Warning signs for RIA pricing

At first glance, with RIAs reporting record client growth and healthy gains in AUM and revenue, pricing does not appear to be a major concern.

But appearances may be deceiving. The fact that median fees haven't changed in at least six years — and that advisors say they have no plans for price increases for the next two years — may indeed be troubling, according to TD Ameritrade's 2018 FA Insight Study of Advisory Firms.

What's more, the report shows a 9% decline in median revenue collected on assets since 2015, an indication that RIAs may in fact be discounting from their fee schedule more than they let on.

The study also points out that the lack of upward price movement "may be contributing to record numbers of new clients who may not have considered an advisory firm if fees were higher."

Nonetheless, FA Insights asserts that "the warning signs are strong enough to justify that firm owners monitor pricing more carefully in the months and years ahead."

When it comes to pricing, the study concludes, the big question is whether current levels will be sufficient to sustain profitable growth.

RIAs - average revenue by source TD study 0918
Why do advisory firms continue to bundle the majority of services under a total AUM fee?

"The most predominant [reason] is that it's simple," according to the FA Insight Study. "It's simple for clients to understand and simple for advisors to bill on."
RIAs who charge for planning TD Study 0918
The median fee for firms that charge a separate fee for a financial plan is $2,500, according to the report.
Median fee as percentage of AUM TD Study 0918
Median fees "have not materially changed dating back to at least 2012," FA Insight reports.
RIA price increases TD Study 0918
The most successful firms have been "most prone to hold the line on pricing," the study found.
RIA  expected pricing changes 0918
Advisor's unwillingness to raise prices "may be a warning signal of eroding pricing power," according to the report.
Median revenue on assets 0918.png
Comparing the typical fee schedule with the decline in revenue that is actually generated from assets suggests "significant discounting is taking place," the FA Insight study states.