Advisors are underestimating how much their clients pay them in fees.
A new survey conducted by Peak Advisor Alliance and Cerulli Associates showed that nearly 63% of advisors believe the total amount of fees charged on any given account is less than 1.5% of their investable assets ─ but, in actuality, it’s more than that.
When taking into account all fees, including product and platform fees, administrative fees and the advisor fees, the total is more than 30 basis points higher than what advisors think.
“This stat should alarm every advisor and force them to go back and look at how they are presenting their fee structure to clients,” said Ron Carson, CEO of Carson Wealth Management Group and founder of the Peak Advisor Alliance, in a statement. “As an industry, we must do a better job of simplifying a complex fee structure so clients understand the value they are receiving when they work with a financial advisor.”
According to a 2012 Cerulli Associates survey, 60% of clients do not understand how their financial advisor is charging them.
“It is imperative advisors take the time to have a comprehensive conversation about the fees they are being charged,” Carson said. “What fees are being charged is just as important to understand why the fee is being charged as well. Advisors must be transparent about the fee structure with their clients to help build trust early in the relationship.”
Carson advised transparency when it comes to fee structures.
“If a client doesn’t know or understand the fees they are being charged, they most likely will not ever fully trust their advisor, which can be toxic to the relationship in the long run,” he added.
Paul West, managing director for Peak Advisor Alliance, encouraged advisors to be straightforward instead of playing the guessing game.
“Every fund, every platform has different fees they charge, so why shy away from them?” West asked. “Advisors need to stop short-changing themselves and their clients and embrace the fees so clients better understand what services they are being charged for.”
Check out Fee Transparency: Why Advisors Should Tread Carefully by Bob Clark on ThinkAdvisor.