Advisor Pricing Transparency: Headed for a Broker Near You

Posted by adaniels in Blog on April 16, 2012

Transparency in advisor pricing is an idea that is expected to grow in popularity, now that Morningstar has announced that it was going to capture commission data and advisers fees in its information about financial advisors. But some are worried that having that information readily available and accessible will lead to advisors having to drop their rates.

James Crosson of Investors Capital Corp. tells InvestmentNews: “It is good for transparency purposes, but with a pricing model that continues to decline, there could be a temptation to say that we charge only 85 basis points, and the rest of the market charges more.” He says that “if competition comes into play, advisers could be at 1% now, and in five years be at three-fourths or half a percent,” indicating that he did not want to see the financial advisory world “going to Wal-Mart territory.”

Morningstar will be using data gathered from PriceMetrix, which tracks such information from retail brokers. The firm has discovered that financial advisors average percentage-based fee went from 1.21% in 2010 to 1.19% in 2011.

But some say that customers are willing to pay more if they get more customer service and advice from their brokers. In addition, some financial advisors are not quite sure how much to charge these days. Nick VanDerSchie of Morningstar says that advisors frequently ask their company for advice on how much to charge. But he says, “We don’t want to make a recommendation on how they should price; we just want to give them data so they can make decisions relative to their value proposition.”

Many financial advisors simply charge 1% of all assets under management, but that may not work for everyone anymore, with adjustments to be made up and down the scale, depending upon how much work the advisors do. 

Written by Lisa Swan


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