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January 22, 2020 at 03:41 PM
How we buy and consume television today looks much different than it did 20 years ago. In the late 1990s and early 2000s, the only way you could access the shows you wanted to watch was through a comprehensive cable television package. Often, those packages included hundreds of channels, even if you watched only a dozen.
And of course, the bloat from having to support all those channels meant that cable TV prices kept going up as well. But in the past decade, cable TV has gone through a major overhaul, with people “cutting the cord” and choosing fewer channels, and a lower price, through streaming television services.
As much as we don’t want to admit it, advisory businesses are in a similar place that cable companies were 20 years ago. Cable companies who decided not to adapt to changing consumer sentiment got left behind.
If advisory fees — and how they are charged — stay the same, will consumers “cut the cord” on advisors, too?
When to Change
The value model for advisors has changed and continues to change rapidly. Adjusting and/or unbundling fees primarily makes sense only when you want:
1. To change a client’s perception of value vs. cost.
This gives advisors an easier introduction to reframing their value away from simply investment management.
2. A revenue stream not correlated to the markets.
After all, you tell clients not to pay attention to the markets, so why is your value to them predicated on market highs and lows?
3. To increase fees to keep up with inflation.
This isn’t possible with AUM fee schedules — no firm will raise its fee from 1% of assets to 1.1% of assets when inflation dictates.
