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What Morningstar’s FeeCheck Tells Us About AUM Fees

By Bob Clark

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Last Monday, Morningstar announced the addition of two tools to its Advisor Workstation: FeeCheck and CommissionCheck. As their names imply, these tools enable advisors to compare the fees or commissions they charge their clients with what other advisors are charging their clients.

They were developed by PriceMetrix, a Toronto-based consultant to both Canadian and U.S. wirehouses and brokerage firms. While I’m not sure that with other forms of additional compensation for both BDs and advisors, the raw commission numbers will be particularly helpful, the idea of comparing AUM fees across the industry is intriguing—provided an apples-to-apples comparison is possible. 

PriceMetrix’s FeeCheck is a cool widget, to be sure. It appears on the WorkStation home page, where, with a click, advisors are taken to a simple table which allows them to input client account size, asset mix (equity versus fixed income), total client assets managed, firm’s total assets, firm revenues, the advisor’s years in the business, and, of course, the fee charged. Then the advisor can choose whether to compare his or her fee with the fees charged by similar advisors in their firm or with the other 20,000 advisors in the PriceMetrix data base. 

The next screen is a simple but very clear horizontal bar graph showing the top, bottom and median fees charged by the advisor group selected, and where this advisor’s fees fall in that range, along with a “recommended” target zone for the advisor’s fee number. My criteria for good graphics is that the viewer can “get it” in a quick glance, without much if any textual explanation. The FeeCheck graph could serve as the example of what a graphic should look like: here’s the fee range, here’s your fee, here’s what you might think about charging. 

Yet as good as this presentation is, the question we need to ask is the same as we should be asking about each of the exploding number of data graphs on the Internet everyday: How good is the underlying data? How well does it support the conclusions reached? 

In this case, PriceMetrix’s 20,000 advisors comprise the brokers at its 100-plus broker/dealer clients. Which means they are virtually all captive brokers or independent registered reps. Moreover, between 20% and 25% are Canadian advisors.

So how good are the FeeCheck comparisons with AdvisorOne readers: dually registered advisors and independent RIAs? Here’s how Pat Kennedy, PriceMetrix’s co-founder and data guru put it to me: “The majority of our database is made up of brokers, but we’ve had the luxury of isolating the independent registered reps as well. Our data shows that while the indies were priced slightly lower on average than the brokers, they still showed an amazing range from high to low, which can be up to 100 bps. That range exists across all channels. In many circumstances, clients get too good a deal. The mission of our firm is to help advisors make better business decisions.” 

Does PriceMetrix really capture the fees charged by the independent advisory channel? I’ll let you be the judge. Here’s the example the PriceMetrix folks used below to show me the FeeCheck tool: 

The fee that our model advisor wanted to charge his clients was 1.85%, on an account with an equal mix of equities and bonds. The fee range for all advisors like him was 0.73% on the low end to 2.49% on the high end. The median was 1.53%, and the advisor’s “fee target zone” was from 1.63% to 2.49%, with a recommended fee of 1.85%

I can see that a tool like FeeCheck could help advisors determine whether they are charging a fair price (which might be especially useful for fiduciary advisors). And it might even help, as the PriceMetrix folks suggest, “clients to feel comfortable with the fee charged.” Which, of course, would be more “useful” the higher the high end of the fee range is. But without data on what independent fiduciary RIAs charge, the result appears to be a pretty skewed view of what “fair” asset management fees are.

Rather than showing that advisors charge too little, I wonder if the real FeeCheck message isn’t that some segments of the “advisory” industry aren’t charging too much. 

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