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Advisors Adding Financial Planning Fees: SEI

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Financial advisors continue their shift to an assets under management fee-based model, while experimenting with additional fee structures, according to research released Thursday by SEI Advisor Network. In particular, many advisors added a separate fee for financial planning.

However, a gap still exists between an advisor’s price and perceived value.

(Related: 11 Reasons Why I Love Asset-Based Pricing)

These findings come from the replication of a 2015 SEI study in which 736 advisors were polled online in March. In January, SEI and Phoenix Marketing International also polled 926 U.S. affluent households with investable assets ranging from $100,000 to $5 million.

“In our 2018 updated report, we find that transparency is improving, consumers are becoming more fee-savvy and the industry is transitioning to a traditional professional service model — one that resembles the legal and accounting professions that command respect and are viewed by clients as true fiduciaries,” John Anderson, head of practice management solutions for the SEI Advisor Network, said in a statement.

“Today’s consumer is driving change and continues to push advisors to more client-centric pricing models, which likely would not evolve if left solely to the advisor or advisory firm.”

(Related: Wealth Managers, Stop Cutting Fees If You Want to Survive)

The latest research showed that advisors were making progress in rethinking their value proposition, and were more intent on meeting client goals through financial planning and advice than in previous years.

Fifty-two percent of advisors said they had changed their fee structure within the past four years; 27% have added planning fees and retainers; and 37% have made other pricing adjustments.

In addition, 34% of advisors were segmenting their clients in 2018, up from 25% of advisors that were doing so in 2015.

SEI found that 69% of advisors now charged AUM fees only or a combination of assets plus upfront fees for initial planning work, compared with 58% that did this in 2015.

Asked what changes they had recently made to their fee structures, 19% of advisors said they had added financial planning fees to an AUM model, beyond the 30% that added planning fees in 2015. As well, advisors’ use of retainers increased to 24% from 15% in 2015.

“The biggest changes we have witnessed from our 2015 study include greater acceptance and demand for financial planning — among both advisors and consumers,” Anderson said. “It’s also a lever for models that is helping attract new clients and justify a variety of fee arrangements.”

How Advisors Are Compensated

SEI’s 2018 research found that over the past three years, some investors were still uncertain how advisors were compensated, though this metric has improved.

This year, 28% of investors either did not understand how their advisors were compensated or did not believe they were paying their advisors, down from 38% in 2015.

That correlated to the broader shift from commission-based to AUM-based pricing, SEI noted. Only 13% of investors reported paying transaction fees in 2018, compared with 27% in 2015.

In addition, some 83% of investors in the 2018 study said they valued financial planning equally or more than investment management services. And in a growing trend, 57% of investors said they were willing to pay for investment advice, compared with 51% in 2015.

“The evolution in what and how financial planners charge their clients is likely to become one of the most important practice management issues of the next decade,” the report’s co-author Bob Veres, publisher of Inside Information, said in the statement. “It could impact a shift in market share from the laggards to the early adopters.”

— Check out The 7 Deadly Sins of Fee-Based Advisors on ThinkAdvisor.

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