Advisors Should Raise Their Prices, Says A New Study From PriceMetrix

Tuesday, September 20, 2011 22:33
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Advisors Should Raise Their Prices, Says A New Study From PriceMetrix

Given all the talk about how brokers would have to abandon smaller investors if they couldn't charge commissions, a new study indicating that the advisory business is already deeply discounted is especially interesting.

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The average household with under $100,000 in liquid assets already gets a 32% price break on the typical equity trade, according to practice management software firm PriceMetrix. 

 

While part of this reflects advisors taking pity on smaller accounts, it is actually a factor of offering sometimes massive discounts to all comers -- large and small -- in order to get the assets.

 

Truly wealthy clients are in greater demand because they tend to trade more and generate a lot more revenue for their advisors. PriceMetrix reports that households with over $1 million to invest still get a 36% average break on their trades from advisors eager for their business.

 

Meanwhile, invetsors with between $100,000 and $1 million fare worst, even though they still receive a 28% discount from posted commissions.

 

PriceMetrix points out that the typical middle class household only generates $364 a year for commission-based advisors. So it's a bit of a question why groups like LIMRA and NAIFA are so eager to catch and keep these clients.

 

PriceMetrix says that advisors -- no matter how they're compensated -- should raise their prices, even if it means culling the 6% or so smallest accounts they currently serve.

 

That means no "sympathetic" pricing in down markets and no chasing accounts that you just can't make profitable. Unless, of course, you're serving them on a pro bono basis anyway.

 

Comments (1)

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Advisors who always give discounts aren't clear about their value so they lower their price to acquire or retain clients. That only works until another advisor comes along with an even bigger discount.

Top advisors know their value, charge accordingly.
This e-mail address is being protected from spambots. You need JavaScript enabled to view it , September 22, 2011

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