Advisers worry about clients leaving them over fees

Though a lot of clients and prospects are asking about fees, what they're actually willing to pay comes down to the adviser's value proposition beyond investments

Nov 11, 2016 @ 12:11 pm

By Liz Skinner

Wealth managers serving high-net-worth individuals and families are feeling pressure to cut fees in order to hang on to their clients.

While the majority of financial advice providers said they did not change what they charge clients over the past two years, about 17% said they lowered their fees over that time, according to new Cerulli Associates data from advisers who serve clients with $5 million or more in investable assets. About 48% of those who lowered fees said they did so to retain clients.

“There is a fear that clients will leave over fees,” said Donnie Ethier, associate director at Cerulli Associates. “Maybe it's because more clients are asking them about fees.”

(More: How to overcome margin compression to run a thriving practice)

About 54% of advisers in the study said clients and prospects have asked questions about their fees.

Despite some fears, the reality is that most advisers aren't losing clients because of fees, Mr. Ethier said. Ultimately, the fees clients agree to pay come down to the adviser's value proposition — and making sure it extends beyond investment management, he said.

Competing with other managers for wealthy clients requires advisers provide financial planning, tax and other services on top of investments, experts said.

(More: Use fee compression as an opportunity to address life insurance)

“If an adviser's value doesn't extend beyond their ability to select index funds, robo-advisers are going to crush them,” said John Anderson, managing director of practice management solutions for the SEI Advisor Network.

About 15% of advisers said they were feeling fee pressures because of digital advice providers, according to a report SEI released recently on adviser fees.

(More: Adviser pricing for ultrawealthy clients is under pressure)

Advisers on average charge clients between 1% and 0.6% to manage $1 million to $25 million in assets, with the fees decreasing as assets increase, according to the 2016 InvestmentNews Financial Performance Study.

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