Thanks to a potent combination of market forces creating strong headwinds for RIAs, firms need to do a much, much better job at structuring their fees.
That's according to the new Fidelity RIA benchmarking study that found that organic growth dropped by 6.7% in 2015, the largest amount in five years, for the 402 firms surveyed between April and June.
"Money is down, growth is down and expenses are up," says David Canter, executive vice president of practice management and consulting for Fidelity Clearing & Custody Solutions. "We don't have a burning platform yet, but we think advisers need to pay attention. … [This] is really a call to action."
Industry consolidation, tightening regulation, disruptive technology such as robo platforms and a failure of the adviser headcount to keep pace with demand all are conspiring to put RIAs in a pinch, the study says.
'DRAW-DOWNS' KICK IN
And there's another new factor: The beginning of decumulation by baby boomers.
As boomers retire, they will increasingly draw down on savings to fuel their retirement and give their assets to the next generation as they pass away.
"Let's face it, many clients are not in accumulation mode," Canter says. "They are in draw-down mode."
Factors that depressed organic growth in 2015, including those contributing to decumulation, according to the study, include: a .8% asset withdrawal rate by departing clients, a .5% drop in new assets from existing clients, a .3% withdrawal rate of assets by existing clients and a 1.3% drop in new assets from new clients.
And this tick down could pick up momentum, the study suggests.
While $1 trillion is expected to Generation X and Y clients annually through 2050, the study says, there's no guarantee firms will keep that money, particularly those that fail to fix their pricing.
THREE PRICING MYTHS
Nearly half of Generation X and Y clients say they would like to work with an adviser if the fees were lower, according to a previous Fidelity study.
To that end advisers need to ask themselves, "Are you really delivering enough value to justify your current and future prices?" Canter asks.
To answer that question, advisers need to examine whether they've fallen for three myths about how they charge clients that are not necessarily true, according to the study:
Myth #1: The pricing model does not need to change.
Given that so much money will be in motion between generations in coming years, pricing models likely will need to be adjusted.
Myth # 2: The model is simple to understand.
While 53% of advisers believe this is true, only 33% of clients in another study agreed with this statement. And, given that there is "almost limitless variation" in pricing models among firms, it can be impossible for clients to make apples-to-apples comparisons between them.
Myth #3: A firm's pricing reflects the value it provides.
This doesn't square with a finding that most firms have not tailored their pricing models to customer segments. And those that bundle all their services into one fee for clients don't provide all of those services to every client.
Given that so much wealth is being dispersed to a new and price sensitive generation, advisers need to figure out how to lower their prices and their investment minimums, Canter says.
At least part of their new target market likely needs to include the member of an emerging demographic: high-earners, not rich yet, he says.
"Advisers really need to start going after those HENRYs," Canter says.
