New digital Fidelity platform will let consulting firms bid for adviser projects

Consultants will be charged 18% of the price for each contract they are awarded as a fee for being on the platform

Jul 2, 2018 @ 5:08 pm

By Jeff Benjamin

Fidelity Clearing & Custody Solutions is preparing to roll out a digital referral program to connect financial advisers with a range of industry consulting services, including marketing, technology and regulatory guidance.

The platform, which has a pending trademark application as ConsultSpace, has been in the works since February, and is slated to move beyond pilot stage to an official launch in September.

In many ways the platform is like existing referral programs at most custodians, which often provide advisers with a pre-screened list of industry consultants.

What distinguishes ConsultSpace is that it is designed to be fully digital, will be operated by an outside firm, Boston-based Catalant Technologies, and is charging an 18% markup for services to cover the cost of being on the platform.

The 18% platform fee, described in a power point presentation as "Catalant's 18% margin within the total project fees," turned off some industry consultants, who declined to comment for this story.

According to two sources who participated on Catalant's May conference call presenting details of ConsultSpace, consultants were encouraged not to disclose the fee markups to advisers using the platform.

Knut Rostad, president of the Institute for the Fiduciary Standard, said encouraging consultants not to tell advisers about an embedded markup fee is "audacious."

"In principle, I don't have a problem with them charging a fee for the service," he said. "But it is quite audacious to say, 'Don't tell the advisers this is what we're doing.'"

Michael Kitces, partner and director of wealth management at Pinnacle Advisory Group, said the platform fee could limit the number of consulting firms willing to participate on the platform.

"Few consultants spend anywhere near 18% of their revenue on marketing in the first place, so this is very expensive to them," he said. "And because there's already such a shortage of skilled consultants working with advisers in key areas ... most aren't lacking for business ... and thus wouldn't want to give up 18% of their revenue."

Kim Sheehy, vice president of practice management and consulting at Fidelity, confirmed that consulting firms are being charged a fee for participating on ConsultSpace, but that the intention was never for them to mark up their fees to advisers. She said the fee is being presented as the cost of marketing and promotion, since the platform will be dynamic and include customer ratings and active bidding.

Ms. Sheehy said nearly 50 consulting firms have signed up to participate on ConsultSpace, but that she is hoping to recruit as many as 100 firms.

Mike Monagle, vice president of the solutions business at Catalant, said the platform fees absorbed by participating consulting firms will be kept in a competitive range by basic market forces, because the platform is designed to allow consultants to bid on projects.

"The platform is fully funded by the consultant, because they're effectively paying for access to business that they would need to fund otherwise," he said. "The fee is baked into the proposal. If a consultant justifies slapping an 18% fee on top of their price, they could price themselves out of the market."

Mr. Monagle added that Catalant provides guidance as to "what we think the market can bear."

"If they are above the market they won't get business because there will be lower priced options out there," he said.

"Consultants are advised to propose one fee to clients that includes both the consultant's professional fees and the Catalant fee," said Lyle Gangemi, Catalant's developme strategiest. " This is for the purpose of clarity and ease of payment processing. As with any marketplace, clients are accustomed to seeing one all-in fee that they'll be paying for the consulting services. In the event that clients are interested in a more detailed breakout of fees, we support full transparency."

ConsultSpace will be operated alongside Fidelity's existing referral program, Discount Alliance Program, which is a static list of about 45 consulting firms that have been screened by the custodian.

As the name implies, advisers can get discounted services when working with consulting firms in that program.

Not only will there not be discounts through ConsultSpace, it is likely advisers will end up paying more than they would if they went directly to the consultants.


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