Pressure mounts on advisers to lower fees

A national focus on financial fees has clients asking more questions

Apr 15, 2014 @ 12:01 am

By Liz Skinner

Advisers, financial planners, assets under management, fee-based service, revenue
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A national focus on financial industry fees has moved into the advisory realm.

Clients are increasingly asking their financial advisers to lower — or at least explain — what they are paying in investment and advisory fees, some advisers said.

“We're receiving more phone calls asking to have this discussion about fees,” said Carl Bailey of Bailey & Beatty Financial Services. “We aren't being forced to lower fees across the board, but we are discussing why we do what we do and explaining the services we do for clients that we don't charge for.”

Some clients are questioning the 1% or so they typically pay in fees to an adviser when, say, their adviser's portfolio earned them 15% last year and they could have generated 19% with an investment in a Vanguard portfolio that charges under half a percent, Mr. Beatty said.

(Don't miss: SEC tags Transamerica Financial Advisors for miscalculating fees, overcharging clients)

The federal government's focus on financial fees in recent years is likely one reason more clients are talking about them. The Labor Department's rules requiring retirement plans to spell out the fees investors pay has more of the public and the blogosphere questioning what Americans pay for all financial services.

The Securities and Exchange Commission also issued an investor bulletin in February recommending that investors ask their financial professionals about fees. The front page of that alert depicts a $100,000 investment that grows to about $205,000 over 20 years paying a 0.25% annual fee versus growth to $180,000 over the same period incurring a 1% annual fee.

In addition, advertisements from low-cost investing options — like exchange-traded-fund providers, online advice providers and discount brokers — are keeping the subject at the top of investors' minds, even those who engage a comprehensive financial planner.

(See also: Merrill Lynch's Thiel: Fee transparency key to restoring trust)

Mike Albertson, president of TradeWell Tax & Financial, said clients today regularly ask to discuss fees, and some ask for them to be lowered. A client on Monday brought along to his quarterly review an article from his local paper that discussed internal fees in 401(k) plans. It led to a conversation about all the financial fees that the client pays, Mr. Albertson said.

“The article laid out the destructive nature of ongoing internal fees eroding retirement savings,” he said.

Mr. Albertson doesn't think that investors mind paying fees as long as they are getting service and performance.

“Clients' patience with advisers who are making more than the client, those days are long gone,” he said. “Baby boomers are retiring now more educated than ever because of technology and social media.”

The upshot of this fee-pressure trend was revealed in a PriceMetrix Inc. data release last week showing advisers earning less from client assets in recent years. Advisers generated an average 0.99% from fee-based accounts last year, compared to 1.06% in 2012 and 1.14% in 2011.

“Advisers are seeing a downward trend in terms of fee pricing,” said Patrick Kennedy, co-founder of PriceMetrix, a practice management software firm.

Firms will need to respond to the downward pressure on fees, as well as figure out how to deliver “a value proposition” to attract and keep the most desired clients, Mr. Kennedy said.

Mr. Bailey said his firm is looking “long and hard about everything to do with fees internally” and moving more assets to low-cost ETFs that track the S&P 500.

He also explains to clients the long-term value of active management and reminds them how he helps protect them from the downside risk of the markets in volatile periods.

Jeff Roof, founder of Roof Advisory Group Inc., said he hasn't noticed clients asking more about fees, but he regularly reminds them that the firm is actively managing their funds, including buying and selling individual stocks.

“We spend a lot of time demonstrating to our clientele the value that we are adding for what they are paying,” he said.

Mr. Roof's firm charges 1% or less depending on total assets, and has had the same pricing for 16 years, though the firm has raised the minimum annual account fee over the years.


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