Category Archives: Fee Structure

Around the RIA Web with Adhesion, June 2016

A few great reads from the month of June, highlighting some of the key conversations we’re having with advisors. Growth, technology, investment design, outsourcing, recruiting, compliance…all are key discussion points for RIA firms and we share the following for your own discussions:

Wealth Management writes that the SEC proposal on succession planning is officially out, requiring RIAs to explicitly adopt and implement business continuity and transition plans. For those who have yet to adopt formal policies, the cost of implementation may be substantial and accelerate the trend towards multi-advisor platforms.

The clear trend in ETFs is towards lower fees, but massive amounts of money still reside in higher-fee counterparts. As shown by, the march will continue at its own pace with RIAs and ETF strategists the typical early adopters of lower-fee products.

EVERYONE is in the market to buy existing advisory firms. Michael Kitces shares some ideas on (too?) popular ways to find opportunities, as well some less-traveled paths and key considerations in an acquisition.

Common theme for successful outsourcing…find a strategic partner not just a product vendor. How two advisors leverage healthy relationships, via Financial Planning magazine.

The standard 60/40 portfolio has been a tough benchmark in recent years, but basic math says that will be a tough act to follow. Illustrations from EconomPic and Charles Sizemore reveal a need to blend in some alternatives going forward.

Happy clients generally means happy advisors. Julie Littlechild suggests some steps for a manageable 7 week bootcamp to deeper client engagement.

Servicing clients of all sizes is a constant battle between the hearts and minds of advisors. There is no doubt that the DOL rule will force firms to reconsider how and whether they service smaller accounts. Our clients have been on this issue long before the DOL ruling, prompting ETF Select to be included as a new investment option for Adhesion client firms.

Retail investors are often mocked as “dumb money”, but behavioral biases are just as likely to impact those human beings known as advisors. Abnormal Returns shares thoughts on how hindsight bias can creep into all of us, and how the habit of writing can be an outlet for clear planning. Michael Batnick does his part to write about hindsight bias as well, and how some market truths are merely traps.

Reverse churning is a serious issue, and Blaine Aikin thinks the new DOL fiduciary rule puts more bite into the ability for regulators to demand more documentation from firms transitioning IRAs.

As Ben Carlson shares, what a firm DOES NOT do can reveal just as much as what they do. This negative knowledge can act as a worthy qualitative filter in assessing investment managers. Pair that with this riff from Tom Brakke on man vs. machines and you’re ahead of most highly-paid investment committees.

In this world of more sophisticated number crunching, let’s not forget that market “risk” is not truly quantifiable. It is not those with the best formulas who deliver the best plans, but Phil Edwards of Mercer suggests an open and imaginative mind towards the uncertainty of the future.

Client acquisition is a real but hard-to-quantify cost for advisors. Michael Kitces had two comprehensive articles on low-cost and high-cost ways to grow one’s client base.

The active vs. passive debate is never-ending but thoughtful advisors can look with an objective lens at the merits of both sides. As Nir Kaissar shows, the S&P 500 as it currently stands is currently structured as a bet on high valuation-stocks.

There is constant competition for the attention of affluent investors. Are there aspects of your practice that are highly unique to your firm? Matt Oechsli shares 13 true differentiators for financial advisors.

No such thing as a perfect portfolio but a core/satellite approach can provide an ideal mix of cost, reward/risk, and client behavior. Deborah Fox shares some thoughts on logical blends.

Interesting insights from the Schwab Independent Advisor Outlook Study into the way different RIA firms see their business changing over the next few years.

Adhesion continues to work behind the scenes in helping advisors grow, with new options allowing the integration of Outsourced CIO implementation via Mercer and robo technology via Riskalyze. We welcome your feedback at, and encourage you to subscribe on the upper right of this page to receive our regular blog updates.

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Around the RIA Web with Adhesion, May 2016

A few great reads from the month of May, highlighting some of the key conversations we’re having with advisors. Growth, technology, investment design, outsourcing, recruiting, compliance…all are key discussion points for RIA firms and we share the following for your own discussions:

How does an RIA differentiate in a world full of “advisors”. By casting a tighter net, NOT a wider one. A must read from Michael Kitces on connecting with one prospect vs. trying to appeal to all of them.

We all want to embrace technology in the name of “efficiency”. Smart adopters take the time to think through the larger opportunity of better allocation of resources, and the right path to getting there. HarvardBiz with a great article on the flexibility, new learning opportunities, and advancement prospects that are possible with the right human/tech combo.

Banking on expected returns carries its own risks, but the danger gets magnified when future liabilities force inappropriate investment choices. The Thought Factory eloquently explains this risk, and Ben Carlson further clarifies what can happen when aggressive assumptions take the place of hard choices.

Adding to the risks highlighted above, how can future return assumptions remain so high after an unprecedented period of fixed income returns? Wes Gray shows the historically high returns in the recent past, while Brian Portnoy highlights the risks of plugging into cheap fixed income ETFs after a multi-decade bull market.

Speaking of risk, what is it? Risk can explained in a number of ways, depending on which pundit or academic is speaking. David Merkel shares a few ideas about properly defining risk, relevant to most clients of advisors.

Josh Brown makes a compelling case for rejecting clients who want it their way. In other words, suggestions are not as valuable as advice, and neither party benefits from this type of “customized” solution. Might be a good way to get out in front of the too many clients problem.

Formal schooling is just the ante for a career in financial services. Real client-facing experience is a must in learning to deal with demanding and anxious customers on a frequent basis, as shared by Lawrence Hamtil.

Factor funds are all the rage but are not created equal. As shown by Jack Vogel, the number of holdings, weight of those holdings, and reconstitution of those holdings varies and can lead to dramatically different outcomes.

It’s always good to hear how industry peers think about running their business. A few observations in Financial Planning on enhancing the human aspects of fee-based, fiduciary advice.

Adhesion continues to work behind the scenes in helping advisors grow, with new options allowing the integration of Outsourced CIO implementation via Mercer and robo technology via Riskalyze. We welcome your feedback at, and encourage you to subscribe on the upper right of this page to receive our regular blog updates.

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Around the RIA Web with Adhesion, April 2016

A few great reads from the month of April, highlighting some of the key conversations we’re having with advisors. Growth, technology, investment design, outsourcing, recruiting, compliance…all are key discussion points for RIA firms and we share the following for your own discussions:

Tim Harford on the compromise effect and the paradox of choice, relevant for how advisors choose investments and their clients choose an advisor.

Michael Kitces uses the context of diet and exercise to show how advisors can use small financial planning goals to help clients on a successful long-term journey. More excellence from Michael on the evolving skill set of the modern advisor.

Ben Carlson on building failure into your process, so important in developing robust investment plans. This pairs well with his post on the dual mandate of an investment advisor, that the best plan for a client is one that survives the real world.

Tom Brakke states well the obvious flaw in starting manager research with a performance screen, and Corey Hoffstein shares the additional problems with using 3 years as a lookback period. The team at GestaltU covers the perils of past performance quite well in this excerpt from its new book.

A great advisor views his/her role as one of deep relationships, personal advice, and ongoing coaching through the journey. Awesomeness from Josh Brown on The Job Security of a Great Advisor.

Our advisor clients tend to embrace the flexibility of an open-architecture platform, again demonstrated in our approach to “robo”.  Some providers have chosen a more bundled approach to advisor solutions, later requiring a messy divorce in trying to replace any specific component.

Are you marketing to a niche market, or truly serving one? Julie Littlechild neatly explains the difference.

When it comes to data, more is not always better. As Tadas Viskanta explains, comparing different eras is hard and in investing can be downright dangerous.

Josh Brown on how bad active management is being taking to task. Jake at EconomPic shows when good active management can be worth the cost. Patrick O’Shaughnessy rounds out this topic with a wonderful illustration of the difference between seeking alpha and seeking assets.

Speaking of expensive active management, ThinkAdvisor reports that the SEC is prepping a 2016 initiative on 12b-1 fees, a hidden cost of mutual funds that gets disclosed but rarely discussed.

One trend sure to continue with the new regulations is mergers and acquisitions of RIA firms. Investment News summarizes this trend, and shares good ideas on items to consider in any potential arrangements.

Speaking of new regulations, some solid advice from Russell Investments on creating, documenting, and reviewing best practices for healthy client relationships.

The consummate guide to the DOL ruling from Michael Kitces, incredibly thoughtful and no stone unturned.

JP Morgan puts out a wonderful Guide to the Markets every spring, with all kinds of fun and informative graphics.

Adhesion continues to work behind the scenes in helping advisors grow, with new options allowing the integration of Outsourced CIO implementation via Mercer and robo technology via Riskalyze. We welcome your feedback at, and encourage you to subscribe on the upper right of this page to receive our regular blog updates.

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For RIAs Practicing Wealth Management, Raising Fees Still Makes Sense

Most people accept the axiom that “we get what we pay for.”  So it makes sense that the higher end of the RIA market can still support a raise in fees.  While the old model of focusing on investment returns is vulnerable to fee pressure, advisors offering a broader array of personalized services still have some room to breathe.  In fact, for advisors who work with affluent clients, it might be a good to initiate a fee raise.  Here’s why.  Advisors whose fees come across as too much of a bargain risk being lumped in with robo-advisors.  No one expects to get top-shelf services while paying cut-rate prices.  The key here is to make sure that any hike in fees is accompanied by a higher level of services and offerings.

It’s no secret that in the past few years, mounting competition from robo-advisors and other service providers has put downward pressure on advisor’s fee. Researcher PriceMetrix found that fees fell by 7% on average from 2011 to 2013.  However, a recent article in Financial Advisor IQ has some good news:

“Yet even in a tough market, some wealth managers are adjusting their billing schedules upward to distance themselves further from low-cost purveyors of financial advice.”

In the article, Kevin Dorwin, managing principal of San Francisco-based Bingham, Osborn & Scarborough, discusses why his firm (with an AUM of $3.5 billion) is planning on raising their fees.  Dorwin points out that part of the motivation for raising fees is making a distinction between “rock-bottom-priced investment advisors and more comprehensive, full-service planners.”  Most of us would agree with Dorwin that we have no desire to be compared to a robo-advisor, and want our services and offerings to be viewed as being on a higher tier.

The idea is that by investing more in technology and talent, advisors can actually attract clients at the upper end of the market (say clients with assets of $10 million+).  So far, Dorwin’s firm has hired 8 new people, upgraded its trading platform and developed an integrated customer-relationship-management system.  According to Dorwin, “Clients with a lot of moving parts in their estate plans require more personalized service.  We feel like our fee structure needs to reflect a more sophisticated set of services that we’ve developed.”

However, Jon Wax of Raymond James in Tampa points out that firms who want to take this approach must be careful not to alienate the clients they already have.  When Wax decided to raise his fees in 2011, he was advised by consultants to explain to his clients the reasoning behind the increases.  He then sat down with each client individually and described in detail the new services that would be supported by the raise in fees, as well as the technological improvements made by his firm.  He also went through the benefits of more personalized service with each client.  Wax even went so far as to hire a psychologist to help him empathize with clients who might be threatened by higher fees.  His efforts paid off.  Three years later, he has not lost a single client from the fee raise, and his retention rate remains close to 100%.

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Right Now, Clients are Looking for Financial Planning, Not Investment Managers

“Firms that are willing to expend the time and effort to move away from an investment management approach focused on past performance toward a financial-planning-centered one that meets current clients’ broader needs will be rewarded.”

So says a recent white paper released by CEB TowerGroup and cited in a September ThinkAdvisor article. The paper, “Shifting to the Center: Financial Planning is the Hub of Wealth Management,” makes a very important and timely point:  with many clients lacking a comprehensive financial plan, there is a huge potential opportunity for advisors.

In other words, the firms that continue to see success and gain new market share will be the ones focusing on adding Alpha through front-office activities and strengthening client relationships so as to help their clients achieve long-term goals.  It’s about setting up trusts, managing estates and college funds, and guiding clients through turbulent times in the markets.  This is what real wealth management looks like.  What we are seeing is a hole where clients who want this kind of total package wealth management experience simply aren’t getting it.

The white paper found that 68% of high-net worth clients do not have a formal financial plan in place to reach their long-term goals.  As ThinkAdvisor points out, this certainly does not mean affluent clients aren’t interested, since financial planning is “the most selected service chosen by clients of wealth management firms.”  Scott Parry, an executive vice president at SunGard, said in the article, “the financial plan now becomes the benchmark upon which future account performance is measured.”  The report also found that 97% of clients who rated their planning experience as excellent were highly unlikely to switch to a new firm in the next 12 months.

The article makes another key point that advisors would be well-served to pay attention to: the CEB TowerGroup report showed that 78% of advisors considered financial planning technology important, but only 50% said the technology they were using was effective.  The report stated: “Not only do advisors need more effective financial planning tools…they also require support in presenting, posting and accessing the planning output.”  Clearly, there is a large segment of advisors who have some work to do in order to be positioned to capture this opportunity.  As for us, we think 68% of high- net worth clients not having a formal plan is more than an opportunity: it’s a windfall.  This comes at a time when robo-advisors and their online investment offerings are putting significant downward pressure on advisor fees.  Advisors who want to retain current clients and expand their business would be well-served to offer a comprehensive wealth management experience that enables clients to achieve long-term goals- something clients still can’t get anywhere else.

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Big Wire Houses See Advisor Productivity Rise Thanks to Fee-Based Model

“Know the enemy and know yourself; in a hundred battles you will never be in peril” – Sun Tzu

The competition is successfully utilizing the fee-based compensation model, and it’s time for RIAs to take heed.  Fee-based compensation, where clients pay a set fee based on the size of their assets, continues to perform well for Wall Street.  Big brokerage houses appreciate the consistent revenue provided by fixed fees.  According to a July 18th article (“Rise in Fee-Based Business Ups Broker Productivity”) in the Wall Street Journal, however, there’s another big reason this model is being embraced.  Wall Street brokerages report rising productivity among their financial advisors brought on by having more money in fee-based accounts.

According to the WSJ, these accounts “typically require less of an advisor’s day-to-day attention.  Often, the client assets are put in portfolios that are managed centrally by the brokerage.”

In other words, advisors at big brokerages now have more time to focus on individual clients and grow their business.  With their client assets centrally managed at the home office, these advisors are free to schedule their work days around client-facing activities and seek out additional ways to add Alpha to their client relationships.  The results have been extremely positive.  The WSJ reports that the biggest brokerages saw record profits in the second quarter, thanks in no small part to the efforts of their financial advisors.

Do What the Big Guys Do: Leverage

It’s interesting to note that a fee-based model alone is not what’s primarily driving this increased productivity.  The ability of a brokerage to centrally manage portfolios of client assets is what really facilitates the shift in emphasis from back-office to front-office.  Independent RIAs can do this as well by outsourcing some or all of their back-office and investment services to a TAMP.  In fact, RIAs actually have a two-pronged advantage over the big wire houses on this playing field.  RIAs operate on a fee-only fiduciary-based model, unlike the suitability standard practiced by the wire houses.  RIAs can also outsource their back-office to leverage the robust technological and investment offerings of a TAMP.  As Sun Tzu might say, advantages can turn into disadvantages and vice-versa.  If the wire houses are bigger, then they are slower and more cumbersome.  If RIAs are smaller, they are more nimble and adaptable to changing market conditions.

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New Fee Structure Based on Adding Alpha

There’s a new revenue model taking shape in the financial planning business and, in the words of industry thought leader Bob Veres, we should probably be paying attention.  In Bob’s recent article in Financial Planning, “Advisors: New Fee Model Taking Over?”, he discusses recent developments in the way some younger advisors are structuring their fees.

Gen Y Changing the Game

To quote from the article: “Over the past few years, a number of Gen Y advisors have become dissatisfied with the idea that they should spend the first decade of their careers writing plans in the back office, safely away from all client contact.”  As Bob points out, the other option available to these advisors is starting their own firm.  However, out of necessity they generally end up working with clients their own age; clients whose assets fall below the standard million-plus minimum.  With fewer assets to manage, fees based around the traditional investment management model no longer make sense. These advisors are changing the game by charging fees based on the advice they are giving clients.  In other words, structuring fees around the Alpha they are providing.

Flexible Model

This “advice-for-fee” model that Bob is talking about is, as he points out, extremely flexible.  There are a number of “advice-based” financial issues that Gen Y-focused firms can address; for example, developing good saving habits, avoiding credit card debt, strategies for paying off student loans, business start-ups, and insurance issues arising from marriage and children just to name a few.  But as Bob reminds us, this model also works with retirement planning.  Bob relates the story of one Gen X advisor who schedules fun events like golf lessons for clients to “practice” for their retirement.  Regarding the managing of assets, he states: “If there are assets to manage, these can be delegated to the online firms that so many other planners disparage as ‘robo advisors,’ or outsourced to companies like Adhesion Wealth Advisor Solutions or Frontier Asset Management.”

Adding Alpha More Relevant Than Ever

We think this article makes clear two key points: back-office sprawl continues to be an issue, and more importantly that providing a remarkable client experience by adding Alpha is becoming more and more essential to attracting and retaining clients.  We’ll let Bob take us out: “If you want to leave your successors the kind of firm that they will want to manage, and if you want your practice to remain relevant 10 or 15 years down the road, then you should allow your younger planners to join the revolution, and experiment with delivering advice profitably to a whole new market of potential clients.”

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