Lowering Fees Doesn’t Yield More Clients
Financial advisors feeling the pressure from robo-advisors and discount brokerages to lower their fees should think again: Advisors who dropped their prices in 2017 had lower revenue growth and took in fewer assets than advisors who didn’t lower fees, according to a PriceMetrix report cited by WealthManagement.com.
Average fees fell to 1.08% in 2017 for households with $1 million to $1.5 million, from 1.13% in 2016, according to the report, the web publication writes. Meanwhile, fees on new accounts dropped from 1.07% in 2016 to 1.04% last year, according to PriceMetrix, which is part of McKinsey & Company.
But 70% of advisors actually increased their fees by an average of four basis points last year, WealthManagement.com writes, citing the report. The 30% of advisors who did lower fees did so by an average of 23 basis points, according to the publication. But that didn’t result in new business for them. While revenue growth for advisors who kept their fees the same or raised them was 12% last year, it was only 9.4% for those who did lower prices, WealthManagement.com writes.
And while new fee assets per advisor who maintained or raised fees was $7.8 million, it was only $6.9 million for advisors who lowered their prices, according to PriceMetrix. However, these figures only apply to advisors for households with $1 million to $1.5 million, according to WealthMangement.com.
“That supports something we’ve seen, frankly, for 15 years, which is, clients don’t leave because of price; they leave because of service issues,” said Patrick Kennedy, chief customer officer and co-founder of PriceMetrix, according to WealthManagement.com. “And to the extent advisors who may have services issues are losing assets at a faster rate, they’re responding now by lowering price.”