Client fees likely more than advisers think

Advisers need to examine and explain total costs, not just their own fees

Jun 12, 2014 @ 12:01 am

By Liz Skinner

Advisers should tell clients more about the total costs they pay for financial advice, not just the adviser's fees, as a new survey suggests many planners actually underestimate how much clients are paying overall.

About 62.7% of advisers said they believe their clients are paying 1.5% or less of their investible assets in total costs, according to a survey conducted jointly by the Peak Advisor Alliance and Cerulli Associates. The average total cost their clients actually pay is 1.83% of assets, the survey of 159 advisers found. Total costs include the adviser fee, administrative fee, platform fee and product fee.

“Advisers have to list their fees, but they have to do an even better job than that,” said Ron Carson, chief executive of Carson Wealth Management and founder of the Peak Advisor Alliance. “We need to sit down with clients and compare the cost of different portfolios, putting it all out there.”

Mr. Carson said clients care about total costs, not just what they are paying an adviser.

First, advisers need to accurately know what their clients are paying for different investment strategies and then they need to explain the details to clients so they see the differences.

“This is going to become a bigger and bigger issue because the next generation is much smarter and savvier about getting information,” he said. “Advisers need to be providing it to them proactively.”

The costs that some advisers don't fully account for include administrative fees, which can be buried in prospectus documents, and platform fees, Mr. Carson said.

Some advisers already see the value in offering more complete cost information to clients.

Don Purtill, founder of Purtill Financial, said in the past year he's begun spelling out for clients the costs associated with different investment recommendations. He includes the specific fee for the investment, as well as any brokerage charges.

“Describing the total cost of following the recommendation feels like a clearer way to describe the costs to clients,” he said.

Mr. Purtill reviews these costs with clients in meetings and lists his own adviser fee levels on his website.

Steve Atkinson, the head of adviser relations for turnkey asset management provider Loring Ward, said his firm also recommends advisers review the total cost of different investments with clients. The firm offers a tool that analyzes the portfolio holdings of a new client, including the full costs, compared with the costs a client would incur using the new adviser's recommendations.

The new adviser's recommendations usually cost less, but even if that's not the case, such as if the client is currently invested in low-cost Vanguard Funds, the results allow the adviser to have a conversation about the value the client will receive for this higher fee, Mr. Atkinson said.

Loring Ward doesn't recommend publishing actual fee numbers on an adviser's website.

“We advocate being clear on how you get paid, but not necessarily on the number, because that can vary depending on the complexity of the plans,” Mr. Atkinson said.

When the client asks what the number is, though, “It's very important that you tell them in the first 10 seconds,” he said, because research has shown that any kind of delay increases the investor's skepticism about the costs.

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