Asset management fees are coming down as lower-cost passive investments take center stage and calls for radical transparency in fee disclosure get louder.
This means change is coming to the wealth management arena as well, say industry experts.
How this plays out for individual advisors will depend on their technology platforms and, according to Shirl Penney, CEO of Dynasty Financial Partners , on their ability to articulate value and offer distinct services under clear pricing policies.
New York-based Dynasty provides a la carte infrastructure support and related services to about 40 RIAs.
For Penney, the fact of “fee pressure and the fear of margin compression” among wealth managers is “undeniable” as “the rate of innovation” in technology “and client awareness” about fees accelerates. “This will change clients’ perceptions and needs over time as well as what they will pay for various services.”
So far, Penney says advisors in his “network haven’t had to significantly lower their advisory fees — but it is something we are discussing at our network events and monitoring.”
Penney figures declining fees aren’t putting much pressure on Dynasty’s affiliates because they’re mostly “focused on the high-net-worth market” and “providing broad-based wealth management services to clients, not just asset management services.”
This focus takes the onus off asset management and puts it on financial planning, family wealth services, digital access and other services, he adds. “As a result, they have been able to maintain their pricing discipline and perhaps feel less pressure than others that provide only asset management or brokerage services.”
Still, Penney says he and his colleagues take the view that “change is constant in this industry and the best-run firms are the ones that will win.”
With this in mind, Dynasty encourages the firms it supports to be proactive about fee pressure by developing “very clear service-level agreements with clients so that their clients know clearly what they are paying for and advisors know clearly what needs to be delivered,” according to Penney.
In this business model, “If a client wants to pay 50 basis points just for asset management advice, or 75 basis points for comprehensive family-wealth planning, that’s great,” says Penney. Defining deliverables in this fashion “allows advisors to be efficient in delivery, which helps with their margins.”
One view of how fee pressure will affect wealth managers is that bank-owned brokerages might be a beneficiary , at least in the short run.
In this view, FAs at these national wealth firms will think twice about breaking away…