Nearly two-thirds of RIAs are offering fee discounts, according to the 2017 Fidelity RIA Benchmarking Study. But, it goes on to caution, there are good and bad reasons for advisors to cut their stated price.
The not-so-good motives to discount fees: A weak value proposition and pricing that needs more discipline and consistency.
How discounting can be beneficial: "It can be a bridge to unbundled fee structures," says David Canter, head of the RIA segment for Fidelity Clearing & Custody Solutions, "which may help to attract fee-sensitive clients, align services with value and protect against the commoditization of investment management ."
Indeed, RIAs, especially those with AUM over $250 million, have begun to unbundle fee structures for a number of offerings, the study found. Retirement planning, insurance planning and trust services were the services unbundled the most last year, according to the study, followed by investment management, estate planning and tax planning.
Canter compares the discounting and unbundling trends for mid- and larger-size RIAs to a "slowly melting ice cube. Firms are maintaining profitability, but at the same time fees are slowly being compressed and expenses are slowly creeping up."
As a result, he says, firms are increasingly recognizing the need for scale and innovations such as digital solutions.
One-third of RIAs surveyed are looking to implement a digital offering in the next 18 months, the study found, while 41% of advisory firms are considering or already using one.
Canter says he is "surprised by how low those percentages are, considering the importance of digital offerings."
The experience of robo-advice has thoroughly demonstrated how "really compelling digital is as a user-centric solution that makes tasks like account openings, portfolio modifications and risk assessment much easier and faster," Canter says.
Fidelity began offering its own digital suite of services, AMP (Automated Managed Platform), co-developed with eMoney Advisor, this fall. It plans to accelerate the roll-out this year.
"Advisors are going to have to realize that in the future we are all going to be held to the Amazon standard that best service is seamless and intuitive," Canter says.
For the present, advisors continue to enjoy boom times.
RIA productivity remains at record highs, with assets under management per client holding steady for the past three years (2013-2016) at $1.1 million. AUM per advisor is up 11%, to $80 million in 2016 from $72 million the year before and clients per advisor also jumped 11%, to 71 last year from 64 in 2015.
Looking ahead, RIAs are focusing on marketing and business development, strategic business planning and investing in new or existing technology, the study found. Implementing a client segmentation strategy became a top priority this year, the study found, and is likely to continue, according to Canter.
Advisors should also educate themselves about crypto-currencies in 2018, Canter says.
The bitcoin phenomenon is "not going away," he says. "It's here to stay."
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