Six Reasons You’re Charging the Wrong Fees

Bob Veres

Over the past nine months, a growing number of the members of my Inside Information community have asked me to poll advisors on what and how they're charging their clients – a follow-up to an article I wrote for Advisor Perspectives.

The original article found that most advisors are charging less than the market will bear for their services, and suggested that Adam Smith's Invisible Hand was inexplicably missing in action. But it left a lot of important questions unexplored:

  • How much are advisors actually charging their clients? Is there a wide or a narrow spectrum around the fee structures that everybody uses?
  • Is there a trend from AUM-related fee structures toward retainers or hybrid (retainer plus AUM) models? Are hourly fees anywhere in the picture?
  • How are advisors calculating their retainer fees? Based on what?
  • How much are advisors charging (if at all) for their initial planning work? How is that fee determined?

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Bob Veres

Inside Information

To get the answers to these questions and others, I sent out a questionnaire. This was not directed through any formal polling device; it was simply an email with questions (and a few follow ups) to 1,050 Inside Information readers. I did it this way because I was interested in more than just the raw numbers, which is all these formal polls typically provide. I wanted to hear what people had to say about what and how they were charging their clients, what challenges they've faced, how their fee structure has evolved over time, if they've raised their fees recently, and if so, how they communicated this to their clients, and what the response was.

By the middle of May, I had more than 150 responses and 119 different descriptions of fee structures. Many of the responses covered pages of explanations. Out of that material, I created a report entitled Fee Samples, which explored the spectrum of advisory fees in considerable detail, and allowed advisors to compare their fee structures with professional norms, evolving trends and the input of advisors around the country.

The full report, available to members of the Inside Information community, confirmed my initial suspicion: that fee structures may be the least standardized, least logical part of the financial advisory business.

Here are the six biggest oddities that were visible in the report – each of which is a clear sign that advisors are not charging as much as they should. As you read them over, ask yourself if you can think of any other profession to which any of them would apply.

Read more articles by Bob Veres