Over the past 10 years, advisors have seen a substantial jump in fee-based business, and they don't see the trend slowing down.

That's the general theme of the most recent quarterly survey of our Top 50 Bank Reps profiled last December and sponsored by PrimeVest.

The majority of participants said that more than 60% of their business came from fee-based accounts, up significantly from 10 years ago. Though the survey is anecdotal, it reflects a general shift that analysts say has been taking place since the 1990s: financial planners increasingly are taking more of an advisory role, focusing on client needs rather than selling products.

It's a shift that most survey participants seemed to have embraced. The respondents viewed fee-based accounts as a win-win for both clients and themselves. They noted that the ability to manage a client's portfolio for a flat annual fee-anywhere from 1% to 1.5% of the portfolio's value-allowed them to better serve their clients, while elevating their roles beyond that of salespersons. "They view me as their financial planner as opposed to a mutual fund picker," wrote one of the survey respondents.

Even more important, many of them noted that fee-based accounts eliminate the perennial problem advisors face with transaction-based business: nagging questions about whether their recommendations on investments truly serve the client's best interests and not just the advisor's need to generate income.

In a fee-based account, the client "never has to worry if this transaction is done so [the] advisor can earn a commission," said Todd Colbeck, president of Colbeck Coaching Group.

In today's environment, every little bit to restore trust in the financial industry helps. The bad reputation the industry has suffered in recent years has intensified the need to transition to a fee-based model, noted Sophie Schmitt, senior analyst at Aite Group.

Fee-based accounts-unlike those that are transaction-based-entail fiduciary responsibility and better align client and advisor interests.

"It puts you on the same side of the table as the client," says Matthew Fryar, senior vice president of Investments at Wells Fargo Advisors, whose business is 90% fee-based.

Fee-based accounts also give advisors greater flexibility in serving clients, notes Colbeck. In transaction business, advisors are limited to funds in a specified family. With a fee-based arrangement, they can pick investments from an array of investment classes, including annuities, stocks, bonds, closed-end funds and ETFs.

Despite their many advantages, fee-based accounts are not for everyone. For investors with simple needs, it might be a little expensive, noted Schmitt. "It's not going to yield results for someone with $100,000 to invest," she said.

The trend toward fee-based business began in the 1990s with the emergence of new technology that made it easier and cheaper for financial planners to manage portfolios, said Schmitt. What was once only offered to high-net-worth customers could now be offered to customers with less wealth through software that performed account management tasks-such as rebalancing-across multiple accounts.

Still, there's a long way to go before fee-based business will be the dominant income generator for advisors. Today around 65% of a bank advisor's revenues comes from commissions and only about one-third from fee-based business, according to an Aite Group report published earlier this year.

From an income perspective, fee-based accounts trump transaction business, said survey respondents. Advisors cited recurring revenue streams as one of the biggest advantages of fee-based business. Though advisors take an initial hit to their income when switching from commissions to fee-based pay, they catch up within five years, according to industry sources.

"Having clients for life is a lot more appealing" to advisors than "cold calling clients six times a day" under a transaction-based pay model, said Scott Smith, associate director at Cerulli Associates, a research firm specializing in asset management and distribution trends worldwide.

Selling clients on an ongoing advisory relationship is not difficult, if they understand how it works and its benefits, said analysts and many survey participants.

One of the participants said in a write-in answer: Many advisors are afraid to propose the fee. I don't understand why. Just tell the clients why it's good all the way around and go for it!"

To drum up fee business, Schmitt urged bank advisors to communicate the value proposition of what they provide, emphasizing a holistic view of all their services.

Many survey participants encouraged their fellow advisors to convert existing brokerage accounts to fee-based business. Colbeck recommended that advisors identify the top 20% of their clients and methodically transition them to fee-based. "Eighty percent of your assets are typically held with 20 percent of your clients," he wrote in an e-mail message.

Winning fee-based business, though, is not entirely without challenges, said survey participants. Clients don't like to pay a fee when their portfolio values fall during market downturns.

But even then, clients can be assuaged and see the value of their financial advisors, said analysts and survey respondents. Markets go up and down, they argued, but the long-term written asset allocation plan remains the same.

"Emotion makes people do crazy things," said Colbeck. It's the advisor-"the voice of reason in turbulent times"-that helps nervous clients stick to their financial plan over the long haul.

BIC sends the quarterly surveys to all 50 of our top bank reps. This time we had 18 responses.

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