Welcome to Financial Advisor IQ

A Big Plus of Going Indie: Fee Flexibility

By Miriam Rozen May 13, 2015

Like many other wirehouse breakaways, Erik Strid enjoys one very welcome new freedom since he departed from his firm: flexibility about how, and for what, he charges his clients.

After leaving Wells Fargo Advisors in February 2014, Strid wasted little time before dramatically altering how he set his fees, he says. Strid is CEO of Concentus Wealth Advisors in King of Prussia, Pa., an RIA he founded with his brother and father — who had worked with him at Wells. The firm manages $415 million. Now, says Strid, “we can actually assign a fee to the value of the service we deliver.”

Spokespeople for WFA, Merrill Lynch, UBS and Morgan Stanley declined to comment on whether they have lately begun giving their FAs more flexibility on fees. But breakaways say their former employers allowed them only limited freedom to be creative about compensation structures — even though the need for flexibility grows as clients demand more than asset management from their advisors.

For example, although the wirehouses allow brokers to charge clients a flat annual fee for financial planning, they typically bar FAs from customizing those arrangements, the breakaways say. So an advisor quarterbacking a team of estate lawyers and CPAs had no way to charge for those extra services. Yet such extra services cement client relationships, the breakaways say, and prospects often request them.

Wall Street firms also frown on offering discounts to get big-fish clients in the door, the breakaways say. Wirehouses make their FAs get prior approval for fee discounts of any type. And if total fees fall below a minimum percentage of assets, advisors make up the difference out of their own pockets.

Concentus charges an AUM fee of 50 basis points for a client’s first $5 million and 40 basis points for assets above that level. His clients also pay financial planning fees, which are adjusted depending on the complexity of services he delivers. “We are in the process right now of repricing our flat-dollar planning fees,” says Strid.

The wirehouses may have gotten even less flexible about fees since he left Merrill Lynch in 2011, according to Brian Amidei, now managing partner of HighTower Advisors in Palm Desert, Calif., managing $400 million for 120 clients. At HighTower, Amidei provides all sorts of services — and charges for them à la carte. At Merrill, Amidei recalls, he couldn’t deliver those services because he had no way to get compensated for them. “Merrill would have had a heart attack with the stuff we are doing now that didn’t fit into their criteria,” he says.

Brian Amidei

An example: His team charges fees for account-tracking reports, which are updated weekly or even daily according to clients’ requests. All told, Amidei estimates ancillary revenues from such extras add up to 3% to 5% of his firm’s gross sales. “It’s a number worth paying attention to,” he says.

Bob Lamse has never worked at a wirehouse. But the president of Talis Advisors, an RIA in Plano, Texas, with $200 million under management, corroborates that as advisor services get less and less cookie-cutter, fees must follow suit. In fact, he charges his clients on a case-by-case basis. Some pay an AUM fee, others pay for financial planning, and still others pay a combination.

Lamse thinks the fee flexibility at his independent firm gives it a big advantage in recruitment. He is expecting a new advisor will be joining Talis soon and bringing his clients — and, says Lamse, “he can charge them how he wants.”