Adviser capping firm's annual fees, saying larger clients paying too much

A small Nebraska financial advisory firm is unveiling a novel approach to attracting its target clients by capping its annual adviser fee at $11,000.

Phil Wood's Wealth Partners Inc. has launched a new division that charges clients 1.25% on assets up to that annual total. As a result, management of investments totaling more than about $880,000 will be on the house. The firm, which manages about $170 million in assets, eventually will move all its clients to its One Price Portfolio division, Mr. Wood said.

“Clients with larger accounts have been paying an unfair share,” he said. “The time involved to manage a large portfolio isn't that much greater than a small one.”

Technology developments, specifically the portfolio management software the firm uses from its broker-dealer, SII Investments Inc., make the investment management tasks similar among all his clients, Mr. Wood said. Clients will still pay additional charges for financial plans and other services.

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The advisory fee for one client with $1.5 million in assets, for example, would fall from about $15,000 a year to $11,000 under this new pricing plan. The firm's target clients have portfolios between $1 million and $5 million.

Annual percentage-based fees typically decline as the client's asset total grows — a pricing plan long considered a way to compensate advisers for growing account values but also a nod toward the conclusion that it doesn't necessarily cost more to manage portfolios of a greater size.

John Anderson, head of practice management for SEI Advisor Network, praised the firm's new fee transparency. He said that even if clients aren't asking an adviser about the amount they charge, they are thinking about whether it really costs $10,000 more to manage a $2 million portfolio, versus one of $1 million.

“Advisers often set minimum fees but rarely have been capping their fees,” Mr. Anderson said. “It's a phenomenal idea.”

Such a cap might not work for larger accounts, such as $10 million and over, because those would likely require more complicated investments, such as in alternatives, and more due diligence, Mr. Anderson said. Of course, advisers also have greater liability as the amount of assets they manage climbs, he said.

Mr. Wood said that industrywide, he doesn't believe that clients are aware of what they pay each year just to compensate their adviser, and he's hoping to change that, too.

A calculator at OnePricePortfolio.com allows users to add their portfolio balance sum, and using industry averages, it estimates the financial adviser fee the user is paying. It lists those in compa! rison with what the person would pay using their capped-fee structure.

“If people knew what they were paying to their current adviser, they would be interested in changing,” said Mr. Wood, who hopes One Price Portfolio will lead to many client referrals from existing and new clients.

He expects to serve clients mostly online or over the phone, enabling the firm to expand its national reach versus its current clients, who are mostly from or live in Nebraska.