I would like to get a feeling for what the average size independent certified financial planner would charge (percent of assets under management) to manage an account on an asset based fee schedule. I know that the fee schedules change with AUM, so could I get some kind of range. Or, perhaps you could direct me to where I can get this information. Thanks.
It's dependent on the particular case, but in general my firm charges:
90-100 bps for under $250k, 75-90 bps from $1M - $250k, 75-35 bps for accounts over $1MKeep in mind that's just for strict asset management (an act in which our office rarely engages). Most of the assets we manage are also accompanied by comprehensive financial plans, life insurance, disability insurance, LTC, annuities, trust establishment, estate planning, etc, etc.... These other facets provide revenues and many planners (us included) will reduce AUM fees to compensate this.
FYI, our investment strategy is low-cost ETF based. Even for the smallest investors we try to keep total fees under 1.5%. I didn't (don't) set the fees, but I also don't think they are unreasonable. Hope this begins to answer your question.
Flycaster, Interested in a sight-casting approach? If so..go here:
Not all firms have their Part II online but the system is gradually transitioning to that so you should be able to find hundreds of them.
There's a big variation in the level of services provided for a given fee, but what you get should be described within each ADV-II.
-Tad
bps? wazzat?
basis points or 1/100 of 1% (i.e. .01%) So 100 bps = 1%
35 bps = .35%"The Fed cut the discount rate 25 basis points or 1/4% today" is what they say.
JOE
Sorry.
100bps = 1.00%
Adam, That's odd...perhaps you happened to hit on a bunch of firms that don't do fee-based asset management - for example that may be done through outside managers or under an affiliated firm name or something like that.
If you do fee-based advisory work, meaning you're registered as an investment adviser, your fees must be disclosed on Schedule F of Form ADV Part II. This is the response to Item 1D on ADV-II, and would be labeled as such. (1D reads: "For each (category of services) describe on Schedule F...applicant's basic fee schedule, how fees are charged and whether its fees are negotiable")
For an example try Evensky & Katz - a pretty well-known advisory firm in Florida, the principal gets quoted a lot in the media. I think they're geared to high net worth clients and their fee schedule reflects that in the fee brackets.
-Tad
I'd like to ask a somewhat related question. If a financial planner wants fees to depend on investment performance, is that allowed? For example could a planner who thought he could choose actively managed funds that outperform the indices set his fee at
0.5% of AUM + 10%*max(portfolio_return - Wilshire_5000_return,0) ?I think I've read that mutual funds, unlike hedge funds, are not allowed to have "asymmetric" performance-based fees. The fee structure above is asymmetric (has optionality for the planner) because of the "max" function.
It can be done, but it requires the advisor to jump through some extra hoops AND the investor has to meet certain requirements. The company that I use for performance fee based accounts requires that the investor have a minimum net worth of at least $1.5M before they are allowed in the performance fee program.
Gene E. Utterback, EA, RFC, ABA
Generally no, under Section 205(a)(1) of the Investment Advisers Act of
1940, which prohibits performance fees based on a share of capital gains. But there are exceptions - the most likely ones for a planner are with a client who meets minimum net worth or assets-under-management requirements. You should find lots on this if you google "fulcrum fee" or "rule 205-3".Performance fees and fulcrum fees are unusual in that setting though. Planners aren't generally trying to beat a single benchmark, that's more likely for an adviser to a mutual fund - which is another one of the exceptions. And if you choose to charge them, compliance is significantly more complicated. The SEC doesn't like them, for reasons that become obvious when you apply a little game-theory.
-Tad
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