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October 04, 2011 at 08:41 AM
In response to my September 27 blog titled “Is Now the Time to Switch From Asset-Based to Flat Fees?,” which described the flaws in the advisor business model using asset-based fees that can fluctuate wildly, Harold Evensky, of Evensky & Katz in Coral Gables, Fla., was kind enough to send me an email explaining his firm’s current position: “Bob, intellectually I believe retainer fees were and remain the appropriate way for us to bill; unfortunately after a few years of unsuccessful attempts we’re back to AUM.”
From what I’ve been able to tell, Harold’s experience is not uncommon for those advisors who attempt to smoothe out their revenues by transitioning to retainer-based fees. “Ben” posted a comment to my blog, offering another viable solution: “It seems to me that either/or is not the answer. A portion of our work is foundational, account administration, reporting, billing, titling, beneficiary, educational and fixed overhead required by both business operations and regulation. It seems to me that these functions might well be supported by a flat fee or retainer. But the business of investment management is one in which the clients seek to have someone truly “invested” in how well they are doing also, the idea that I earn more or less when you do is a way to help develop that relationship. Perhaps a good retainer per client and/or account plus a much lower asset-based fee from which to generate owner return profits for the firm, bonus might be the best model….”
