A Great Set Of Bookends

I try to spend about 10 minutes scanning Financial Advisor as soon as I receive each month‚s copy. Within a few minutes of getting December‚s issue, I had read Mark Tibergien‚s letter, Nick Murray‚s column and Richard Wagner‚s Parting Shot.

Tibergien cited surveys wherein financial advisors complained of "no time to manage and produce revenue." It struck me that maybe these people were spending too much time cogitating on the themes advanced by Dick Wagner and not enough time doing what Nick Murray calls "The Next Right Thing." Murray and Wagner–great bookends.

Thomas Babington, CFP
Money Management Concepts
Melbourne, Fla.

Figuring Out Pricing

Just catching up on my reading, I had a chance to read carefully the article, "Part Art, Part Science," by Dorothy Hinchcliff in the October 2001 issue of Financial Advisor magazine, beginning at page 53. This is a topic that interests me, about which I have been thinking, reading, writing and discussing with colleagues for some time.

It was an excellent article, right on point about the controversy swirling in the profession about how to charge for services.

For many reasons, asset-management fees are being pushed downward, making this service more and more a commodity (i.e., a service which the consumer selects from among competitors, based almost solely on price). The profit margin in the old 1%-of-assets model (which allowed firms, including mine, to offer great services as "value added" pieces) is shrinking, and it is becoming more difficult to provide other services for an asset-management fee without separately charging in some fashion for other advice.

As a "recovering" lawyer, I know that charging by the hour is a terrible way to try to make a living. On the other hand, upon reflection, asset-management fees suffer the same kind of disconnect to the value of the service that the commission model did: There may be little relationship between the compensation received and the work done (or perhaps more accurately, the value of the work done). As professionals, we know that it is not twice as difficult to manage a $2 million portfolio than it is a $1 million portfolio, but it sure is nearly twice as profitable.

While there is some relationship between the client‚s net worth or total of investable assets, a planning fee (or more exactly, a fee for the ongoing monitoring and management) based on such factors all too often feels to clients like a tax on wealth. Yet, there is some real value in the advice that is offered. Trying to figure out what a fair price is–what the real value to the client is in dollar terms–is one of the biggest challenges facing advisors going forward.

Please keep covering this important topic!

Barry Kohler, JD, CFP, CLU
BDMP Wealth Management
Portland, Maine

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