How do I explain my service model and scope of services to a prospect?
Step One: Begin with an explanation of the types of service models the client can choose from. There are two common fee arrangements:
- The brokerage model where advisor compensation is variable and generally commission-based; the fee is embedded within the investment product (e.g., 12b-1 fees).
- The fee-based model where advisor compensation is fixed. With this model, advisor fees are not dependent on the investment product. They are typically determined based on the size of the account (e.g., percentage of assets or flat dollar amount based upon asset size).
Step Two: Define the different investment decision-making levels you can provide as a fiduciary advisor.
- Fiduciary Advice or Discretionary Management: Whether providing non-discretionary fiduciary advice, or directly exercising control by providing fiduciary investment management, you are a fiduciary to the client. If you provide investment recommendations to the client, but do not have discretionary authority to make the actual investment decisions, you would share fiduciary responsibility with the client. For ERISA plans, you would be considered a 3(21) investment fiduciary in this situation. On the other hand, if you are specifically appointed to be an investment manager with discretionary authority and control to make the actual investment decisions, you are acting as a 3(38) investment manager with respect to an ERISA plan.
- Non-fiduciary services. If your client has full control over all investment decisions and you merely execute directions or provide other non-fiduciary services, then you are not a fiduciary investment advisor. Be aware, however, that if you do provide investment advice, such as recommending three funds from which the client may choose, you have become a fiduciary investment advisor.
Step Three: Use the scope of services tool to determine the services you will deliver. Incorporate these services into your sales presentation.
Step Four: Prepare prospect meeting materials.