With bond yields deeply depressed, many advisors have waived their fees in order to avoid charging their clients more money on these allocations than their recommendations have generated.
On the surface, this kind of discounting for lack of performance makes a certain deceptive sense.
After all, money market funds routinely waive their fees in order to avoid "breaking the buck" on a fee-adjusted basis, so why shouldn't advisors who care about their clients?
The problem is that this policy puts advisors in the position of either having to swallow operating costs or else chase higher yields when it doesn't make sense for the client.
Neither option really "aligns the interests" of the advisor and the client.
If anything, an advisor forced to absorb the freight of allocating these assets will probably harbor a bit of a grudge against five-year Treasury paper that is still as safe as anything else out there, but pays well under the 1% that the advisor is charging on everything else in the portfolio.
And while it's good to try to get the best possible risk-adjusted return for the client, chasing up the yield chain is what got whole firms in trouble over "enhanced" products in the first place.
The fact is that it costs at least as much time and attention to allocate a client dollar to high-quality fixed-income securities as it does to simply let that money ride the S&P 500.
That allocation is what clients really pay for, and it helps to remind them of that fact.
Commonwealth, for example, has broken out its management fees -- the straight charge on AUM -- from its advisory fees to show clients exactly what they're paying.
Adopting something similar lets advisors show their clients that no, nobody is getting rich on these near-zero-yielding assets, and where any discounts -- if desired -- are being applied.