Advisers are leaning more towards flat fees as they review their businesses and properly price their services, according to Elixir Consulting’s Sue Viskovic.
In the industry drive to fee-for-service, most businesses are moving down or considering the asset-based fees route, as opposed to a flat fee or fee per hour. However, Viskovic asserted that there were those who felt asset-based fees were the new type of commission, while others were looking more closely at flat fees as a better option for their businesses.
“If you look through the disadvantages of asset-based fees, the problem with them is that they still keep a direct link between the amount of money managed and the cost of advice,” Viskovic said.
She added that while the adviser would agree on a percentage payment with their clients, taking control back from the product provider, there was still the potential that the adviser would consolidate assets within the wrap platform that they chose to use because that was the only way they could administer the fee.
However, Viskovic felt that asset-based fees were still a valid method of charging for an advice model based around investment advice in addition to strategic advice.
Viskovic said with advisers now having the ability to charge a flat fee and quantify the advice, one of the newest payment models is charging a flat fee for advice and an asset-based fee if they manage funds as well.
“If we look at percentages across the board, most would go to asset-based fees because that’s the first, easiest step if you’re going from commissions,” she said. “But we are seeing more advisers really getting their heads around the flat fee option. In the past they may have thought that hypothetically a flat fee may have been the better way to go, and philosophically that would be the better outcome, but they just didn’t know how to come up with that number.”
Viskovic said when they really assess both options, a number of people realised that a flat fee made more sense for their business.
“As a business person, I would say that you’ve got to choose the right option for you.”
Viskovic said an asset-based fee model was only really appropriate for a business that adds real value to investment management.
“They really have good skills in that area and don’t just select a multi-manager approach, for example. Their skills, expertise and competence are worth paying for,” she added.
