By James Morris, Questar Branch Office Designated Supervisory Principal at Ann Arbor Annuity Exchange
In the last several years a new term has infiltrated the lexicon: Disruptor. Disruptors, in this context, are companies such as Uber, Lyft, Expedia, Amazon, and others that have disrupted the traditional way of doing business, and consequently created new industries and jobs. The firms that did not adapt, think Blockbuster for example, were deemed irrelevant and fell by the wayside. As you can guess, the financial services industry is not immune to this trend of adaptation.
In this case it is primarily regulatory-driven, though there are also robo-advisors and other self-directed platforms that continue to erode the market share of independent financial advisors (FAs). How can you protect yourself and your practice from disruptors? There is no easy answer, but there is one strategy that all FAs should embrace, and that is to adapt to change.
One way to adapt is to strongly consider implementing fee-based business within your practice. As you are aware, this is not a new topic, but it is certainly a growing trend in the industry. One of the philosophies behind this movement is the idea that FAs are asset gatherers developing long-term relationships rather than transaction-driven agents. This change appears to be a disruptor in the industry, especially to agents that hold only a state insurance license. Like any trend, it starts as a small wave on the horizon and by the time it is apparent that you need to implement this into your practice, the space has been overrun with advisors that adapted their practice first, meaning you are playing catch-up or worse yet, have become irrelevant.
Adding fee-based business to your practice can help you offer your clients an alternative to an insurance-based product. If you are an insurance-only licensed producer, it is very likely your insurance customers have mutual funds or other funds that you could assist them with that are not being addressed. An additional benefit is that you will be able to offer your clients one point of contact, rather than multiple FAs, to consolidate their assets for more effective financial planning.
Using an asset-gathering mentality can not only help your clients with additional options, it can help grow your business. Fee-based accounts establish a predictable income stream to your practice. This means that at the beginning of the year, your practice doesn’t have to start at zero revenue, because you can estimate the fee-based payments that will be received by your firm annually.
To become a fee-based advisor, which is referred to as an investment advisor representative (IAR), you generally have to pass the FINRA Series 65 or FINRA Series 66 exam. However, certain professional designations can be used in lieu of the test, depending on your state of residence and where you intend to do business. It is important to note that IARs are held to a fiduciary standard, meaning the FA must act in the customer’s best interest. IARs are regulated by the Securities and Exchange Commission and have additional compliance oversight due to the nature of ongoing fee-based business with customers.
Ann Arbor Annuity Exchange is here to help you grow your business and we can help you become an IAR. We have relationships with registered investment advisers (RIAs) that help insurance-only agents become familiar with writing fee-based business and learn to both help their clients and grow their practice.
If you would like to discuss becoming an IAR, along with RIA options, please give me a call.
James Morris | Designated Supervisory Principal
Questar Capital Corporation Branch Office at AAAE
Ph: 800.321.3924 x159 | Dir: 734.786.6159
Securities offered through Questar Capital Corporation (QCC). Member FINRA/SIPC. Advisory services offered through Questar Asset Management, a registered investment advisor. Ann Arbor Annuity Exchange is an affiliate of QCC.
Designed for Financial Professionals.