Advisors’ fear of losing clients when raising fees appears to be unwarranted, according to a new SEI Advisor Network report.
SEI asked 539 U.S. affluent investors what they would do if they felt they were paying too much for advisory fees.
SEI defines “U.S. affluent household” to include the mass affluent (households with $250,000 to $999,000 in investable assets) and the high net worth (households with at least $1 million in investable assets). Of the overall affluent sampling, 211 were mass affluent and 328 were HNW.
Among the mass affluent investors, 22% said they would not say or do anything and would stay with their advisor. The same was said of 16% of the high net worth investors. According to the survey, 27% of the mass affluent investors (and 27% of the HNW investors) said they would ask their advisor for a reduction in fees and would stay even if they said no. Meanwhile, 30% of the mass affluent investors (and 27% of the HNW investors) said they would ask their advisor for a reduction in fees and, if granted, they would stay.
A separate SEI survey of 775 financial advisors also found similar findings with those of the consumer attitudes.
“The vast majority of advisors report that their fear of losing clients when they jumped to an AUM model was unfounded; they were able to retain 90% of all clients,” the report says.
According to SEI, less than 10% of clients sought another advisor or moved to a web-based advice solution.
SEI’s survey of consumers also examined how investors compensate their financial advisor and found a number of consumers were uninformed.
Participants were asked, “how does your advisor get paid?”
While 24% said “I am not sure how my provider is compensated,” another 14% said “I do not compensate my provider.”
SEI says this 38% of mass affluent consumers are “either wrong or confused.”
Not all investors are confused about their advisor’s fee structure. The survey finds that nearly 3 in 10 investors indicate they pay their advisor each time a transaction is made. Another 3 in 10 investors say they pay their provider a percentage fee based on their level of assets.
A smaller number of households indicate that they pay a retainer (6%) or an hourly fee (3%), according to the survey.
The survey also found new trends emerging in the online advice arena – with investors managing more of their finances on their own with online tools.
“As innovative tools become available and existing ones become more accessible and relevant to their needs, it appears Gen Yers are likely to manage more of their finances on their own,” the report states.
According to the survey, 64% of Gen Y investors said they manage more of their finances on their own given the “proliferation of online tools.”
This trend is less prominent among older investors, the survey finds. According to the survey, 32% of Gen Xers manage their own finances with online tools, and 22% of seniors said the same.
It’s “clear that the age of investors affects how they view online tools,” the report states.
When asked “whether or not they believe online advice tools compete with their financial advisor,” the younger the investor the more likely they were to agree.
According to the survey, 55% of Gen Y investors agreed that online tools were a direct competitor to their human advisor – compared with 30% of Gen X and 6% of seniors.
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