Innovation is taking place at the high end of the market as well.
Veteran advisor Leonard Raskin, who heads Raskin Global
in Hunt Valley, Maryland, charges a flat “complexity-based”
consulting fee, ranging from $1,000 to $50,000, at the start of
the client engagement. After that, there is a membership fee for
clients who implement elsewhere but want continuing advice.
Those who park their assets with Raskin are charged an AUM
fee of 1.25% to 0.5%. The greater the assets, the smaller the fee.
Raskin, who manages $240 million in assets, also uses the
online questionnaire Survey Monkey to query clients about
proposed changes to his service offering. If we offered this
service, would you avail yourself of it through our firm? Would
you be willing to pay for that service? If so, how much?
As a result of two recent surveys, Raskin Global will soon
begin offering high-level access to banking
and lending, and will bring tax planning
in-house. Up next: a monthly membership fee that will get clients connected to
services such as a social media consultant
who can set up a LinkedIn or Facebook
business page, or an office service with
scanning, faxing and notary capabilities.
The fee could be as low as $25 or as high
as $200, depending on the level of service.
“I don’t give out free advice. We are
worth every penny you pay us and we probably don’t charge
enough,” says Raskin. “Most people appreciate that we are
expanding our offerings. And as the offering broadens, the
way we should be compensated for that adjusts.”
The focus on financial transparency and the continu-
ing transition to fee-based advice models are also causing
advisors to rethink how they are compensated. According
to PriceMetrix’s annual report on the state of wealth man-
agement, 31% of assets were held in fee-based accounts in
2013, up from 23% in 2010.
“Obviously, we want to get to transparency so the consumer
knows exactly what we are talking about. You don’t have to tell
them how much you’re getting paid, that’s not the issue,” says
Smith. “The issue is what they are being charged. They don’t
need to know how much money you make in a year. What’s
important is the impact on them as a consumer.”
It concerns Smith that financial planners often get paid an
assets under management fee but do the planning itself for free.
“Our job is not to make sure the market goes up or down,
it’s to provide a financial plan. Yet we throw that in for free
and charge for how the market does,” he adds. “Does that
really make sense?”
Dennis Breier, an advisor for five years, recently formed
an RIA, Fairwater Wealth Management, in Burr Ridge, Il-
linois, so that he could move away from the AUM fee and
market to young professionals who will pay a $250 monthly
fee instead. For clients who wish it, the firm will also manage
money in passively managed portfolios for 50 basis points.
In that case, the monthly fee will drop to $199.
“If your plumber came to your house and said ‘We fixed
your toilet and attached a device to it that measures the
amount of flushes you make every month and we’ll charge
you a percentage of those flushes. So don’t worry about
paying us today,’ you would fall on the floor. Yet financial
advisors charge like this every day,” said Breier, who currently manages $15 million in assets.
“The bottom line is this: The difference in service between the $700,000
client and the $1 million client is three
grand. That’s not right. I realized, and
I think clients are beginning to realize,
that managing money is not the earth
shattering process that many advisors
make it out to be. The model doesn’t
make sense. If your fee is actually for
financial planning and ongoing holistic
advice, then the client should be charged
a flat monthly fee for that service.”
How do you tell clients that you are going to change the
way you get paid? Very carefully.
As John Anderson, managing director of practice man-
agement solutions for the SEI Advisor Network, puts it:
“Words matter. Think about how the client will hear what
you say, not about how you want to say it. As with every-
thing, it starts with a plan. Because if you do it wrong, the
client feels violated.”
Anderson recommends creating a one-page client service
statement that outlines all of the services the advisor provides
to fully demonstrate the depth and breadth of the offering.
“If your clients don’t know all that you offer, you have
to tell them,” says Anderson, who suggests “practicing” on
easy clients first. “Start with the clients you know will do
what you want. Then talk to the ones that might want a
little more information. Next, talk to those tough clients.
By the time you get to the 10th, 20th, 30th client, you have
this down cold. It’s practicing on the easy clients while preparing for the most difficult ones.”
What They’re Saying
“Fee transparency is here and
it can be a financial advisor’s
friend. Use this opportunity to
demonstrate your value and educate your clients on what fees
they may be paying and why.”
—Patrick Sweeny, principal, Symmetry Partners