TD's Nally urges evolution of RIA fee model

How advisers charge needs to start matching up with their value

Feb 2, 2017 @ 4:19 pm

By Liz Skinner

Financial advisers should rethink the way they charge clients, as service expectations and needs have evolved, the head of a large custodian told advisers Thursday.

Registered investment advisers that charge a fee based on a percentage of assets under management should consider moving to a pay model that focuses on what they are accomplishing for clients, said Tom Nally, president of TD Ameritrade Institutional, at the firm's annual adviser conference in San Diego.

“Traditional pricing models don't reflect the value you deliver," he said. “Investors will focus on the cost of advice if you don't start showing them the value you're providing.”

(More: Adviser explains why and how to move to a retainer model)

In recent years, a growing number of RIAs have moved to other fee models they say better reflect the planning and other financial help they provide instead of focusing only on investments they manage.

Some charge an annual or monthly fee for service, while others charge hourly fees or even fees per project.

Many advisers employ AUM-based fees in addition to other charges. And other firms charge certain clients an AUM-based fee while charging other clients a fee based on a different service model.

About 96% of RIAs assess fees based on how much in assets they're managing, according to the InvestmentNews 2016 Financial Performance Study. The survey allowed selection of multiple pay models, and about 44% said they set prices based on flat or tiered-dollar fees, 28% have hourly fees and 26% have a per-project fee, the study found.

Advisers who work with younger clients have been especially attracted to the flat annual or monthly fee model, commonly referred to as a retainer or subscription model. This is the way millennials are used to paying for services, everything from their cell phones to Netflix, so they react well to the idea of paying a fee each month for financial advice, these advisers said.

(More: Provide these services to attract younger clients)

Eric Roberge, founder of advisory firm Beyond Your Hammock, charges an AUM-based fee and a monthly charge for service. The monthly subscription fee covers the ongoing support he provides as clients are making financial decisions like whether to buy a home or save money in a health savings account.

“If I can provide a certain level of guidance, people are going to pay me for that. They just have to understand what they're getting,” he said.

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