We spoke with Eric Stubbs, Ph.D., Senior Vice President – Financial Advisor at RBC Wealth Management in New York, NY, to learn more about his approach to meeting the needs of clients through a discretionary portfolio management approach. With 20 years of experience in investment strategy, Mr. Stubbs and his team offer a comprehensive approach to wealth management and world-class investment solutions, focused on serving the needs of high-net-worth investors and institutional clients.
Understand Client Needs
Whether our client is a high-net-worth individual or an institution, we always take the time up front to understand goals, investment preference, time horizon and tolerance for risk. This way we can create and maintain a portfolio that is customized to meet unique needs. About 95% of our business is discretionary fee-based, with transactional business as a courtesy to clients who have other business with us.
Our institutional business is across trusts, foundations and pension plans, and here we do one of two things: we manage assets or, in the case of ERISA clients, we consult and use external managers. With our institutional business growing twice as fast as retail, we have found the fee-based model to offer new avenues of growth for our practice.
Two Models Support All
One of the strengths of the fee-based model is that it allows for different approaches. We run two discretionary model portfolios: one is a global tactical equity portfolio and the other is a yield portfolio. Clients know what they are buying, what it’s going to look like today, in the next six months, a year from now, and how it will transition over time.
These two portfolios are identical for all our clients, but the difference is the change in proportions. For example, if we are dealing with a widow who is very sensitive to volatility and with no cash flow other than Social Security and investment income, her portfolio may be 80% bonds and yield generation and 20% global equity.
On the other hand, we may have a younger client who runs his own business, has a healthy cash flow, and is in the process of building the wealth in his portfolio. In this example, he may be looking at a 100% global equity portfolio.
Offer More Complete Relationships
When we talk to clients about the fee-based structure, we say that it is literally a fee for service. What clients are getting is not strictly a substitute for transactions, although that’s part of what the fee pays for. More importantly, the fee pays for a broader relationship. If a client comes to us with a trust document and wants one of our specialists to review it, we’ll do that for no additional cost. If another client comes to us for advice on the asset allocation of his daughter’s 401(k), we’ll advise the daughter for no additional cost.
Clients quickly come to understand that we are building a more complete relationship with them through the fee-based approach. We have found that clients prefer our more holistic view of their financial lives and our commitment to helping them meet their goals.
Transition Service Model BEFORE Transitioning Fee Model
If you currently have a commission-based business, your clients probably think of you in a particular bucket, as their sales broker. If you plan to move to a fee-based model, you need to change their psychology. One way to do that is to start offering the other services for no additional cost before you transition them to fee-based.
Engage your clients in a conversation about personal/ spousal 401(k)s or estate planning, as an example. And don’t charge them anything for it—don’t even suggest there is a charge associated with it.
Through this broader conversation about their financial life, you start to move their perception from seeing you as a sales person to a trusted financial advisor. Once that perception starts changing, the move from commission- to fee-based becomes very natural.