What To Do When Your AUM Fees Plummet
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What should advisors do when their AUM fees fall? Here are my top five ideas, in order of least to most favorite.
5. Move to flat/retainer fees
Imposing this change upon your clients (for the sake of stabilizing your own revenue at their expense) would be a breach of trust of the first order. Does a flat fee really align with clients’ best interests in a market like this? Is it bad for advisors to feel the pinch in AUM fees when their clients suffer? This is what you meant when you said that your interests are aligned with the client’s. Was it sincere or was it what sounded good for your brochure?
Look at it from the client’s point of view. How happy am I, really, if I’m paying you the same fee you got paid last year while my portfolio is down 35%? If it were me, I’d want to see you squirm a little bit, too.
Moreover, while I love reading articles about how the profession is moving to being planning-based, I don’t see it as reality in the foreseeable future. Look, AUM fees are not going away anytime soon because there is just too much money involved for that to happen. Point blank, period.
No matter how much revenue advisors lose, the ones who have been in business for a long time have already been through bad markets. They know that it’s cyclical, it’ll come back one day, and there is way too much money to be lost by charging a flat fee. They will grind through and hold out for the good times.
What’s so wrong with having investment management be the focus right now? The highest value an advisor provides in a market like this is talking people down from the ledge and preventing them from selling down their positions locking in 35% capital losses. At a time when there is no cash flow, is financial planning more useful than investment management? You don’t even have to take RMDs this year! Can you financially plan your way out of a 40% drawdown? Oh you advise me that I should get an SBA loan for $2MM so my business doesn’t fail? Draw up a financial plan for me on that please, I’ll pin it to my wall so I’m constantly reminded of my new debt! Thanks for telling me now is not the time to put an additional mortgage on my house or take the entire family on a trip to Aruba! I failed to recognize that every major city in the U.S. is in lockdown right now.