While the financial services industry in general might be feeling the pinch of ongoing pressure to lower fees, the financial adviser remains uniquely sheltered from the trend, as long as the adviser is ready to pony up more services.
A new report from Cerulli Associates offers the latest evidence that direct contact with investors gives advisers a leg up on justifying their fees.
The report, which focused on how investors value finance, found that 82% of adviser-reliant clients believe the advice they are receiving is worth the price, which suggests that advisers are an anomaly in the financial services industry food chain where fees have been dropping for years.
The Cerulli research is in line with the findings of the latest pricing and profitability report from InvestmentNews Research, which shows that over the past two years only 24% of advisory firms adjusted their fees. And of those that did adjust fees, 68% of firms raised them.
The InvestmentNews research found that, while advisory fees tend to fall as individual portfolios grow, the largest firms are generally commanding the highest fees. For clients with up to $1 million, for example, the average fee is 94 basis points, and the range from the smallest solo practitioners up to the largest super ensemble firms averages between 94 and 102 basis points.
The fees are typically lower for larger clients, especially for larger clients working with smaller advisory practices.
At the $10 million portfolio level, for example, the average fee is 43 basis points, but the range is from an average of 20 basis points at solo practitioners up to 79 basis points at the largest advisory firms, according to the InvestmentNews data.
Cerulli director Scott Smith, said while fees at the asset management and trading platform levels have been dropping, advisers are generally shielded by the fact they represent the hands-on planning process to clients.
“Demand for financial advice is climbing,” Smith said. “A full 40% of investors surveyed in 2020 say they need more advice than before and 56% are willing to pay for it, which is up from 51% in 2019.”
Kashif Ahmed, president of American Private Wealth, represents the side of the advisory space where fees have not become an issue with his clients. “We charge for advice in a myriad of ways and on the AUM pricing we are higher than the industry average of 1%,” he said. “We have never had any pushback on the pricing.”
However, Ahmed admits the client experience has grown well beyond just a focus on portfolio performance, which is where some say the fee pressure begins as advisers are having to offer more services in order to hold fees steady.
“I’m definitely seeing pressure on fees, especially with new clients, and it has really become more prevalent in the last three to five years,” said Ed Butowsky, managing director at Chapwood Capital Investment Management.
“I think the focus on fees has to do with the online options that are out there,” he added. “I don’t have a hard time justifying my fees, but I can go low if I need to, which is the nice thing about being independent.”
Vance Barse, founder of Your Dedicated Fiduciary, is not seeing downward pressure on his fees, but he does acknowledge the need to provide broader services.
“Truly comprehensive financial planners have been put in a position to where they have to provide more for the same fee,” he said. “I’m also seeing heightened interest for flat-fee planning.”
Tim Holsworth, president of AHP Financial Services, agrees that the idea of fee pressure is a relative concept. “We really haven’t had pressure to lower fees, but what ends up happening is our service model gets better,” he said. “The whole thing about fees is only an issue in the absence of value, and if fees end up becoming too much of the focus with a client it’s almost never a good relationship.”
As our second lead editor, Cindy Hamilton covers health, fitness and other wellness topics. She is also instrumental in making sure the content on the site is clear and accurate for our readers. Cindy received a BA and an MA from NYU.