Advisor Comp Is Taking A Hit

"Everyone's book of business is in question now," says Beatty. "Though other practices might be cheaper to purchase than in years past, you don't know what you're buying. If advisors aren't talking to their clients–which is a big problem in our industry–then the value of the business decreases daily. I won't touch a book until I have a lot of time to assess its worth."

To boost the financial standing of their own practices, advisors are spearheading a range of initiatives. Though increased servicing of existing clients is a common theme among sources, most have not followed Solomon's decision to suspend new client acquisition efforts.

Beatty has intensified his marketing campaigns, in part by holding more seminars, though he acknowledges the work thus far has largely fallen on "deaf ears." But he is optimistic he can boost his client base by 25% in 2009.

Because of investor anxiety, advisors say they are also finding prospects more receptive to products offering guaranteed returns, including fixed and equity-indexed annuities, bonds, money market funds and certificates of deposit. Bob Rockwell, a certified financial planner and principal of CCB Financial Services, Sandy, Ore., says that during the past year he's doubled sales of FDIC-insured CDs. The revenue windfall offsets a roughly $10 million drop in the value of equity investments, thereby maintaining a combined portfolio value of $60 million.

Bobbie Munroe, a certified financial planner and principal of Fraser Financial, Atlanta, Ga., says she's weathered the current financial crisis more successfully than colleagues who subscribe to an AUM model by charging clients a fixed annual fee. Ranging between $2,000 and $20,000 per year, the retainer fee is determined by the level of client contact required and, secondarily, the size of the account.

This business model, she predicts, will be more widely adopted in future years, in part because baby boomers, the largest demographic population in the U.S., are entering retirement in larger numbers, and thus shifting from an accumulation to income distribution phase.

"If you have a dwindling asset base and an aging clientele, then you're getting less money for more work if you tie fees to AUM," she says. "So I think a fixed annual fee will become more popular."

Still other advisors are, as the Cerulli report counsels, compensating for a loss in fees by ratcheting up sales of insurance products. Rousso says his overall revenue during the year past was up 14%, thanks to a brisk business in employee benefits, including individual and group insurance products, which account for 65% of his practice. Part of the gains he credits to increases in sales of universal life and term policies.

But he has profited most from sales of health savings accounts. A creation of the Medicare bill signed by President Bush in December 2003, HSAs help individuals save for future qualified medical and retiree health expenses on a tax-free basis.

The plans also can yield significant savings for employers. One business client of Rousso saved $150,000 in health care expenses by shifting from a PPO to an HSA plan. For Rousso, the switch added up to a nice commission: 7% of the annual $350,000, premium, yielding him $24,500.

Company medical plans of all types, including HSAs, have also been lucrative for Rockwell, who makes a point of promoting his health insurance portfolio whenever he meets with a business client. More often than not, he says, the plug yields results, as a growing number of companies are frantically searching for ways to contain rising health care costs.

"About 80% of my business clients are interested in exploring options when I mention health insurance," he says. "I derive a monthly commission on the sale, which is typically 10% of the premium on individual accounts and 2% on group accounts. It's a nice income stream because you're making a percentage of every premium payment."

Rousso adds that life insurance and investment advisors who have little knowledge of health insurance plans would do well to partner up with an expert.

"When you hook up with a really good health insurance advisor, you'll end up getting not only more health insurance sales, but also more 401(k) business, because the referrals work both ways," he says. "And, in most cases, partnering advisors should be able to set up joint revenue-sharing arrangements."