Fixed fee on AUM

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Feb 19, 2010 12:48 pm

I ran into a couple of fellow RIAs at a conference who were doing money management only - no planning. They charged a flat fee (lowest guy was 1.5 highest was 2.5%) on aum. No breakpoints.

I came from a wirehouse, so I basically copied my old fee schedule.

These guys all ran big practices and said the flat fee hasn't been issue. Seemed less confusing to new clients. One mentioned he has an asterisk by his fees that says fees are negotiable under special circumstance. That way if he gets a large account that balks at paying 2% he can negotiate the fee and no have an issue with the regulators (stated fee on adv)

Any thoughts/anyone doing this? It would make my life much easier to just do a flat aum fee.

Feb 19, 2010 12:53 pm

Flat Fee with * over here as well.  Makes the review process of fees paid much easier.

Feb 19, 2010 12:57 pm

Thanks WB - I'm thinking about it more since you guys are doing it. 

Feb 19, 2010 1:23 pm

I've been looking at RIA websites lately, and it seems that there are several RIA's out there doing this.  I also found that fees are all across the board.  I've seen some charge as little as 75 bips on the first 250K, and some as high as 2.25%.  The schedules are all across the board.

I would think a fixed fee for the range that MOST clients would fall into would be plausible for what you are trying to do.  For example...1.5 or 1.25% for anything under 500K.  1.0% for anything over that.  Over $2.5mm is negotiable.
 
I have also seen 1% on everything, no breakpoints.
 
I am also seeing performance fees popping up....15% of profits on returns over 5%, no fee on the first 5%.  $750,000 mimimum for this arrangement.
Feb 19, 2010 1:29 pm

These guys have about 500 mil under management and do it at 2.5% The bigger guys seem to have higher fees: http://www.cmgfunds.net/public/faq.asp#5

Feb 19, 2010 1:34 pm

Form waht I saw, the higher fees were from firms that had a really unique investment approach with superior results.  From what I saw, it was firms with some sort of rotation strategy or technical asepct to their money management.  The one's that did sort of the DFA, static asset allocation approach were more in the "normal" range.

Feb 19, 2010 3:28 pm

Now I'm wondering if our fees are too low.  Direct clients we do a flat 1%, sometimes .5% (but that has to be a great client).  On the SMA side, it varies.  SMA is our bread and butter though (as far as most assets).  Best margin is on UMA biz.

Feb 19, 2010 3:36 pm

WB,

The firms I saw doing really high fees had kick-arse results.  Alternative, hedge-fund type returns.  I took a quick look at the firm Cali mentioned above.  Many of their strategies had double-digit GROWTH in 2008.  They are essentially a fund-of-hedge funds manager.  Total absolute return, non-correlated stuff.
Feb 19, 2010 3:42 pm

I noticed that the planning firms charge around 1%. I think there is more price pressure from consumers. The asset management firms fees are much higher and seem to be more boutique.

I belong to NAAIM and many of those guys are running one man shops with a part time assistant. Have 30 mil under management and charge 2%.

Feb 19, 2010 4:23 pm

Ahh I see, absolute return would not be us. 

Feb 19, 2010 8:03 pm
CALI123:

I noticed that the planning firms charge around 1%. I think there is more price pressure from consumers. The asset management firms fees are much higher and seem to be more boutique.

I belong to NAAIM and many of those guys are running one man shops with a part time assistant. Have 30 mil under management and charge 2%.

Is the membership worth the $600.00 in dues?
Feb 19, 2010 8:34 pm

Its like anything - you get what you put into it. However, I will say, you really need to attend the conferences. There are some regional meeting and an annual conference. Last year I spent about 1200 bucks on dues and travel.



To me it is worth it. I am an RIA that is set up as a money management firm. Lots of focus on technical analysis, practice management/marketing ideas, and portfolio management software. To the guy who focus on MPT and doesn't really manage the money, then its not worth it.



They have a nice message board to share ideas. The members are mostly established older folks who are very willing to share ideas.



I think you can sign up for the newsletter for free. Look over a few and see if it fits your practice.

Feb 19, 2010 8:42 pm

Yeah - i didn't read that far down :). I saw 2.5% on a strategy that shares some similarities to mine. I think the dollar signs got in the way.

Feb 20, 2010 10:13 am
BioFreeze:

I charge no fees. People like that.





That firm makes a lot more money for their clients than you do. People like that.

Feb 20, 2010 12:05 pm
BioFreeze:
B24:
BioFreeze:

I charge no fees. People like that.





That firm makes a lot more money for their clients than you do. People like that.

Interesting...Why do people do business with me then?





They're fukcing nuts.



Birds of a feather.....

Feb 21, 2010 7:46 pm
BioFreeze:

I think it's because they like they never lose money....





BS! Prove it. Never lose money huh?!?! Your new nickname is "Madoff," with your 14-15% returns YOY.

Feb 21, 2010 8:23 pm
iceco1d:


Oh boy...





Stay out of a real discussion of brokers, teachers aide.

Feb 21, 2010 8:32 pm
DD:
iceco1d:


Oh boy...





Stay out of a real discussion of brokers, teachers aide.



Dear DD,

Congratulations on your move.  I understand that a cardboard box is a step up for you. 

Also, you are welcome for the gift of the library card that I sent you.  It also looks like you are putting it to good use at the library.  Be careful, the librarians can be pretty mean, and will make fun of your d1ck. 

We all know that you are sensitive to having the smallest d1ck among all men.  Just remember that you don't care what women say anyway, since you spend most of your time cleaning the local Bank of America's toilets, while the branch manager splits you open.

Kind regards,

Moraen

P.S. - I have enclosed the gore-tex liner from my old Army sleeping bag.  If you put it over your cardboard roof, it should keep the rain off.