Low Fees at the Outset Can be hard to Overcome

PriceMetrix, a software firm for retail wealth management firms and their advisers, found that many financial advisers are foregoing an average of $20,000 in fees because they are under pricing their fee-based business when compared to other advisers in the industry.

PriceMetrix research shows that the fee and managed account business has become a key source of recurring revenue for retail wealth management advisers and the segment continues to grow. Assets in fee-based accounts make up almost 25% of total assets under administration and 37% of total revenue. From 2007 to 2010, the average adviser’s assets in fee-based accounts have increased by 24%, while transactional assets have declined by 1%. Further, advisers are opening a growing number of fee-based accounts each year. The average adviser opened 11.5 new fee-based accounts in 2008, 13.5 in 2009, and 14.5 in 2010.

At the same time, however, advisers are earning less in terms of return on assets in their fee-based accounts, found PriceMetrix. The average return on assets declined from 1.47% in 2007 to 1.32% in 2010. PriceMetrix says this is because firms publish fee-based price schedules that range from simple flat fees to tiered pricing based on asset type or account size. Actual fees charged by individual advisers, however, are usually discounted with most ranging from 72% to 79% of scheduled prices.