DISCOVERING AN ADVISORY BASED FEE- ADVICE- W...
Transcript of DISCOVERING AN ADVISORY BASED FEE- ADVICE- W...
For generations our industry has managed to thoroughly confuse
consumers about who we are, what we do and how we
get paid for doing it.
The dizzying array of titles and designations we use continues to expand.
IDENTITY CRISIS WHAT’S IN A NAME?
CFA®
CFS
CIMA®
CEBC
CPCU®Independent
Advisor
Private Wealth
Manager
CPA
CFP®
FinancialPlanner
CLU®
FinancialAdvisor RHU
CIC
PFSSM
AssetManager
CHFC®
WealthAdvisor
$
$
$
$
$$
$
$
$
$
$
$
$
$
$
$$
$
Further complicating our identity, we’re the only profession that di�erentiates our services by how we charge for them.
› Fee-based financial advisor› Fee-only financial advisor› Commission-based financial advisor
$ $
An alarming 24% of clients don’t know how they pay their advisor, while another 14% don’t think their primary advisor receives any compensation for the work they do at all.
Despite ongoing education and disclosure e�orts, many consumers remain uninformed about how their advisors are compensated.1
Discussing your fee model with your clients
24%
33%
27%
19%
9%
I am not sure how my provider is compensated
I pay my provider a retainerfee for a set amount
I pay my provider a percentagefee based on my level of assets
My provider is paid each time I make a transaction
I pay my provider an hourly fee
14%
38%
I do not compensatemy provider
of mass a�uent consumers are eitherwrong or confused
HOW DOESYOUR ADVISOR
GET PAID?
The debate about compensation among advisors and in the trade media suggests that our industry is at a crossroads. Can advisors continue to justify an ongoing AUM fee when the cost for investment selection, allocation and rebalancing has declined dramatically, thanks to automation?
So, are we at a crossroads?
89% of the advisors we surveyed are currently using some form of an AUM model, with 32% basing their pricing solely on AUM.2
AUM +QUARTERLY RETAINERS
9%
AUM +COMMISSIONS
22%
AUM +UP-FRONT PLANNING FEE
26%
AUM ONLY
32%
ONGOINGLOWER COSTAUTOMATION
AUM FEES
QUARTERLY RETAINERS ONLY
4%OTHER
4%HOURLY
1 %
MONTHLY RETAINER FEES
(AUTOMATED BILL PAY
OR CREDIT CARD)1 %
Where is the pressure on investor fees coming from? Feeling the Pressure
CHANGE!
Nice tohave
No
Yes
Musthave
Unimportant
85%
Despite all of the media coverage, only 15% of advisors are feeling pressure to lower their advisory fees as a result of robo-advisor competition.2
GENERATIONAL
ROBO-ADVISORS
15%
CLIENT RETENTION! FEES!
A�uent Gen XersA�uent millennials
With many of your boomer clients entering into retirement, only 37% of millennials and 27% of Gen Xers view financial advisors as a must-have.3
25%
13%50%
27%
37% 48%
I haven’t received
questions from either
Existingclients
Both about the same
New prospects
46%
35%
12%
7%
FEES
54% of respondents say they receive questions from existing clients and new prospects about fees.2
CURRENT CLIENTS/PROSPECTS
SMALLER ACCOUNTS
Use the same amount of resources on small and
larger clients.
Other
3%
12%
11%
74%
AUM fee with retainer or robo-platform
Monthly or quarterly retainer
74% of advisors use the same amount of resources on small clients as they do on larger clients. Of those who have changed their fee model for smaller accounts, 23% use a monthly or quarterly retainer, or AUM fee with retainer or robo-platform.
ROBO-ADVISORS
ADVISOR
INFORMED INVESTORS
VALIDATORS
REGULATION
TRANSPARENCY
GEN X/Y INVESTORS
With increased pressures,
or is there a better model for you and your clients?
CHANGE/MENU
25 BPSASSET MGMT
RETAINER/FEE FOR SERVICE
FINANCIAL PLANNING
OTHER ADVICE
SERVICES
STATUS QUO
100 BPS ? FEES ?
can you continue with the status quo
FEE MODEL GOOD FOR
Brokerage/commission› Advisors who focus on smaller accounts› Advisors include product (insurance)
AUM
› Advisors with a legacy AUM business› Advisors with a clear value proposition
who want simplicity› Investment advisors› Lifestyle advisors
Retainer/fee for service›
› Larger advisors for their smaller accounts› Advisors focused on Gen X/Gen Y
Hourly›
› Advisors who are part of a larger firm (e.g., trust, legal or CPA firm)
Menu› Advisors using passive investments› Larger advisors with deep planning services
Household income + net worth› Advisors providing broad wealth
management services
Financial planning (as a separate fee)›
› Planning firms with financial planning integral to the value proposition
Assets under advisement (as a separate fee)
› Advisors for ultra high net worth as long as they’re providing performance and advice
A Guideline for Fee Modeling
As you go through the process, use this guide for fee arrangements that may work in di�erent situations.
ACTION STEPSThe road map to advice-based fees
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1
2
4
Revisit your value proposition Your value proposition is the basis of your firm’s
business model. And increasingly, the evidence
suggests it should be based on meeting clients’
goals through financial planning and advice.
Consider why your clients hired you. Clarify and
update your value story.
Continue moving from commission to advice-based If the bulk of your compensation is from
commissions, we encourage you to
think about adopting an advice-based
model. Whether it’s an asset-based fee,
retainer or a hybrid pricing strategy,
transitioning your business model will
require added diligence and patience in
the short run, but greater transparency
and sustainability over time.
Scrutinize your costs and profitability Even if you don’t charge an hourly fee for your services,
you should know what your time is worth and how
much time it takes to perform various tasks — from
financial planning to investment strategy development.
Segment your clients and target marketsWe strongly urge advisors to consider
most advisors charge the same fees for
all clients no matter what the service or
complexity of the client account.
7Implement your fee structure and migrate your clients Once you’ve segmented your client base
and determined how your pricing strategy
will change, you may choose to implement
the plan in stages.
› Create a disciplined migration plan
› Anticipate client objections
› Review with clients before implementing
› Communicate well
6
Adapt your fee structure (if necessary)Having accomplished steps one to five, you
should arrive at a pricing strategy that makes
sense for your business. You will have assessed
the competitive environment, confirmed your value
story and considered the risks and opportunities
associated with your decision.
5
Assess your technology For advisors considering a pricing
change, technology must factor into
your decision early. Evaluate systems
to improve advisor productivity, support
pricing strategies and reduce processes
that are not value added. Automate
as much as you can, including fee
collection and outsource everything
except your client relationship and value
proposition.
ACTION STEPS(continued)
Contact an SEI representative for more information, insight and guidance about things you can do to maximize your resources and spend more time with clients.
Visit seic.com/advisorsor call 888-734-2679.
1 SEI Consumer research, in partnership with Phoenix Marketing International, April 2015, n=539.2 SEI Survey, Advisor Fees, August 2015, n=775.3 LinkedIn research, “Winning A�uent Millennials: How this New Power Persona is Reshaping the Finance Industry,” September 2015.
Information provided by SEI Advisor Network, a strategic business unit of SEI. Services provided by SEI Investments Management Corporation (SIMC), a wholly owned subsidiary of SEI.