As a financial planner, should I feel guilty for charging a straight 2% asset management fee on my clients?

Question

What tends to be the industry standard asset-management fee?

Also, I'm struggling with the ethics of the services I'm offering. It seems that a person could walk into any old Edward Jones branch office to get the same advice for substantially smaller fees. Am I correct?

Thank you in advance. Your answers have been a great help to me!

Answer 1

To be honest with you the 2% will probably price you out of the market for all but the poorest clients you can attract and those won't be hugely profitable. You need a sliding scale in order to attract the wealthier client base and to make the profit on the less wealthy. Here is a copy of a sliding scale based fee structure.

Minimum Annual Fee is $1,500

Minimum Assets Under Management (AUM) is $100,000

Tier Applies to AUM Annual Fee

1 $100,000 - 250,000 0.80% of AUM or $1,500, whichever is greater

2 $250,001 - 500,000 Tier 1 maximum fee plus 0.55% of AUM in Tier 2

3 $500,001 - 1,000,000 Tier 2 maximum fee plus 0.25% of AUM in Tier 3

4 $1,000,001 - 1,800,000 Tier 3 maximum fee plus 0.10% of AUM in Tier 4

5 Over $1,800,000 Flat 0.30% of total AUM

The difference between your fee on that 1.8 million dollar account is massive. You would charge $36,000 while this group would charge $5,400. A 1% fee on an account of that size is still way beyond expected fees. A client might just walk out based on your fee structure. I think a bigger issue is your concern about not having any value added service. People are willing to pay for value and as a financial planner you should be helping them in all sorts of ways from investments, to insurance and tax efficient strategies. If you're just plugging your clients into mutual funds then I recommend a change. If you are using loaded funds or annutities then I would really look at fees charged in total.

In summary 1% of assets under management is standard which includes a base amount and a liding scale for larger accounts. Good luck.

Answer 2

If someone walks in your door with $10 million and says put it all in Vanguard Target Retirement 2030 fund, and it takes you 30 minutes to click on their web site and fill out the form, and 5 minutes a month to check up on the fund, then yes 2% is way too much to charge. If someone walks in your door with $100,000, a bad business, a few insurance policies and wants you to set up an estate plan, a will, and invest the cash for current income & they don't know where and it takes you 2 weeks of work to set up everything, then maybe it is not enough for you but it will seem like too much to them. Maybe charge by the hour so your poorer clients don't feel fleeced. Once you are established, and the "country club set" comes in with complicated plan requests, then charge a percentage.

Answer 3

Maybe so, I've noticed that 1% seems the norm.

It's hard to say if you can do better than Edwards. Sometimes advice that turns out to be good is just good luck.
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