Your Secret Weapon against Fee Compression
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Before every talk, I ask participants to send me their most pressing concerns. At, or near, the top of every list is “justifying fees.” That concern will grow as technology invades every aspect of the advisory industry. But you have a secret weapon that few advisors will use effectively to respond to this challenge.
Fee compression is real
The prominence of this issue is not surprising. Investors can get an advisor and comprehensive planning from Vanguard (and others) for a fee of only 0.30% of assets. It launched this service only three years ago and already has surpassed $100 billion in assets. I predict Vanguard will lower its advisory fees in the future as it scales up. If it does, expect pressure on your fees to accelerate.
Technology will cause more fee compression
About half of investors in a recent survey thought “most financial services” will be automated within the next 10 years. Automation will include not only areas like onboarding, but financial planning as well. Investing is already commoditized.
There’s talk of a “bionic relationship” between advisors and their clients, where artificial intelligence, machine learning and “connected ecosystems” will be integral parts of the process.
Delivering this new level of service will require a significant and ongoing investment in technology. The question for advisors is: Will clients pay current fees for services that are largely automated and fungible?