US player Windhorse Capital Management may have started the ball rolling on a loyalty-based fee model, but last week registered investment advisors Barry Ritholtz and Josh Brown announced they were introducing loyalty rewards for clients who remain for 36 months or more.
They aren’t likely to be the last.
With CRM2 likely to deliver sticker shock to clients unaware of the fees they’ve been paying, advisors here in Canada have an opportunity to gain market share by implementing loyalty rewards ahead of the July 2016 deadline.
“We’re putting our money where our mouth is,” said Ritholtz Capital Management Chairman and CIO Barry Ritholtz. “This initiative will be a cost for us in the short run, but over time we believe the tangible positive impact for the clients we serve will be tremendous.”
Clients who sign up for Milestone Rewards, Ritholtz’s loyalty rewards program, will save approximately 16% annually on the management fees that they pay. Ritholtz got the idea from Wall Street Journal columnist Jason Zweig who wrote about the concept back in June. At the time WP wrote
how loyalty rewards could be a saviour for DSC funds.
“Jason’s article was a eureka moment for us,” according to Joshua M. Brown, CEO and co-founder of Ritholtz Wealth Management. “We’re always seeking to align the best interests of our clients with the future prosperity of our firm. When this idea to reward our clients for their persistence came up in an employee meeting, every single head in the room was nodding.”
Zweig wondered why so many low-margin industries such as grocery and drug stores offer their best clients loyalty points and yet wealth managers generally are unwilling to reward investors for sticking around.
Perhaps it’s time for mutual fund companies in Canada to eliminate DSC withdrawal fees instead replacing them with loyalty rewards on a sliding scale – the carrot instead of the stick.