Morningstar believes there is one area where advisors should not be overly independent: the fees they charge to clients in their practices.
The Chicago-based firm today will introduce FeeCheck and CommissionCheck onto its Advisor Workstation, two programs that let RIAs and other advisors compare their fees with others using a broad range of factors. PriceMetrix, a Toronto-based company that provides technology to brokerage firms, developed the programs using the pricing histories of 20,000 anonymous full-service investment advisors.
PriceMetrix is seeking to fill a service vacuum that opened as many advisors shifted their practices from large brokerage firms to independent firms and began using fee-based approaches for the first time, according to PriceMetrix officials.
“The percentage of fee-based advisors is expected to increase over the next few years,” says Nicholas VanDerSchie, vice president of advisor software for Morningstar. “As that wave of new advisors comes on, they price services differently than they have before.”
When RIAs open the FeeCheck application, they can fill in a range of parameters they can use to benchmark their fees. A typical fee-based advisor undercharges clients by about $20,000 each year, according to a presentation on the PriceMetrix site.
On one screen, advisors can enter the type of product they are discussing with clients, the total amount of assets under management for the client and the amount of assets specific to the fee or managed account. They can also enter the composition of the portfolio, inputting percentages for equities, fixed-income, mutual funds and cash.
Advisors can also generate a comparison based on other advisors within their firm, or the market at large, and even target comparisons by years in the profession and other factors.
Brokers can use the CommissionCheck service, so all business models are covered. The company pulled data from one million fee-based accounts and four million transactional accounts that represented more than $900 million in investment assets. PriceMetrix updates the baseline data monthly to ensure maximum accuracy and relevance, according to Morningstar.
“This has been driven by the need for transparency on the advisor level,” says Greg Durand, vice president of marketing for PriceMetrix. Limited or no knowledge of what other advisors were charging has meant fee schedules even varied by different teams within the same firm, Durand says. Before the launch of tools allowing them to compare pricing, “advisors really had no way to know what other advisors were charging,” he says.
Donna Mitchell writes for Financial Planning.