PriceMetrix has launched a tool for advisors and broker-dealers to help them determine how much commission to charge on equity trades, which is critical given that many advisors tend to undercharge for their work.
The tool, which is being offered at no cost, has been derived from the PriceMetrix proprietary database of equity commissions paid by over 400,000 U.S. investors for 3.2 million full service retail trades from 2008 and 2009. The schedule produces commission amounts based on the actual negotiated rates according to the size of the transactions.
“Our objective was to provide a reference for both financial advisors and investors to have a clear idea about what is reasonable to pay for an equity trade,” said Doug Trott, president and CEO of PriceMetrix. “Discussing commissions with clients has always given [clients] anxiety.”
In launching the new tool, PriceMetrix explained that the full service brokerage commission schedules being utilized today “have a structure based on the NYSE schedule in place in 1975.” Trott said this has created an opaque system that produces inconsistent commissions for trades.
“I hear some advisors say that their company’s schedule is so complicated that they can’t even explain it and they work there,” Trott said. “This commission schedule is easy to communicate and close to what people pay today. It takes some of the mystery out of it.”
Trott said that he encourages reps to describe their service as being “premium,” if that is in fact the kind of service they are offering. The problem, he said, is that many advisors are unable to fully explain to investors exactly what they are providing. This causes many reps to undercharge for their work.
“Advisors tend to undercharge out of fear that an investor will go to someone else with a cheaper price,” Trott said. “This never happens as long as you’re providing good service. But advisors have come up in a sales culture where they’ve been taught to never lose an account so they are afraid of charging more.”
