Fees
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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.
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.
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.
SMA account, no expense ratio or ticket charges, 2% to the firm 1.25% to the manager
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[quote=Bluetang]SMA account, no expense ratio or ticket charges, 2% to the firm 1.25% to the manager[/quote]
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.[quote=Bluetang]SMA account, no expense ratio or ticket charges, 2% to the firm 1.25% to the manager[/quote]
Are you sure 1.25% goes to the manager? That would be way over market rates for SMA equity manager fees.
[quote=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 [/quote] 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 advisorWhile 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?
Yes 1.25% to the manager is correct and worth every penny. [/quote][quote=Morphius] [quote=Bluetang]SMA account, no expense ratio or ticket charges, 2% to the firm 1.25% to the manager[/quote]
Are you sure 1.25% goes to the manager? That would be way over market rates for SMA equity manager fees.
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?
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.
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.
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.[quote=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.
[/quote] 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.[quote=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.[/quote] 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.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 …
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.
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.
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.
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****.