Prudential Securities has attracted more than a billion dollars in assets in its Advisor account since introducing the new fee program in May 1999. The firm is now getting ready to offer additional versions of Advisor with alternative pricing schemes.
Launched May 13 and offering 24.95 dollar trades as part of a fee-based program, Advisor accounts had assets "closing in on a billion and a half" by late September, says Dennis Drescher, the firm's senior vice president and director of private client services.
About 22 percent is new money--the rest is conversions from existing accounts. The account minimum is 100,000 dollars, but "the average relationship tends to be over half a million," Drescher says.
Al Fierro, a Wilmington, Del., rep who just moved to Prudential in August, says in his first month at the firm he opened six Advisor accounts with assets of 4 million dollars. A quarter was new money, and the rest were assets that had not been generating much revenue under his old commission-based schedule. Clients like the fact that he gets paid for advice, not transactions, he says.
Not all reps are as comfortable with the new account, however. Prudential President and CEO Hardwick Simmons noted that the firm's brokers are concerned about what lower pricing will do to their incomes (see "Reps Face New Compensation Dynamic, Simmons Says," Page 28). The maximum Advisor account fee is 1.5 percent on stocks and funds, half that on bonds, with a 1,200 dollar yearly minimum charge.
Prudential is engaged in what Forrester Research analyst James Punishill calls "proactive destruction--tearing down productive channels, products and organizations to reinvent a company in anticipation of shifting consumer demands." Prudential is not only heavily advertising the account, it's also giving its Advisor clients priority when it comes to the best of its online services.
Since August, Advisor clients have had access to an online listing of upcoming IPOs (see "Pru, Other Firms Putting IPOs Online," Page 30). And while regular commission-based clients with online access get delayed quotes, delayed charting and delayed news from Dow Jones, Advisor clients get real-time quotes, outside research, market commentary and news from Standard & Poors. Plus, they receive Lipper mutual fund analysis and e-mail notification of sector research (which will be expanded to individual companies next year), online financial planning tools, and an 800 number for market strategy calls, according to Murali Balasubramanian, Prudential's first vice president and manager of strategic client initiatives.
At some point, the planning tools might "even possibly go down to the level of recommending individual mutual funds," Balasubramanian says.
But that doesn't mean the broker will be cut out. "We want to emphasize that in Pru Advisor there is an unbundling of advice from information and execution," Balasubramanian says. "You can get all the information and execution you want online, but it's the advice that will be factored in from the financial adviser--that's the whole concept."
As early as the first quarter of next year, Prudential Securities will be offering new versions and features for the Advisor account, with alternative pricing schemes.
Dennis Drescher, the firm's senior vice president and director of private client services, says one option the firm is looking at is a "retainer-based" pricing version, with a fee based on the amount of time a client spends with a financial adviser.
"If a client says, 'What I'd really like to do is to trade with you, and have a certain amount of time during which I can consult with you on a fee basis,' we'll package that," he says.
The possibility of contingency pricing is also being evaluated, Drescher says. The client would pay a "minimal, minimal fee" plus a contingency fee based on the rate of return in the account. "Those are just two among a number of potential styles of business that we're looking into," he says.
It's too soon to speculate on new pricing specifics, but the firm is not considering abolishing the 24.95 dollars a trade charge. Some have speculated Prudential might eliminate the transaction charge, similar to Merrill's Unlimited Advantage account (launched in July 1999), which allows unlimited trading at no charge in exchange for a flat fee (1,500 dollars yearly minimum).
"We feel strongly that if we create a program that's inclusive of trading, the client will simply [calculate] a hypothetical cost per trade," Drescher argues. "So when you package it that way, you're still putting the emphasis on the trades." Prudential's view is that a separate transaction charge differentiates executions, which the client pays for, and advice.
Prudential reps don't get any part of the 24.95 dollars. On the fee portion, brokers receive normal grid payout based on 90 percent of the fee, as they do on most managed products, Drescher says.
Merrill Lynch's newly priced fee account, the Unlimited Advantage, is also proving to be popular with clients, a Merrill insider says. Introduced in July 1999, it is priced at 1 percent or less, with a 1,500 dollars minimum annual fee.
As of late September, the account was pulling in 1.5 billion dollars to 2 billion dollars in assets a week, with about 20 percent being new money. Merrill was due to report specific numbers during the first or second week of October when it releases its next quarterly earnings statement.