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.
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.