Fees

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Mar 30, 2008 9:55 am

What is the highest fee your advisory clients pay.  Leave VA's out, fee based charges only.  Full disclosure, I use a money manager clients pay 3.25% total for, about half to my gross.

Mar 30, 2008 1:28 pm

My highest advisory fee is 1.5%, but that doesn't include expense ratios...I assume your 3.25% does.  If you tally on expense ratios, that adds probably anywhere from 50-130 bps, depending upon the manager used.  I also pass along ticket charges, which are pretty modest, but can add a few bps to the overall cost.

Mar 30, 2008 1:36 pm

I start at 1% (500k gets you .75) and I use primarily index funds.  Around .30% avergage.  Hope you have some great managers.  Like Indyone I do pass on ticket charges as well.

Mar 30, 2008 2:05 pm

SMA account, no expense ratio or ticket charges, 2% to the firm 1.25% to the manager

Mar 30, 2008 3:04 pm

SMA's our standard undiscounted fee (wirehouse) is 3%. 45 bps to the manager, rest to the firm, and you get payout on that. We can discount up to 50% but the mgr fee stays at 45 bps. I discount to 1.5%, breakpoint at 500k and again at 1mm

 
On accounts where I manage it on a discretionary basis, same deal, except it all goes to the firm/me, no 45 bps to the mgr.
 
We've got a wrap fee mutual fund program, i charge full boat, 1.5%, not including exp ratios, so net net about 2.5%. But I only use this for accounts < $100-150k
 
Mar 30, 2008 3:27 pm
Bluetang:

SMA account, no expense ratio or ticket charges, 2% to the firm 1.25% to the manager


Are you sure 1.25% goes to the manager?  That would be way over market rates for SMA equity manager fees.

Mar 30, 2008 3:37 pm
Morphius:
Bluetang:

SMA account, no expense ratio or ticket charges, 2% to the firm 1.25% to the manager


Are you sure 1.25% goes to the manager?  That would be way over market rates for SMA equity manager fees.

 
Yes 1.25% to the manager is correct and worth every penny. 
Mar 30, 2008 3:40 pm
pratoman:

SMA's our standard undiscounted fee (wirehouse) is 3%. 45 bps to the manager, rest to the firm, and you get payout on that. We can discount up to 50% but the mgr fee stays at 45 bps. I discount to 1.5%, breakpoint at 500k and again at 1mm

 
On accounts where I manage it on a discretionary basis, same deal, except it all goes to the firm/me, no 45 bps to the mgr.
 
We've got a wrap fee mutual fund program, i charge full boat, 1.5%, not including exp ratios, so net net about 2.5%. But I only use this for accounts < $100-150k
 
 
There are breakpoints built in for larger accounts, but under no circumstances do I discount.  If I can't justify the fee to myself or think it is too high, I simply do not use that particular account.  Discounting IMO de-values the advisor
Mar 30, 2008 3:54 pm

While I agree discounting devalues the advisor, there are accounts that I take on that I lower the fee for because we're doing a number of other things for them that I will also be paid for(insurance, bonds, annuities, etc.)



This is a matter of contention w/ many clients who feel underserved. As their assets grow so does our fee. What are we doing differently to justify the higher fee?

Mar 30, 2008 4:36 pm
Bluetang:
Morphius:
Bluetang:

SMA account, no expense ratio or ticket charges, 2% to the firm 1.25% to the manager


Are you sure 1.25% goes to the manager?  That would be way over market rates for SMA equity manager fees.

 
Yes 1.25% to the manager is correct and worth every penny. 


It's no sweat off my whats-its, but you DO realize that on many platforms the managers fees - even for top managers - are significantly lower than the 1.25% fee you cite?  Are you sure that fee doesn't include the fees for an overlay manager or platform fees or both?

Mar 30, 2008 4:58 pm

1.25% TO THE MANAGER.  Yes I am aware that is significantly higher than avg.  Does not include platform fees, and overlay manager, or dinner for two.

Mar 30, 2008 5:03 pm

I started this thread out of curiousity of what other firms charge for top of the line SMA.  At my firm, we charge 2% for the platform + mgr fee which is typically 45-75 bps.  3.25% is the HIGHEST, not the avg or norm.

Mar 30, 2008 5:34 pm

Bluetang,

first of all, I'm confused, i thought you said 1.25% to the manager, but in your last post you said 45-75 bps to the manager. I'm sure I am missing something, can you clarifyy?
 
Secondly in reference to discounting. I said I discount 50% to 1.5%. I didnt say that I position it as a discount. Just because my firm says the standard fee is 3%, that doesnt mean its a fair fee. I dont believe that there is a single FA in my firm who still charges 3%.
I firmly believe, by the way, that wea re going to a "1% world", over the next 5-7 years.
I beleive 1.5% is a fair charge for what I do for my clients. I dont position it like, " my firm charges 3% but I discount to 1.5). I position it simply as what I believe to be fair compensation for my expertise. If a prospect balks, then I know he is not a qualfied prospect any longer.
Mar 30, 2008 5:39 pm
Bluetang:

What is the highest fee your advisory clients pay.  Leave VA's out, fee based charges only.  Full disclosure, I use a money manager clients pay 3.25% total for, about half to my gross.

 
SMA Fees-   2% platform (hits my gross)
Manager-  Negotiated by the firm OR we can bring in outside managers 45-75bps typically
 
1.25% to the manager (3.25% total) is the HIGHEST which is what my original question was.
 
Mar 30, 2008 5:44 pm
pratoman:

Bluetang,

first of all, I'm confused, i thought you said 1.25% to the manager, but in your last post you said 45-75 bps to the manager. I'm sure I am missing something, can you clarifyy?
 
Secondly in reference to discounting. I said I discount 50% to 1.5%. I didnt say that I position it as a discount. Just because my firm says the standard fee is 3%, that doesnt mean its a fair fee. I dont believe that there is a single FA in my firm who still charges 3%.
I firmly believe, by the way, that wea re going to a "1% world", over the next 5-7 years.
I beleive 1.5% is a fair charge for what I do for my clients. I dont position it like, " my firm charges 3% but I discount to 1.5). I position it simply as what I believe to be fair compensation for my expertise. If a prospect balks, then I know he is not a qualfied prospect any longer.
 
I can appreciate your approach to fees.  I do it a little differently. I look at the fee and determine if it is fair or too high.  If it is fair and a good investment, I will show it to clients.  If it is too high, then I don't use the manager.  IMO value is important not cost.  3.25% to clients sounds quite high, but when you consider mid 20's avg returns net for the last 10 years, I think 3.25% is cheap. 
Mar 30, 2008 6:41 pm

Your overall fees are high relative to your competition, which you obviously realize.  I don't think being somewhat higher than average is necessarily a problem, but being significantly above market rates will become a problem, eventually, especially with continued downward pressure on fees. 

The bigger problem I see is if you actually cite performance numbers in the mid-20's to clients.  Talk about building unrealistically high expectations!  I don't care what a manger's track record has been historically, I wouldn't want to have to manage clients who are expecting 20+% returns ... regardless of what the manager charges. 

Live by the sword ...




Mar 30, 2008 6:55 pm

Could not agree with you more.  Selling based on performance to a client will come back to bite you at some point.  I do not quote returns unless asked directly what they are, and then I explain that we can't buy past returns.  The reason to own this investment is too help achieve your long term goals in your overall portfolio.  BTW, minimum of $250m to use this manager, so it is not for Joe Sixpack.  The first time I opened one of these accounts, client called me after 1st qtrly statement arrived to inform me that there was a mistake.  It listed his account value at just north of $277m and his accounts at his other broker were flat.  Not a mistake.  He really does not care about the $2m+ that comes out every qtr for the fee.

Mar 31, 2008 7:44 pm

I agree with Morphius. Its great to get an avg annual 20% return over 10 years. The problem is that with those kinds of returns, you also get a lot of volatility, i.e. a pretty high standard deviation. So in the 1 year that the clients portfolio is down 32%, the conversation just aint gonna be a pretty one. Its at that point that most clients dont really care about 10 year avg annual returns.

Mar 31, 2008 7:51 pm

biggest down year 14% in 2002.  Beta shade over 1.  Not at the office or I would tell you the std dev.  Certainly an aggressive account and not for all the clients money, but fits well into the aggressive portion of the plan.

Apr 1, 2008 4:44 pm

There's a team here that manages north of $80MM that laughs any time someone asks what the SD is be it another broker to a wholesaler meeting or a client asking them! They never disclose risk to their clients and sell on "hitting all the boxes and doing it at a cheaper price"

 
These are the "financial advisors" that the higher ups rave about to others in the company. A bunch of horse****.