The president of Orion Advisor Services mined the fee information of the 1,000 RIAs who use his software

December 23, 2016 — 7:25 PM UTC by Brooke Southall

16 Comments

Brooke's Note: My advice when you go Christmas shopping is to become blind to the price tags. The process is too vexatious as it is without bringing in that irksome variable. But the days when I might advise an RIA to go willfully blind into a pricing decision of how and what to charge are nearing their end. The good news is that new information and thinking are brewing. Fidelity shook the keg on this pricing issue last week, with DOL pricing accountability and robo price-chopping front of mind. Now Orion is making a noteworthy move in this regard by mining pricing data. What it's coming down to is that RIAs can't have it both ways. They love asset-based fees for convenience and advice pay raises tied to the stock market. But RIAs hate that their 100-basis-point fees on managed assets are getting, consciously or unconsciously, compared to Schwab's 28 basis points on managed assets. The consumer can hardly be faulted for tying value proposition to the place where the fees and service connect on the grid -- at the assets! Orion's initial contribution will be to determine what RIAs are charging in the first place and make it easy to compare. Next RIAs will need to explain what they do without using Orwell's dictionary of five-syllable words and other fine jargon.

To the two questions about fees RIAs are perplexed about -- How much to charge and how to explain to clients what they are getting -- Eric Clarke would like to add a third question:

What the heck is everyone else charging?

The president of Orion Advisor Services LLC is launching a database that will allow, for free, the 1,000 customers of his performance reporting software to know what the other 999 are charging quantitatively and qualitatively.

"When a clients says: I think I'm being charged an unreasonable amount, he or she can show them a benchmark charged by peers," he says from Omaha, Neb. "It puts a sense of reality back into the conversation."

To keep it real, Orion combed through the 1,000 ADVs of its 1,000 clients where those fees are publicly disclosed -- typically in the ADV II, which is also known as the brochure.

Davis Janowski, senior researcher for Forrester Research in New York, like the concept. "It's a good start," he says.

Apple mode

The data-mining effort yields not only the fees but attaches them to the level of services advertised to give those fees a context. That context includes the type of firm --  asset manager, financial planner, TAMP etc. It also spells out the size of the accounts managed and the types of accounts managed -- namely retirement or not.

Still, that parsing will remain challenging and require big efforts to create useful comparison, says Janowski, who formerly worked for FeeX, adds. FeeX is an online start-up geared to helping investors understand fees. It has also rolled out an offering for advisors to give them a broader perspective on what advisors and stockbrokers charge.

"I don't know how easy it's going to be for Orion to keep it apples to apples," he says. "it'll take a while to sort out."

The Orion pricing effort was prompted largely by the demands implied by the new Department of Labor Rule.

One thing the Orion database will lack for in its initial release is the all-in cost of the portfolio for investors once the underlying asset management fees are added in. These fees from mutual funds, SMAs and other products can easily double the investor's total spend on fees.

Clarke says he hopes to have a database of all-in fees. Because his clients' accounts are administered on Orion software, the holding are at his fingertips. 

Orion will now undertake to cross-reference those products with public databases of the fees that are charged by them. That effort is expected to wrap up in May.

Portfolio management myth

Though Clarke expects that the data will prove a boon to advisors looking to put a little data science behind the way they make such an all-important business decision as pricing, he allows that it doesn't solve for a broader pricing issue -- namely the way pricing is structured.

The problem with the pricing of most RIAs is that fees are applied to managed assets, which implies that the fees being charged are primarily related to that portfolio management. "The perception is that they're being charged for investment management. That's not really the case," he says.

Indeed, many advisors oversee far more wealth than what exists in the managed portfolio and advise on financial planning, estate planning and other matters unrelated to the purchase and sale of securities.

The problem, of course, is that nobody has really invented a more practically effective way to charge that helps the advisor grow with their clients and makes it easy for advisors to get paid. Most RIAs simply vacuum the fee out of the managed assets quarterly without so much as a bill sent.

If DOL doesn't, market will

But DOL and robo-necessity is the mother of invention.

If DOL doesn't demand pricing that is more connected to value then the market will. A typical RIA takes 1% and many of the national advisor efforts, namely Vanguard and Schwab, are coming in with fees 70% lower.  RIAs are going to have to explain the massive 200%+ premium that they to charge.

Fidelity Investments issued a warning to that effect last week when it showed a drop to a multi-year net new asset growth to 6.7% at its 3,000 RIAs and named pricing as the prime culprit. Fidelity warns on the fees RIAs charge as growth of their practices falter yet lower prices aren't the answer

In other words, RIAs are failing to explain the inexplicable -- how that fat 1% asset-based fee is paying the freight for grander oversight and advice related to all that the client considers his or her  "wealth." 

Getting ahead of the fee issue before it becomes dire behooves advisors, according to Janowski.

"Somebody's going to come up with a Tinder for matching you up with an advisor and price is  going to be a big part of that."



Share your thoughts and opinions with the author or other readers.

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Stephen Winks said:

December 23, 2016 — 11:31 PM UTC

Wall Street for decades has fought fiduciary duty and its associated prudent process (asset/liability study, investment policy, portfolio construction, performance monitor, authenticated back to statute) yet today it is becoming essential to document the specific value added derived from each of those financial services. As he truth about financial services and the value they add becomes more transparent, RIAs who actually do the work and the value they add will win massive market share. Lower cost, high value added advisory services will trump high cost, low value added transactions (with no ongoing accountability) every time. B/ds that do not support professional standing in advisory services which put financial services back into the financial services business will have difficulty in remaining relevant as the best interests of the consumer always prevails in a free market. Bravo Orion, their client's gain a material competitive edge ! SCW
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Grant Barger said:

December 25, 2016 — 12:35 AM UTC

The digitalage of transparency is currently allowing all advisers the opportunity to establish their own benchmarks for the standards of services they provide. It matters not what thousands of other advisors offer, each individual advisor is responsible for his or her own standard of service. There are far too many variables to quantify the intangibles that are offered by individual advisors in an across-the-board fashion. To allow the industry, your clients, your firm or a vendor to define your authentic relevant value is to throw away the greatest opportunity financial advisors have ever had in the history of financial services to demonstrate in a tangible fashion the value that they are offering their ideal clients.
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Stephen Winks said:

December 25, 2016 — 5:19 AM UTC

Grant, Very specific fiduciary duties documented by statute establish a minimum standard of care for those who render advice in a fiduciary capacity. It really doesn't matter what a broker does if there are not acting as fiduciaries. But if they are acting in a fiduciary capacity and establish professional standing it matters a great deal not only the specific financial services they offer but how good they are at adding value in the execution of those services. This is where broker/dealers absolutely assure their brokers can not achieve professional standing and how RIAs can win accounts at will. Talk to any advisor that has achieved scale in advisory services, there is no contest in winning business from brokers. It is just a matter of delineating the financial services they render and the specific value added derived from those services. If you strat with the fact that 40% of the earnings derived from retirement savings are lost to brokerage fees, commissions and administrative cost and brokers have no ongoing accountability for the investment and administrative values they must address and manage in the client's best interest, there are at least 30 ways RIAs can add value to which brokers can not respond. This is why it is in the enlightened best interest for b/ds to support expert fiduciary counsel. If they don't all the better for RIAs. The more granular the definition of financial services the worse the broker/dealer support looks. As you know financial planning is an entirely different discipline than fiduciary duty. Thus how one defines prudent process, authenticated back to statute to assure professional standing, is a very big deal. Orion is on the cusp of facilitating expert standing in advisory services baced on objective, nonnegotiable fiduciary criteria. Yes rgere is room for improvement, but when firms start competing at this level, everyone wins. SCW
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Grant Barger said:

December 25, 2016 — 8:43 AM UTC

When the Advisor allows any entity besides himself or herself to define his or her value they become replaceable by that entity. This very moment in time is the single greatest opportunity Advisors have ever had to own the perception of their value. Minimal industry standards ( regardless of how critical ) are not what the Advisor in the future will hang his or her reputation on. Advisors must own the words that define their Alpha or risk extinction. The firm, the industry, the vendors and the clients will all survive, but the Advisor will become commoditized out of business if they choose to allow there authentic relevant value to become a comparison in an industry generated benchmark for "Advisor value." Autonomy is the answer to the issues Advisors are currently facing... Issues the industry has created. #TangibleAlpha
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FAA said:

December 25, 2016 — 3:12 PM UTC

For whatever this is worth... 1)to me the real issue is for fees to be fully disclosed- not just how much is being charged but for what, to whom, why and how those fees are disclosed or not. That seemingly has not been the case in the suitability world (brokers) and based on my observation is at best hit or miss in the RIA space (hybrids, platform fees not disclosed, scrapes etc.) 2) Comparisons can be helpful (this has been in place for years in the fiduciary world- TUCS Trust Universe Comparison Service was formed in the 80's). The troubling elements in this case is that there is no homogeneous manner in which fees are disclosed. So, while this might be well intended- I would imagine it will be abused until or unless disclosure standards are established.
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Stephen Winks said:

December 25, 2016 — 9:26 PM UTC

The problem is aspirational self assessment is interpreted as one actually acting in a fiduciary capacity. Chaos results and no one is served well, especially the consumer. Thus, prudent process and associated financial services authenticated back to objective, non-negotiable fiduciary criteria are critical to professional standing in rendering advice. We are informed by statute the expectations of advisors when acting on behalf of investors. To ignore statutory duty and professional standing of advisors is the chaos we have today. everyone thinks they are fiduciaries whether based on merit or not. SCW
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Grant Barger said:

December 26, 2016 — 6:18 AM UTC

FAA- You are correct about transparency (IMO) it's not about fee disclosure... it's about why you are worth your disclosed fees. Which is why advisors must own the words that define their authentic value... their advisor alpha. Advisors can't rely on industry standards to guarantee their sustainability. As for SCW, I'd love to subscribe to your line of reasoning but I'm going to need to see some sort of benchmark from the industry that substantiates your wisdom.
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FAA said:

December 26, 2016 — 2:15 PM UTC

Grant- IMO the only way for a client to decide whether you are worth your fee is to fully disclose it. Again- not just how much, but for what, to whom, why etc. In my observation many, not all, RIAs still have that broker hidden ball DNA...in part more concerned with what shows up on the statement. I agree the advisor needs to own their value proposition- demonstrate it, document it, defend it. But without transparency regarding fees- how can anyone decide if the fee is worth it? This and other forms of transparency have been tenants in the fiduciary world since ERISA and I am afraid many, not all, advisors will try to circumvent disclosure in their (advisor) best interest- not the client's.
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Grant Barger said:

January 27, 2017 — 7:55 AM UTC

When advisors allow their value to be defined and measured by the industry they become replaceable by the industry. We cannot police advisors into becoming stewards of wealth. My offer still stands, if you can show me in the industry created index that substantiates your unique wisdom and the value that you offer your clients I will gladly adhere to those standards. Not in general but your specific authentic value SCW The de facto industry created fiduciary standard is a great place to start for minimum requirements. But advisors cannot afford to be defined or measured by standards created by anyone or anything other than themselves. The advisor in the future will thrive with autonomy... not industry created value indexes.
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Stephen Winks said:

January 27, 2017 — 5:21 PM UTC

Grant, The ability of the advisor to render counsel is presently constrained by the industry's inability to support prudent expert standing. ( trade execution as a cost enter rather than a profit center, etc.). If there is no institutionalized support of fiduciary guty, fiduciary standing is not possible. There is a massive gap between transactions and advice. Thus aspirational self assessment of one's good intentions is of no value if not based in fact. How good one is in rendering advice, first requires one to render advice which duties is defined.by statute and is presently not supported by the industry (SIFMA/FSI) or regulators (SEC/FINRA). The solution is indeed advisors unifying behind a prudent expert fiduciary standard based on objective, non-negotiable fiduciary criteria of statute, case law and regulatory opinion letters--not personal opinion. SCW
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Grant Barger said:

January 28, 2017 — 1:24 AM UTC

I agree with the theory and I'm not questioning the ethos... The advisor can't survive in a world were their value is defined by the industry alone. This is a business based on opinion... that's where advice comes from... if there were one way to do it there would be no need for prudent counsel. I would suggest that the ability of the advisor to render counsel is presently constrained by industry rhetoric. The massive gap I see is between portfolio value and advisor value. The aspirational quantification of advisor value through past performance of portfolio performance has no value based on fact. How good one is at rendering advice has little to do with statute and everything to do with perception. Handicapping the good guys is not the way to get rid of the bad guys. The issue isn't the minimal fiduciary standard... the issue is how advisors are going to differentiate themselves to take care of their ideal clients without getting squeezed out by the industry. This is my opinion... which,again, is what this business is all about. When you are able to find that industry created benchmark that quantifies your authentic relevant value just let me know... I'll be the second one on board. Thanks for your open and honest feedback, SCW your valor is never in question.
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Stephen Winks said:

January 28, 2017 — 5:45 PM UTC

Grant, If everyone were acting in a fiduciary capacity, differentiation would not be possible, the problem is very few advisors are thus the differentiation. Thus, the point is fiduciary status in and of itself is differentiating as it establishes professional standing in advisory services. When we get to the point where it is not differentiating we have a profession like medical doctors, accounting, etc. SCW
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Grant Barger said:

January 28, 2017 — 6:12 PM UTC

SCW, respectfully disagree with every single word in your last comment.
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Stephen Winks said:

January 28, 2017 — 10:56 PM UTC

Perception is not reality, especially when it comes to fiduciary duty. SCW
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Grant Barger said:

January 29, 2017 — 5:55 PM UTC

I'll tell you a little bit about my perception of reality… When advisors allow their value to be defined by a product of the industry, they become replaceable by the industry. It is my opinion that advisors can own the perception of their value. My purpose is to help advisors remain relevant and become irreplaceable. Which is why I publish my opinions (in the form of comments sometimes) my agenda is completely transparent. As is everyone's, whether they realize it or not. I am not a product of the industry. Just google me. Who should advisors listen to when it comes to their livelihood? A product of the industry? An advocate of products of the industry? I help advisors filter through digital noise like the concept in this article (and the comments) while products of the industry continue to add to the noise (like some of these comments). A major pitfall for advisors is getting caught in this trap of digital noise… When I comment, they know whose side I'm on. For the readers of this article who wish to escape the agenda of the industry and its products… all they have to do is use google to discover more… from their smartphone… 24/7 That's all investors have to do to replace advisors... especially advisors who allow products of the industry to define their value. That's my perception. Is it reality?
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Stephen Winks said:

January 30, 2017 — 4:52 PM UTC

Grant, We have much in common, and in many respects agree, except to the current state of the industry. I believe the new fiduciary rule and its opposition exposes the significant differences between transactions with no ongoing accountability and advisory services and significant ongoing accountability for recommendations. There is no one US brokerage firm which is accountable for every recommendation each of their brokers has ever made., thus establishing the value of the advisor. Our top fiduciaries like CALPERS thirty years ago started treating trade execution as a cost center to be minimized in the plan participants best interest, yet over the same time frame, former industry trade groups (NASD, SIA) now FINRA and SIFMA oppose fiduciary duty with the result that 40% of the investors earnings on their retirement savings to brokerage fees, commissions, and administrative cost. This is why the fiduciary argument is so important to investors and top advisors. The industry has failed the investing public and places the credibility of advisors working within a brokerage format in a untenable position. Hopefully we agree there is a great hunger among brokers for large scale institutionalized support for the best interests of the investing public as required by statute and exhibited at the high end of the market. SCW

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