Financial advisers are losing an average of $20,000 in fees for not pricing their fee-based businesses competitively enough, according to a new survey from Toronto-based software firm PriceMetrix Inc.
The survey found that assets in fee-based accounts comprise almost 25% of total assets under administration and 37% of total revenue. The area is also growing, with the average adviser’s assets in fee-based accounts having increased 24% from 2007 to 2010.
Despite that growth, advisers are earning less from those fee-based accounts, with the average return on assets falling from 1.47% in 2007 to 1.32% in 2010. The low return on assets comes as individual adviser discount the fees they charge, the survey found, mostly 72% to 79% of scheduled prices. At the same time, the advisers are giving the same size discounts to both large and small accounts.
Advisers are finding the most opportunity to charge more with new accounts, the survey found, while only 5% of advisers raised their prices on existing accounts by more than 10 basis points over a three-year time frame.
PriceMetrix’s survey also found discrepancies in fees between adviser groups, with the top 25% charging average fees of 2.01% and the bottom 25% charging an average of 0.81%.
“When sharing this information with advisers, we get challenged with the assertion that the higher priced advisers must be losing business to lower priced advisers,” PriceMetrix President and Chief Executive Doug Trott said in a statement. “We have found little evidence of this, however, and instead find that clients are willing to pay for a strong value proposition.”
PriceMetrix provides software for North American retail wealth management professionals. The information in the study comes from its database, the company said, which includes 15,000 adviser books, 2.3 million investors and one million fee-based accounts.
— Konish writes for Financial Planning magazine, a SourceMedia publication.
