HNW clients might be OK with retainers, after all

Advisers are in a quandary: Volatile markets haven't been friendly to those who employ asset-based advisory fees, and those who are reconsidering the advantages of charging a retainer worry about upsetting their clients with a switch. It turns out that their clients might not mind paying a retainer, after all, and increasingly may begin to seek out that kind of fee model. An online survey in the third quarter of 419 high-net-worth investors by researcher Spectrem Group asked about their attitudes regarding the fees they pay for financial advice. A majority of the investors — who have a net worth of $14.9 million to $25 million, excluding their homes — prefer to pay a fixed fee for financial advice, with 60% saying they like that option, as opposed to 40% who said they prefer to pay a percentage of assets under management. A slight majority at 52% said they do not want their fees to be tied to product performance, while 48% said they would prefer to pay based on performance. Two-thirds of the millionaires described themselves as “very comfortable” with the fees they pay for financial advice. The same percentage said they prefer to pay a fee rather than have commissions built into the price of investment product sales. Four-fifths said the fee they pay is important to them, but fees ranked behind honesty, track record, transparency and service, in order of importance. Martin Kurtz, president of The Planning Center Inc., an advisory firm, believes that basing fees on the amount of assets invested can create conflicts of interests for advisers. One example he gave was that an adviser might be tempted to recommend against a move by a client that would dramatically decrease his investible assets, such as paying off a big mortgage. His firm charges a retainer based on net worth and income, and he believes that clients increasingly will come to prefer that way of charging. “I don't think a lot of clients have a good handle on conflicts of interest, but there is a growing cynicism out there around dealing with money,” he said. “I think we as a profession need to address that.”