HNW and UHNW Fee Structure

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Jul 22, 2009 6:21 pm

Two questions guys:


Caveat 1 - Consider the examples below to be roughly 50% equity, 50% fixed income.
 
Caveat 2 - I certainly appreciate all answers, BUT if you haven't actually DEALT with a household of this AUM level, please note that your comments are just assumptions and/or hearsay from other FAs you know.
 
1.  What are you guys charging (only YOUR FEE), as a percentage of assets, for a household with $10MM in assets with you?  How about $20MM?
 
2.  What do you find as an acceptable level of "all in" expenses (i.e. expense ratios for funds, SMA manager fees, clearing fees, ticket charges, your fees, etc.) for a $10MM household?  How about a $20MM household?
 
Thank you.
Jul 22, 2009 8:01 pm

1% on first 2.5m
.8% on next 2.5
.7 on next 5m
.6% on next 10m

we're an RIA, so client pays their own ticket charges (which ends up being VERY minimal on a 10m account, a couple basis points, maybe).  We manage equity and fixed income ourselves, so no SMA fees.

Jul 22, 2009 9:51 pm

My clients pay no fees, regardless of asset size. 

Jul 23, 2009 9:36 am

Jones:

Advisory Solutions, with discount, $20mm would be about .70% for the whole thing.  But fees at that asset levela re also negotiable.  At $10mm, it would be about 2bps higher (0.72).  The funds add about 25 bips (for index models) up to the mid 80's for managed equity.  A managed, balanced portfolio is about 65-70 bips in expenses.  Mostly no-load and load waived.
 
For SMA's, a 20mm balanced portfolio would be about 91 bips (with discount) all-in.  10mm would be about 94 bips.  But these are also negotiable at this asset level.
Jul 23, 2009 11:09 am

I would abso-friggin- lutely break out the fixed income component, and charge ongoing fees based on the equity component alone.

Jul 23, 2009 1:01 pm

Fixed income fees are generally a bit lower.  And considering the access those managers have to inventory, and not wanting to F'up a $20mm relationship, using a manager is probably a good idea.  I am willing to bet a good SMA manager could bring added yield and portfolio management to the table (meaning sliding up and down the curve, laddering properly, and diversifying muni type, location, and credit quality), where for a 20mm portfolio, it's tough to do it on your own.  It might take a long time for us to build 20mm worth and get it right (due to lack of good inventory).  This is ESPECIALLY true if your client wants to stay in-state on the muni's.  In my state, it's virtually impossible to build a large quality portfolio of muni's.  Issues get snapped up too quick.


I don't follow UIT's much, but they seem like good options at the lower end, and for larger portfolios the costs are minimal.  Not that I would build a 20mm portfolio with them, but they are viable options. 
Jul 24, 2009 3:23 pm
B24:

Fixed income fees are generally a bit lower.  And considering the access those managers have to inventory, and not wanting to F'up a $20mm relationship, using a manager is probably a good idea.  I am willing to bet a good SMA manager could bring added yield and portfolio management to the table (meaning sliding up and down the curve, laddering properly, and diversifying muni type, location, and credit quality), where for a 20mm portfolio, it's tough to do it on your own.  It might take a long time for us to build 20mm worth and get it right (due to lack of good inventory).  This is ESPECIALLY true if your client wants to stay in-state on the muni's.  In my state, it's virtually impossible to build a large quality portfolio of muni's.  Issues get snapped up too quick.


I don't follow UIT's much, but they seem like good options at the lower end, and for larger portfolios the costs are minimal.  Not that I would build a 20mm portfolio with them, but they are viable options. 
 
Great post, spot on.
Jul 26, 2009 10:43 am

For UHNW households and the new millionaires tax from beloved messiah obama, which is going to include adj. gross income, besides munis, I wonder what kind of tax friendly investments will be good for these folks?? 

Jul 26, 2009 10:43 am

Whole Life Insurance.

Jul 26, 2009 5:51 pm

I was responding to the previous poster's question.  And I responded that, in my experience, HNW and UHNW people buy munis and Whole Life insurance for the tax benefits. 

 
The client may not need "life insurance" but he may want a tax-free, guaranteed, creditor-protected vehicle that provides a death benefit that may allow him to spend more money in retirement without running the risk of running out of money.  Food for thought.