maintain your model then you know the rest of the industry very well couldn't either.
As needs are increasing, demand for product increases, it is a faulty industry model to limit supply without increasing costs. If fee only is implemented supply of advisors would lessen greatly which should create higher costs to the consumer to consume advise. As fees rise americans could afford less reducing demand. You would be eliminating those who can't afford the fees who are the very ones who need the advise the most. Fee only would hinder the majority while creating an "elite" service that only few americans could afford.
I would be happy to comment further per your request.