Discounting Fees/Comm. - Survey

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May 13, 2007 4:52 pm

Worth Magazine had an article about how the affluent get their F/A(s) to discount investment fees and commissions. In the article, was a survey covering different aspects of the client/FA relationship. Below I've shown some of the more interesting results. However, keep in mind that the sample size was small, anywhere from 250 - 1500 affluent clients. The article covered relationships from $1MM to $10MM+.


(G/Disct) - Percentage of sample size who received discount.


(Avg Disct) - Size of average discount from stated fees.


(Easy Disct) - Little or no difficulty obtaining discount.


YEAR - ASSET SIZE - G/Disct - Avg Disct - Easy Disct


1995...$(1-5)MM..........5.2%.........6.3%.......71.4%


2001......DITTO..........11.1%.........6.9%.......85.7%


2007......DITTO..........22.4%........11.2%......91.2%


Some more results:


Clients who negotiated had an average of 3.4 FA's they were using.


Clients who didn't negotiate were using an average of 1.5 FA's.


86% of clients who think they know how our business works, negotiated a discount.


Considered important sources of education on the investment management business:


Investment Managers - 69.6%


The Media - 58.6%


Peers - 13.7%


The website for this magazine is www.worth.com. However, this article doesn't show-up yet, as the magazine articles seem to have a lag time of 2 months before they show-up on the website. However, you can subscribe (for free), as I did. It's a good magazine, as it is geared to the affluent and their mindset. You won't find ads, in this magazine, show up in Money Magazine! (Note: The magazine assumes its readers have an FA or two; thus, it gears some of its articles covering that aspect of the affluent life.)


Apologies for the set-up of the above chart. it was the only way I could get the numbers to line up!

May 13, 2007 7:27 pm

You won't find ads, in this magazine, show up in Money Magazine!


----------------------


Grammar Correction:


You won't find ads, in this magazine, that show up in Money Magazine!

May 13, 2007 8:16 pm
doberman:

You won't find ads, in this magazine, show up in Money Magazine!


----------------------


Grammar Correction:


You won't find ads, in this magazine, that show up in Money Magazine!



Reality correction: We don't care.

May 13, 2007 9:02 pm

Go ahead, read the magazines that advertise Hyundai's, give investment advice, and think you're burrowing into the mind of the affluent.


May 14, 2007 11:12 am

I perused the article over the weekend. Interesting in that those clients who use multiple FA's can really dictate the lowering of fees. Just another example of how fees are coming down and margins are becoming compressed...

May 14, 2007 11:26 am

Blarm they can only dictate fees if you allow them to.  There are plenty of good clients out there who are willing to pay a reasonable fee if you prove that you can deliver value.

I always have said that when you discount to win a relationship it sets a VERY bad tone right from the start.

May 14, 2007 11:27 am

Don't you think that some of that discount is really just something along the lines of tiered management fees, i.e. 1.5% for accts under $250m, 1.25% under $500m, 1% under $1mm, .9% under $2mm, over $2mm negotiable? 


I'm sure this isn't universally true, but I would bet that quite a few of the clients who said they get a negotiated rate either don't understand how their advisor's fee structure works, or they didn't understand the question the same way we are discussing it.

May 14, 2007 11:31 am

This is why I don't mess with fees. It's so easy to steal business from someone who charges fees. All I have to do is tell people that the first thing we're gonna do is turn of the "broker meter." People like that.

May 14, 2007 11:50 am
joedabrkr:

Blarm they can only dictate fees if you allow them to.  There are plenty of good clients out there who are willing to pay a reasonable fee if you prove that you can deliver value.

I always have said that when you discount to win a relationship it sets a VERY bad tone right from the start.


...straight from Joe's greatest hits...well said.  I've made a conscious decision that I will grow slower rather than do much in the way of discounting.  I won't say never, but I've really cut it back since going independent.  I just don't feel the need to be a million dollar producer.  If it happens someday, great, but I won't prostitute myself to get there.  I don't even pretend to be the cheapest...I think that says something about the quality of your work...

May 14, 2007 11:08 pm
Bobby Hull:

This is why I don't mess with fees. It's so easy to

steal business from someone who charges fees. All I have to do is tell

people that the first thing we're gonna do is turn of the "broker meter."

People like that.





Actually It's pretty easy to do the opposite. I just brought in a 1.2 Million

account that was fee based. The guy was tired of paying 10K a year. So I

pointed out restructuring might cost him about 10K the first year in

loaded funds, but that we would be hard pressed to spend 4-5K in

commissions/year after that. Thus he would be saving money.



He was a referral from another client that I did the same thing for about 4

years ago. That client has never complained to me once about our

commission structure and I only discount 20%. He knows that I've saved

him a bundle.

May 15, 2007 12:18 am
Bobby Hull:

This is why I don't mess with fees. It's so easy to steal business from someone who charges fees. All I have to do is tell people that the first thing we're gonna do is turn of the "broker meter." People like that.



Yes Bobby, stupid people do like to feel like they're gettting something for nothing.  Irony is that it sounds to me like you're giving them NOT MUCH for A WHOLE LOT!

May 15, 2007 12:19 am
Indyone:

...straight from Joe's greatest hits...

lol...thanks for the props.  I guess if nothing else it means that I'm consistent.

  I've made a conscious decision that I will grow slower rather than do much in the way of discounting.

As your success has proven there is great benefit to that approach.  Discriminating clients recognize value and confidence when they see it.  Let the penny pinching idiots go buy annuities from Bobby.

May 15, 2007 7:39 am
joedabrkr:
Bobby Hull:

This is why I don't mess with fees. It's so easy to steal business from someone who charges fees. All I have to do is tell people that the first thing we're gonna do is turn of the "broker meter." People like that.



Yes Bobby, stupid people do like to feel like they're gettting something for nothing.  Irony is that it sounds to me like you're giving them NOT MUCH for A WHOLE LOT!


You figured it out, Joe.

May 16, 2007 10:11 am
Bobby Hull:

This is why I don't mess with fees. It's so easy to steal business from someone who charges fees. All I have to do is tell people that the first thing we're gonna do is turn of the "broker meter." People like that.


Bobby, that sounds good,but is that your pitch when replacing business with a fixed indexed annuity only?  I ask because I can see how that can be true when using a fixed product that has no trading cost, expense ratios, advisor fee, etc. to the client.


May 16, 2007 10:22 am
Mike Damone:
Bobby Hull:

This is why I don't mess with fees. It's so easy to steal business from someone who charges fees. All I have to do is tell people that the first thing we're gonna do is turn of the "broker meter." People like that.


Bobby, that sounds good,but is that your pitch when replacing business with a fixed indexed annuity only?  I ask because I can see how that can be true when using a fixed product that has no trading cost, expense ratios, advisor fee, etc. to the client.




Anybody who is paying their BROKER every second of their lives. Hence the term "BROKER meter."

May 16, 2007 12:41 pm

It just goes to show, relationships are first. Let the regulators sort out the mechanics of the products and fee arrangements.


Look how silly all of this is - I could take my comfortable fee based revenues, and actually go out and do some work: take Bobby's "broker meter" idea, and just profit max the heck out of my current business. Basically, just tell people whatever they want to hear - including Allreit's holier than thou RIA story.


Of course, we really need to do what it right for the client. Then, let the regulators ( the lawyers) keep roto tilling the playing field - as if they haven't already. What are you left with, really?


Bobby eats at the same table as Allreit. Allright. Let's get on with it. Just don't try to make a virtue out of your selling frame.


Bobby, Joe, Allreit, Bond Guy - there you have it, a constellation of smart people with different approaches, that's all. When can we take control of this industry instead of fighting each other, and playing into the hands of the suits at certain large corporate offices? That will be real profit max for all, and the biggest winners will be middle aged Americans.

May 16, 2007 3:14 pm
Mike Damone:

Bobby, that sounds good,but is that your pitch
when replacing business with a fixed indexed annuity only?  I ask
because I can see how that can be true when using a fixed product that
has no trading cost, expense ratios, advisor fee, etc. to the client.


An fixed annuity has a huge cost to the client. Opportunity cost between what the annuity pays out and the insurance company's General Account of Investment grade bonds.


May 16, 2007 3:35 pm

So, Allreit, given your due diligence research on behalf of your clients, is there any retirement income risk transfer product that might be useful for anybody's clients here? ( Pardon me if you mentioned it before as I did not read every thread.)

May 16, 2007 5:01 pm
AllREIT:
Mike Damone:

Bobby, that sounds good,but is that your pitch when replacing business with a fixed indexed annuity only?  I ask because I can see how that can be true when using a fixed product that has no trading cost, expense ratios, advisor fee, etc. to the client.


An fixed annuity has a huge cost to the client. Opportunity cost between what the annuity pays out and the insurance company's General Account of Investment grade bonds.




REITs have a huge cost to the client. Opportunity cost between 100% of their money going into the ground and 83% of their money that finally makes it into the ground.

May 16, 2007 6:20 pm
rollinrock:

So, Allreit, given your due diligence research on
behalf of your clients, is there any retirement income risk transfer
product that might be useful for anybody's clients here? ( Pardon me if
you mentioned it before as I did not read every thread.)





CPI linked SPIA's from Vanguard, which are issued by AIG. IMHO most any
retirement income product that isn't linked to CPI is trash.



Mostly those are used because they help reduce draw downs during down market periods.