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Let’s look at another example to further illustrate the
important additional benefits of a blended schedule.
Figure 3 illustrates the fees earned for managing an
account with an initial value of $900,000 and how a
33-percent decline and 33-percent increase affect the fee.
As you can see, not only is the blended schedule initially
more profitable, but it also offers some downside protection
against market losses or client withdrawals. And, as previously
described, it offers more upside as the account value grows.
If you are thinking about increasing your advisory fee,
moving to a blended schedule could be an ideal way to do
it. Typically, it is fair, equitable, and more of an industry
standard. It also encourages clients to consolidate assets
under your management, as their fee may likely be reduced
on incremental assets because the new money (or portions
of the new money) will be managed at a lower rate.
Knowing Is Half the Battle
Just to clarify, we are
not
suggesting that you raise your fees
merely because they may be below the industry average,
or that you rip up your existing contracts with clients and
have them sign on with you at a higher rate.
If you do decide to shift to a blended schedule, however,
your overall fee revenue will increase. Would such a change
put your fees more in line with the competition? Yes and
no. Most likely, your fees would still rest well below the
industry average, but your smaller accounts would be more
profitable. If you are uncomfortable approaching existing
clients to modify their fee structure, consider adopting a
blended schedule for all new client relationships. Many
advisors have found this method easier to implement. And
if you’re comfortable with your fee schedule as it stands,
that’s fine; but now that you know how you compare with
the competition, you’ll be better prepared—and therefore
more confident—to discuss and stand firm on your fees if
clients or prospects attempt to negotiate.
Finally, keep in mind that adjusting your advisory fee
schedule doesn’t have to be your only option. Many
advisors have separated their asset management and
financial planning services and started charging planning
fees using Commonwealth’s Wealth Management
Consulting program. It’s another way to increase your
value-added service offering to clients while receiving
adequate compensation for your work and expertise.
Stay tuned for our March/April issue of the
CBR
, where
we’ll look at this topic in greater detail.
Next Steps
We can help with analysis.
The Investment Consulting
Services team can help you with the analysis. We have worked
with a number of advisors to analyze how this type of
change will affect their practices and profitability. We can
share how other Commonwealth advisors have increased
their fees and help you shape your discussions with clients.
Fee schedules and templates.
We also have fee schedules
and templates to help you illustrate your fee schedule to
clients. These templates, which you can customize with
your own numbers, logo, and color scheme, are available
on COMMunity Link
®
. Find them at Products > Fee-Based
Programs > PPS Custom > Fee-Based Marketing Strategies >
Fee and Service Templates.
So your next step is to reach out to the team. We can analyze
your book and help you come up with a schedule that
works for your practice. Contact us at x9415, option 1, or
at
.
Brian Lampron is the manager of the Investment
Consulting Services group. He is available at x9395 or
at
Figure 3. Breakpoint Vs. Blended Fee Schedules with 33% Change in AUM
Starting Account Value: $900,000
Breakpoint
Blended
Initial Fee: $9,000 New Value New Fee Revenue Impact Initial Fee: $9,750 New Value New Fee Revenue Impact
33% AUM Decline $603,000 $6,030
–33%
33% AUM Decline $603,000 $6,780
–30%
33% AUM Increase $1,197,000 $10,773 19%
33% AUM Increase $1,197,000 $12,523 29%
Source: Commonwealth
Wealth Management
/ Investments & Research
