Firm caps its annual charges
Novel approach the result of larger clients' "paying an unfair share'
By Liz Skinner
Sep 29, 2013 @ 12:01 am (Updated 5:46 pm) EST
A small Nebraska financial advisory firm is unveiling a novel approach to attracting its target clients by capping its annual adviser fee at $11,000.
Founder Phil Wood's Wealth Partners Inc. has launched a division that charges clients 1.25% on assets up to that annual total. As a result, management of investments totaling more than about $880,000 will be on the house.
The firm, which manages about $170 million in assets, eventually will move all its clients to its One Price Portfolio division, Mr. Wood said.
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“Clients with larger accounts have been paying an unfair share,” he said. “The time involved to manage a large portfolio isn't that much greater than a small one.”
Technology developments, specifically the portfolio management software that the firm uses from its broker-dealer, SII Investments Inc., make the investment management tasks similar among all his clients, Mr. Wood said.
Clients still will pay additional charges for financial plans and other services.
TARGET CLIENTS
The advisory fee for a client with $1.5 million in assets, for example, would fall from about $15,000 a year to $11,000 under this new pricing plan. The firm's target clients have portfolios between $1 million and $5 million.
Annual percentage-based fees typically decline as the client's asset total grows — a pricing plan long considered a way to compensate advisers for growing account values but also a nod toward the conclusion that it doesn't necessarily cost more to manage portfolios of a greater size.
John Anderson, head of practice management for SEI Advisor Network, praised the firm's new fee transparency.
Even if clients aren't asking an adviser about the amount being charged, they are thinking about whether it really costs $10,000 more to manage a $2 million portfolio, versus one of $1 million, he said.
“Advisers often set minimum fees but rarely have been capping their fees,” Mr. Anderson said. “It's a phenomenal idea.”
Such a cap might not work for large accounts, such as $10 million and over, because those likely require more-complicated investments, such as alternatives, and more due diligence, Mr. Anderson said.
Of course, financial advisers also have greater liability as the amount of assets that they manage climbs, he said.
CLIENTS ARE UNAWARE
Mr. Wood said that industrywide, he doesn't think that clients are aware of what they pay each year just to compensate their adviser, and he is hoping to change that, too.
A calculator at OnePricePortfolio.com allows users to type in their portfolio balance sum. Using industry averages, it estimates the adviser fee the user is paying and lists it in comparison with what the person would pay using their capped-fee structure.
“If people knew what they were paying to their current adviser, they would be interested in changing,” said Mr. Wood, who hopes OnePricePortfolio.com will lead to many referrals from existing and new clients.
He expects to serve clients mostly online or over the phone, allowing the firm to expand its national reach, versus its existing clients, who are mostly from or live in Nebraska.
lskinner@investmentnews.com Twitter: @skinnerliz
Liz Skinner covers practice management for InvestmentNews and wants to hear any tips or innovative approaches that have helped advisers improve their businesses.
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