Tuesday, December 19, 2017

Fidelity's Custodial Report on RIA Fees December 18th 2017

Good morning

Fidelity just released a report this morning from their Clearing & Custody Solutions division on what they are seeing as it pertains to RIA Pricing, aka fee compression, in 2017.

Several interesting facts. First below the headline before the article starts is the line below stating that advisers are unbundling fees for financial planning. This has long been a basic tenet of PFGC philosophy. As fees compress we will want a transparent pricing model so we can charge for wealth management services.  If this is true then Designations and Centers of Expertise will have to be an important part of our business model.

The impact of robo-advice is driving more advisers to unbundle fees to highlight the value of planning


Next with markets at all time highs and the biggest and longest bull market in history the average revenue per RIA dropped 4%. This can not be a good sign. 

Meanwhile, annual revenue per adviser dropped to $538,00, down from $561,000 a year earlier.

PFGC believes that our fees will decline but that we are far more valuable than a robo if we can change our investment process, scale it and most importantly articulate it. 

"The unbundling is driven by the robos providing asset management for a very low fee, and that makes it apparent to clients that the asset management is the lowest value provided to them," 

PFGC has had a target of 50 to 60 basis points for our fees in the next 5 years. The Fidelity Research, below, shows we are well on our way. If we are going to be charging a fee of 60 bips for an average account than I think we can assume larger accounts are going to be lower, maybe 25 to 30 bips.

The research found a median fee gap between stated and actual fees of 21 basis points, with actual fees charged across all clients averaging around 64 basis points.

PFGC believes in connecting the dots. 
  • If our fees goes down we will need to manage a lot more assets to maintain our lifestyles
  • To manage a lot more, think a billion, then we will have to employ a standardized investment process, think models, so we can efficiently and effectively manage our client's assets
  • If you are going to build a model PFGC believes the model will have to be low cost and tax efficient with much better performance than we have delivered in the past.
  • If you run a standard model then Metrics will be incredibly important
  • If we are paid less, asset management as a low valued offering, then we will have to incorporate wealth management into business model. REAL WEALTH MANAGEMENT!
  • Charging a fee for Wealth Management means that we can add value and clients will want to know why they should pay us for Wealth Management advice.
  • That means designations will be critical for our ability to charge for wealth management advice
  • To deliver a wealth management offering we first must know all the needs and goals of our clients so developing an in depth Discovery Process is essential.
  • If we do the Discovery and understand our client's needs and goals we will be forced to incorporate Centers of Expertise into our business model so we can meet the needs and goals of our clients.
  • If we want to incorporate multiple Centers of Expertise, SO WE CAN GET PAID, then we need to standardized our interaction with Centers of Expertise.
  • Finally we must move to a business model that that has a standardized Business Development Process.  The main business driver to grow our businesses is new relationships not performance.
As a Financial Advisor we must become "the tip of the spear". This means all our functions, teaming, strategic partnering, affiliations must be designed to get us in front of new prospects.

                  All assets are good assets, any relationship is better than all assets. 




Danny

"One left-footed step per day"

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