RIAs must move beyond investments to justify fees

Cost transparency is key, along with full-service planning

Jan 2, 2018 @ 4:00 pm

By Jeff Benjamin

A steady drumbeat of fee pressure has some financial advisers rethinking and repositioning their message to underscore their value to clients.

"I think this conversation can be pretty straightforward if you approach it with transparency in mind," said Eric Roberge, founder of advisory firm Beyond Your Hammock.

"I love taking the veil off the industry and pointing out where all the costs can be found. By doing that, I build trust with clients," he said. "Then I show them how and why I get paid like I do, through a monthly subscription fee."

Asset-based financial advisory fees, long the industry standard for independent financial advisers, are under increasing pressure from low-cost digital-investment platforms.

A report last month from Fidelity Investments found that while the published advisory fee has remained steady at around 1% of assets, the trend toward discounting has pushed the average fee down to around 64 basis points.

One strategy is to get out ahead of the issue, according to April Rudin, president and chief executive of The Rudin Group, a financial services marketing firm.

"I always tell advisers they shouldn't wait, which means they should head off these fee issues at the pass," she said. "Don't wait until someone asks, just be transparent and publish your fees."

Douglas Boneparth, president of Bone Fide Wealth, said there is a "paradigm shift in the financial services industry" that is forcing advisers to better justify and explain their fees.

"You would have to be living under a rock not to notice that there is fee compression in our industry," he said. "Advisers who only manage money will find the most fee pressure, because investing has become increasingly commoditized. But there is value for days when it comes to financial planning."

Mr. Boneparth posts a one-page infographic explaining his firm's services on his website.

Carolyn McClanahan, founder and director of financial planning at Life Planning Partners, believes "the work should speak for itself," and said if a client is asking about fees, "the adviser needs to take an honest look at what they are delivering for those fees."

In Ms. McClanahan's case, delivery over the holiday break involved going over every client's tax situation in the context of the new tax law.

"We probably saved our clients a couple hundred thousand dollars by the work we did last week; and they remember that," she said.

Phil Shaffer, founder of Halite Partners, not only sees the fee pressure on the advice space, he also believes a lot of advisers are "charging too much."

"You have the advisory fee and the cost of the underlying investments, and there might also be a custody fee," he said. "And to preserve their fee, advisers have been moving substantial amounts of money into passive low-cost investments."

As Mr. Shaffer sees it, because advisers are increasingly outsourcing investment management it puts more pressure on them to justify their fees through services.

"I scratch my head when I hear that because about half the people working with financial advisers don't have a written financial plan," he said. "In many cases, clients are getting very pedestrian investment advice and they're not getting the service they need. So, if those are the two components of investment advice, there has to be some fee compression."


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