Don't Worry About Fee Transparency -- Unless You Can't Tell The World What You Charge And Why You Charge That Amount

Tuesday, April 10, 2012 09:32
Don't Worry About Fee Transparency -- Unless You Can't Tell The World What You Charge And Why You Charge That Amount

Tags: Advisor businesses

With a benchmark of advisor fees compiled by PriceMetrix set to be published in Morningstar's platform for professionals, Investment News reported that some advisors fear such transparency about how much they charge. It seems like a lot of fretting about information long publicly available.

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PriceMetrix, the company that supplies the data to Morningstar, has been publishing studies on advisor commissions and management fees for ages.


The only difference now is that every advisor using Morningstar can see how he or she stacks up to the industry averages.


Are individual advisors' prices revealed to competitors or to the world? No.


Is the market for investment advice actively priced and traded minute by minute in basis-point increments? Not yet, and if it ever happens, we'll all have other things to worry about.


Worries that  an advisor-facing benchmark will commoditize the value of advice may be overstated.


For a client to ever see how you stack up to the PriceMetrix benchmarks, he or she will have to get a Morningstar Advisor account. And even in that unlikely event, it won't break out your fee structure against other advisors in your area or market niche.


This is not and will never be a client-facing cost comparison tool.


This is not going to cause a race to the bottom. It's as likely to create a move from the bottom by advisors who have been aggressively discounting services realize how much room there is between their fees and the industry benchmark.


If you do charge more than the industry average rep[reported by PriceMetrix, the opportunity is not in scaling back to "average" but in realizing that some businesses add more value than others and can price accordingly -- provided they communicate and deliver to clients and prospects.


White-glove operations have not gone out of fashion. In fact, it's otherwise, and that was actually how the investment advice industry started.


So figure out exactly what your clients get in return for those above-average basis points and let them know what they're paying for.


Finally, if you're comfortable with what you're charging -- above or below the benchmark -- what's stopping you from publicizing it?


Transparency is only a prospect to be feared if you're not secure with your pricing.


Clients almost never want to think about your profit margins, but full disclosure is a powerful thing. It's not only inevitable but you can make it work for you.


If you're worried that they're worried about your fees, put it all out there for clients, prospects, and even your competitors to see.


And, if you can't tell the world what you charge and why you charge that amount, you may want to worry about that part of your business.


Comments (3)

Only available on the Workstation editions, NOT Morningstar Office. I called and asked/confirmed.
vguettlein , April 10, 2012
So even farther from the retail investor than ever. Thanks! You know anyone who's excited to use it?
ScottMartin , April 10, 2012
Fees are publicly available by all RIAs. Their Form ADV must disclose (publicly available) and the client engagement must also disclose.

RIAs also have to invoice clients when fees are taken.

So - nothing new here - brokers dont disclose, RIAs must; however, what is not transparent at all and would be beneficial is portfolio level transparency - ie, are the fees worth it.

Why should a good advisor capable of adding value have to charge the same as a bad advisor? Advisors should be graded at the portfolio level versus client goal, not how investment products perform relative to peers and the market.

brentb843 , April 16, 2012

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