Transitioning to fees - Adviser's alpha - Insights from the US market (Part 4 of 4)

Vanguard | 24 July 2012

In the fourth excerpt from a Vanguard Group, Inc. webcast, a US-based wealth manager talks about the rewards of shifting to a fee-based model.


Rebecca Katz: What has been your biggest challenge and reward with respect to transitioning to or developing out a fee-based wealth management practice?  So we've talked a little bit about benefits for clients.  Has there been a benefit or challenge maybe to you as you have worked under this type of model?

David Loeper1: I'd say – and I'd like to start with the reward first.  The – not just for me but for many of the advisors that have joined us and who've adopted this kind of approach to working with clients, it's reinvigorated their careers.  You know, it makes you feel noble.  When you can make a difference in a person's life like we do every day, and I used a couple example [unclear], but we have that happen – every week, I get a call from an advisor that we're making that kind of difference.  That's a very rewarding career.  I don't feel like I deserve to get paid for it, but the challenge is, particularly working with advisors is un-training them on a lot of the old habits.  I mean, there's a lot of gestalt that fills in from you know, I know this is a truism because I learned it when I was in broker boot camp, and that takes a little bit of effort.

Rebecca Katz: Do you want to add anything to that, Fran?

Fran Kinniry2: Yeah, I mean, I think the biggest thing is – and it may not even be the advisors.  I think clients have grown up with the report card, right?  And so it ends up being a single metric.  A lot of clients view the single metric as that, you know, my portfolio returned X, but an unmanaged portfolio at 60/40 benchmark performed Y, and they use that single metric and that's been – change is hard, so we have to first take a step back and understand most people are resistant to change, and this has been a, you know, that one single metric has been in place for a very long time, and so but I think once you pilot this or you try it and you're not actually too anxious about it, most investors, if you get them to think about all of the other features that you're doing for them and all the other value-added capabilities that you're doing for them, you know, certainly it becomes a much more enriching and rewarding profession even for the advisors. You're now actually using your competencies in a very meaningful way that is controllable – financial planning, wealth planning. So investors really want the personal relationship.  They value the personal – they value going in and sitting down with David, talking with David, seeing David.  They value that, and so we need to remove the single metric of performance and talk about all the other things.

Rebecca Katz: So what advice would you give to wealth managers who do want to shift to a fee-based model?  Would you do anything differently from maybe the way that you implement it yourself?  Are there any tips that we can offer?

Fran Kinniry: I do work with a lot of advisors where it could be a little more complicated and you can do it in an incremental, marginal approach and what I mean by that is you go to fee-based and I want to be clear why we believe in the case for indexing.  We – Vanguard really believes in the case for low costs, so we would be as comfortable having all active funds. So to me, those two things have to be there; low cost, broadly diversified.  Whether it's indexed or active is really a choice. If you had a practice that has always grown up on, you know, outperforming the market or transaction-based, you could certainly make a whole sale change like that, I mean, I think we inside, the advisor themselves, or the home office themselves, it's just hard to make that transition, but from the clients?  Most clients really would, you know, just want what is in their best interest, and it's hard to argue that indexing or low cost, broad diversification, and the way you would manage an Advisors Alpha are not all helpful concepts. They may be hard to show month by month or quarter by quarter the value that's there, but certainly we would all agree, and I find it hard to find anyone out there that can contend that those would not be true value-added to an investor, and that's what we're all here for.  We're here to help investors meet their goals and objectives.


  • This video was produced by The Vanguard Group, Inc. It is for educational purposes only and is not a recommendation or solicitation to buy or sell investments.
  • The opinions expressed in this Webcast are those of individual speakers and may not be representative of Vanguard Asset Management, Limited.
  • The value of investments, and the income from them, may fall or rise and investors may get back less than they invested.

1. [David Leper is the CEO, WealthCare Capital Management Inc.]↩ 

2. [Fran Kinniry, principal, Investment Strategy Group, The Vanguard Group Inc.]↩