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This simple move could be worth millions for wealth management firms

January 11, 2024


 This simple move could be worth millions for wealth management firms

ByVictoria Zhuang    July 07, 2023, 6:47 p.m. EDT  

"People are interested in what I would call the shiny objects," Lincoln, the co-founder and partner at industry consulting firm WISE, said in an interview. That could be digital assets, or artificial intelligence, he said.

For Lincoln, the most effective solution is simple: charging more in fees and reducing fee discounts that hurt profits.

"They're more of the 'eat your vegetables' variety," Lincoln said with a laugh.

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But research by WISE published earlier this year suggests the revenue difference — which could be millions of dollars for firms — is no laughing matter.

In a March paper called "Unlocking The Power Of Pricing: Tapping into a 10-25 BPs revenue opportunity," WISE reported that it had found no evidence that charging higher fees would hurt sales.


Instead, data collected from over 150 wealth management firms and over 200,000 accounts suggested instead that it could only help.

"For every $1 billion in assets, a single basis point improvement in realized fees represents $100,000 in recurring fee revenue for years," said the report, which Lincoln co-authored.

"Taking discounts and other exceptions into account, high-fee firms realize at least 10 to 25 basis points more than competitors with a lower starting fee."

So if a firm has $1 billion in assets under management, going from a 1% fee to 1.1% creates $1 million in potential new revenue.

"At every asset level, firms with premium fees… realize more revenue than firms with market median or low fees," the report said. That's even after factoring in discounts and exceptions.

The added dollars could be especially valuable in the current economy, which has put more pressure on firm margins. Inflation has soared, raising prices for many goods and services, and many firms WISE spoke with reported pressure to set aside more for advisor pay.

"Competition for talent, a wave of advisor retirements and stronger sales cultures are contributing to rising compensation expenses," a spokesperson for WISE said in an email. With a bit of breathing room, Lincoln said, advisors can better invest in bespoke services for demanding clients, or the firm can afford to retain talent, or have a stronger earnings report.

In particular, small firms — which are already lagging larger peers on staying competitive in areas like estate planning and investments in technology to reach next-generation clients — could benefit if they charge more.

Andy Tasnady, a compensation consultant who is the owner of Tasnady & Associates, said in an interview that he had noticed some firms attempting to rein in and standardize pricing, which can vary widely among accounts.

"It is a large opportunity area, and a very important one," Tasnady said of fee discipline, adding that he sees some firms incentivize it with punitive policies around "discount sharing," where an advisor who offers a discount to please a client will then be paid less than usual for that account.

What's standing in the way of implementing these practices tends to be human nature more often than not.

However, in reality high net worth clients are "price inelastic," Lincoln said.

That means it's more about communicating the value a firm can deliver for them rather than attempting to cut back a little here and there to keep them interested. Ideally, the firm would enforce account minimums, minimize giving discounts here and there to clients and have a single person tasked with monitoring fee schedules across the firm to bump up outdated or underpriced ones.

While some high net worth clients are "do-it-yourselfers" who may be less interested when there are cheaper alternatives, those are already a lost cause, in that they aren't the type of client that would usually seek out the firm anyway, WISE said in the report.

Ryan E. Salah, a certified financial planner who is a partner at Capital Financial Partners, agreed with the findings.

"I think it's important for advisors to stand by their fee schedules assuming they're competitive and in line with what the service offering is," Salah said.

Capital Financial Partners, an independent wealth management firm based in Towson, Maryland, offers services through Hornor, Townsend & Kent, a broker-dealer and RIA owned by Penn Mutual Life Insurance Company.

Salah said his own firm had raised fees "once in over a decade" and "implemented a new 'plan only' fee for clients who wish to only engage us in financial planning and not asset management."

Victoria Zhuang Reporter