It is a time of great change in the financial advisory industry, but apparently not when it comes to the asset-based fee model.

Advisors have been stubbornly sticking with asset-based fees as their primary revenue source, and that could end up hurting their practices, according to one consultant.

Speaking at TD Ameritrade’s National LINC conference on Thursday, Eliza DePardo, a management consultant for TD Ameritrade Institutional, noted that the asset-based fee has remained the standard for the financial industry, and there’s little evidence of downward pressure on those fees thus far.

“Pricing is one area where we just don’t seem to observe much movement from advisors,” said DePardo. “It’s kind of unusual.”

In fact, according to FA Insights and TD Ameritrade research from 2018, nearly 90 percent of RIA revenue is still generated by asset-based fees, said DePardo, and it appears that asset-based pricing is increasing as a percentage of the fees collected by advisors.

That means that the revenue generated by an RIA fluctuates with the markets. For example, in 2017, when the S&P 500 returned upwards of 18 percent, RIAs experienced nearly 20 percent AUM growth, and 15.8 percent revenue growth–as well as a record 7.8 percent growth in clientele. Yet TD Ameritrade Institutional President Tom Nally, in comments opening the conference, noted that advisors suffered a $550 billion decline in assets between Sept. 20 and Dec. 24 as financial markets slumped, leading to a $530 million reduction in potential RIA revenue.

Yet even in the boom of 2017, advisors experienced declining profit margin, said DePardo. Operating profit margin declined from 24.4 percent in 2016 to 19.7 percent in 2017, in part because RIAs were adding services without changing how they charge their clients.

“For wealth managers, if you’re bundling a bunch of stuff under an asset-based fee, clients probably don’t think they’re paying you for all that advice,” she said. “Everything else you do for them [aside from investment management] kind of gets lost in the wash." She said advisors may want to articulate this distinction with clients "more clearly so they understand everything you do for them.”

About 80 percent of firms bundle services under an asset management fess, and more than 50 percent of RIAs offer 12 or more different services bundled under an asset-based fee, said DePardo. If advisors continue to bundle more services under fees which never increase, it will become more difficult to ensure their firm’s profitability, she said

DePardo recommended that advisors at least explore other methods for calculating their fees–such as a “cost-plus-profit” model where an RIA estimates the labor costs and average overhead incurred in serving a client and uses a target profit margin to establish fees. She recommended a target profit margin of between 25 percent to 30 percent, a range that is above advisors’ operating profit margins in 2016 and 2017.

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