New Developments Imperil Your AUM Fee Model

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My articles (available here and here) in which I questioned the viability of the AUM fee model generated spirited discussion on APViewpoint. Views ranged from an impassioned defense to relief that someone had dealt with an issue long overdue for discussion. Some recent publications from SEI, Fidelity and Schwab highlight the urgency with which advisors must confront the fiduciary aspects of the fee model they use.

The conflicts issue

I was surprised that no one addressed a critical issue raised in my initial article on this subject: the potential conflict of interest facing advisory firms who charge an AUM-based fee and provide both investment and financial planning advice. I noted the views of Knut A. Rostad, president of the Institute for the Fiduciary Standard, who believes that firms must disclose that conflict. Fiduciaries who extol the value of working with a firm that is conflict-free must address this issue.

Since the publication of my articles, there have been some developments that shed light on the future of the AUM-based fee model.