Advisor pricing models were the subject of a story in this morning’s consumer press, and it gave all modes of compensation a skeptical review.
“For a long time, advisers mostly offered their clients only one way of settling a bill—investors would hand over a percentage of their assets under management every year,” writes Daisy Maxey. “With the economy in the tank, and more people than ever looking for guidance, advisory firms have cooked up new options for investors. Some offer flat fees or hourly rates, or weigh all of a client's holdings instead of just the size of the portfolio.”
The story makes it sound like hourly fees or a fee for advising on held away assets are something new when, in fact, these modes of compensation have been around for at least over a decade. But the coverage does reflect a growing skepticism in the press about advisors and greater scrutiny of all modes of compensation.
“With these new options, though, come new questions,” says The Journal’s Maxey. “What are the advantages, disadvantages and conflicts of interest in all of these new plans? What responsibilities do advisers have to their clients?”
These are good and fair questions, and the answer—the “nut” in the story— comes from academia and is a wise one.
“There's no perfect form of compensation; each has its pluses and minuses," says Lukas Dean, assistant professor and program director for financial planning in the Cotsakos College of Business at William Paterson University in Wayne, N.J.
The story here is that the consumer press is asking intelligent questions about advisor compensation. It is no longer assumed that any one mode of compensation is superior.
I see this story highlighting a couple of longer-term trends. First, the days when doing business as a fee-only advisor differentiated you are over or, at best, nearing an end. Second, the press is becoming more skeptical in general about advisors and advisor fees and instances of advisor-bashing are on the rise.
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