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Nearly half of advisors now charge clients to manage held-away assets

Shift in billing protocol solves problems for advisors and the clients

Thursday, February 18, 2010 – 5:19 AM by Brooke Southall
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James Carney: There's little pushback from clients on the idea of fees on held-away assets

Financial advisors are fast discovering a rich new source of revenues, one that was close by all along.

Forty-six percent of financial advisors are now charging clients to oversee assets that they do not have in their custody – including those held in 401(k) plans, 403(b) plans, IRAs and 529 plans, according to ByAllAccounts, a maker of account aggregation software.

For high net worth clients, these “held-away” assets often include assets in private equity, hedge funds, individual trading accounts, trusts, assets held overseas and real estate trusts.

The number of financial advisors billing for held away assets has jumped to the 46% amount from about 10% of advisors as recently as three years ago, according to James Carney, president of ByAllAccounts in Woburn, Mass.

The findings of this study jibe with what Stephanie Bogan, CEO of Quantuvis Consulting, a practice management consulting firm owned by Genworth Financial, has observed.

Align the complexity

“We’ve actually seen a similar increase in our consulting practice,” she says. “For example, one client charges fees on net worth, excluding residential real estate — investment property counted — to align the complexity of the client with the fees charged and value delivered. Instead of charging 1.5% to .75% on a tiered asset schedule, he would charge, say, .20% on all of a client’s assets. Another client charges a wealth management retainer that covers all held-away assets separate from investments. A third client charges fees to manage the retirement accounts of his clients, giving him access to update allocations per an agreement or giving him written recommendations to guide them in doing so.”

Advisors are realizing that they can charge for these assets — and that clients are in fact pleased to have a professional monitoring all their holdings.

Little pushback

“What’s got things going is that clients have very little pushback in paying for it,” Carney says.

Bogan agrees.

“The industry is experimenting as a means to solve a problem” of how to get paid for services that transcend investment management, she says. “My experience has been that clients will accept any or all of [several] strategies. It’s more dependent on the advisor’s confidence and belief in their value than on the client’s willingness to pay.”

Clients are willing in part because most advisors charge .5% or less on held-away assets; this is significantly less than the 1% or more charged by many advisors on assets held in their custody, Carney says.

Improved account aggregation technology also allows an advisor to more easily monitor the held-away assets of clients and provide professional reports, he adds.

Significant fees

The fees that advisors are getting from held-away assets tend to be significant. For example, the average retirement account has $236,000 and the average RIA has about 100 accounts. That completely average advisor could gain $23,600,000 in assets under management and – at a fee of .5% — extra revenues of $118,000.

“It’s very significant,” Carney says.

He adds that the trend has been favorable for his company in terms of selling its account aggregation software. An advisor might pay him a fee of $5,000 and it facilitates the advisor in bringing in $125,000 in held-away fees.

“It’s a no-brainer,” he says.

The ByAllAccounts survey included responses from 500 financial advisors and more than half were independents. Some 88% of them had been in the business for five years or more.

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