North America wealth advisers hurt by discounts: study
The typical North American financial adviser forgoes $20,000 in potential revenue every year because of discounts on fees, according to a study released on Monday.
Assets in fee-based accounts grew by 24 percent between 2007 and 2010, while transactional assets decreased by 1 percent, said Toronto-based PriceMetrix, a software firm that advises brokers on practice management.
Even so, the average return on assets in fee-based accounts in that same period fell to 1.32 percent from 1.47 percent, the firm said. The findings come from a database that includes 15,000 adviser books, 2.3 million investors, 1 million fee-based accounts and more than $850 billion in assets.
While most retail wealth management firms publish recommended list prices, many advisers have offered discounts on fees and have found it difficult to increase prices once they have been set.
Only 5 percent of advisers raised their prices on existing fee-based accounts by at least 10 basis points between 2007 and 2010.
The study found a wide variation in pricing, with the top 25 percent of advisers charging an average fee of 2.01 percent and the bottom 25 percent charging an average of 0.81 percent.
Advisors need to establish their price and stand their ground when responding to requests for discounts, especially when first setting price expectations with clients, the study said.
The average adviser opens around 15 new fee-based accounts a year and pricing is beginning to creep higher, with 32 percent of advisers raising their prices on new fee-based accounts.
For that group, return on assets on new fee-based accounts were on average 1.68 percent, compared with 1.5 percent for older fee-based accounts.
Clients will pay for value, the data clearly show that, Doug Trott, chief executive of PriceMetrix, said in a release.
Firms need to provide advisers with a credible reference for setting their prices and advisers need to understand what is achievable and confidently communicate their value and prices to clients.
Assets in fee-based accounts now make up nearly 25 percent of total assets under administration and 37 percent of total revenue.
($1=$0.98 Canadian)
(Reporting by John McCrank; Editing by Frank McGurty)
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