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Massachusetts Considers Making RIAs Post Their Fees

By Thomas Coyle February 9, 2018

Massachusetts’ securities regulator is soliciting public comments on a proposal requiring state-registered RIAs to create a fee table for clients that can be given to prospects and posted on their websites.

Fee tables would "increase transparency, aid comprehension of advisory fees, and enable comparison shopping of investment advisers," the Massachusetts Securities Division says in the call for comments posted on its website.

Debra O’Malley, a spokeswoman for Massachusetts’ Secretary of State William Galvin, tells FA-IQ the proposal comes "in response to the new paradigm in which investors are paying several different types of fees for advisory services" rather than specific complaints from consumers.

The proposal strikes Barnet Goverman of Financial Solutions Associates, an RIA in Dedham, Mass., as a fine idea that’s in no way "problematic to our business."

Goverman, whose Massachusetts-registered firm manages about $86 million, also notes the proposal centers on information that’s already available to the public in each RIA’s ADV filing. If the proposal to post fee tables on websites and as giveaways to prospects takes hold, it would amount to putting the same information "a little more out there," he says.

But Knut Rostad of the Institute for the Fiduciary Standard in Washington, D.C., sees something more profound at work in the Massachusetts proposal.

Clarity around fees is fourth on the IFS’s list of 12 best practices around its professional conduct standards, Rostad says, so it’s a must-have for "true fiduciaries."

Adds Rostad: "Advisors will say investors don’t care, but research out of the CFA Institute and State Street Global Advisors tells us many consumers get annoyed at FAs for not knowing, or not being able to find out, what the all-in fees are going to be."

Anticipating another objection to the proposal, Rostad says some advisors may be reluctant to expose themselves by committing to fees too far before the fact. The remedy, he says, is to coach such information as good-faith estimates based on analogous prior-year services, "not an actual accounting."

In any case, says Rostad, "technology is catching up with the advice industry" to the extent "it’s going to be expected" that advisors tell clients both "what they paid last year and what they can expect to pay, all-in, next year."

As a harbinger of the normalization of such transparency for investors, Rostad points to a new TD Ameritrade tool that sheds light on all-in 401(k) costs.

"That’s a really significant step toward a world where, if you want to know what you’re paying for a financial product, you can find out easily," says Rostad. "And the sooner we get there the better."

Meanwhile Rostad says it’s just as well a state is making headway in a consumer-protection matter where federal authorities, with "very different priorities right now," seem reluctant to tread.

Todd Ingwersen runs Harvest Group Wealth Management, an RIA in Waltham, Mass., with about $250 million under management. "It’s smart to disclose all fees, all-in" he says, commenting on the Massachusetts initiative. Requiring more firms to do it, he adds, would help consumers distinguish between firms that charge a lot because they provide extraordinary services and those that charge top dollar simply because opaqueness in the marketplace lets them get away with it.

Todd Ingwersen

But Ingwersen thinks time is on the side of transparent firms. "I’ve seen, over time, more disclosure, more understanding on the part of consumers. It’s bound to push fees down over time."

The regulation proposed in Massachusetts would apply only to investment-advisor firms registered in Massachusetts. SEC-registered firms -- generally those with more that $100 million under management -- would be under no such obligation.

The call for comments went out on Wednesday, Feb. 7. O’Malley says the first comments will be posted by Friday, Feb. 9.