Advisors come clean on compensation

Advisors come clean on compensation

Advisors come clean on compensation The latest WP poll results suggest advisors aren’t gouging clients nearly as much as investor advocates want us to believe.

We’ve been asking fee-based advisors visiting our homepage the last couple of weeks to answer our poll which asks the question: “Do you charge your client a percentage of assets under management? If so, what do you charge?” The three choices being 1.5 per cent or higher, 1.0 percent to 1.5 percent or 1.0 percent or less.

The responses came pouring in; it seems the discussion of fees gets advisors moving like no other industry subject.

Yesterday, WP discussed some of the findings from PriceMetrix’s 2014 State of Retail Wealth Management. Key among them was a three basis-point increase in the figure the average fee-based advisor uses to calculate compensation. That mean now stands at 1.02 per cent, according to the study.

How does this compare to our unscientific poll?

Pretty close, actually.

More than one-third (36 per cent) of the responses from advisors is for a fee of less than 1.0 per cent while almost half (47 per cent) charge between 1.0 per cent and 1.5 per cent. Accounting for rounding, only 15 per cent of advisors answering the poll charge more than 1.5 per cent.

For simplicity’s sake we’ve applied an average fee of 0.75 per cent for the advisors charging less than 1.0 per cent, an average fee of 1.25 per cent for those charging between 1.0 per cent and 1.5 per cent, and an average fee of 1.75 per cent for those charging more than 1.5 percent.

The average fee based on our guesstimates from above? 1.1 per cent. How’s that for a back of the napkin calculation?

Seriously though, our poll indicates that most advisors recognize that fees for full-service advice, whether they’re charged separately in a quarterly invoice, or embedded within the mutual fund products themselves, have probably dropped as far as they can at least for the foreseeable future.