What fee compression?
While fee compression is viewed as ubiquitous around the financial services industry, most advisors aren’t feeling any pressure to reduce their fees, according to Pershing Advisor Solutions.
“Custodians, product issuers and manufacturers, investment managers, fintech firms—every level of the financial supply chain is experiencing severe fee compression, except for advisors and the wealth management fee,” said Gabriel Garcia, managing director and head of relationship management and consulting at BNY Mellon-Pershing “There is a very de minimis population actually lowering their pricing.”
In an informal survey taken from 31 respondents among the attendees at this years’ Pershing Advisor Solutions’ Elite Advisor Summit in Dana Point, Calif. March 7 to March 9, 58 percent said they haven’t heard any requests for lower fees from their clients.
While the value of investment management and custodial services has been significantly altered by technology, the value of sound financial advice has remained relatively stable, said Garcia.
“Barring a few spikes involving the timing of asset flows, advisors have been reporting revenues in a tight range of 75 to 79 basis points year-in and year-out since I started consulting with RIAs in 2002,” he said. “I call fee compression for financial advisors a myth.”
In the Pershing survey, 84 percent of the attendees said they did not change their pricing at all in 2017. In fact, 10 percent of the attendees reported increasing their pricing.
As yet, the impact of advisors offering services based on alternate pay structures like retainers, hourly fees and a menu of services at fixed prices has not been felt throughout the industry, said Garcia, who noted that about 80 percent of advisors still use the traditional AUM-based pricing scheme.
“We are seeing many new entrants in the industry going to a strictly flat fee negotiated every year or under contract, and some folks in the multifamily office segment are expanding services and charging project-based fees for additional services,” he said. “It’s still an insignificant amount in the greater scheme of revenues.”
The key to maintaining traditional advisory fees, according to Pershing, is expanding an advisor’s value proposition by increasing the number of services offered to clients.