What fee model should advisers adopt

Sheryl Rowling, CPA, head of rebalancing solutions for Morningstar, on the pros and cons of different types of fee models.
By Morningstar |  18-06-20 | 

There can easily be an inherent conflict between lowering costs for clients and managing a profitable business. That’s true in normal market conditions. When severe market downturns like the one we have just lived through come along, they not only take a bite out of client portfolios, they also put significant pressure on an adviser’s business and our ability to service our clients.

But I think my firm has found a way to bill clients that enables it to be a successful, long-term-focused business that can weather severe market setbacks and, in the process, keep clients’ interests in the forefront.

Part of the challenge is that the options are limited: fixed retainers, assets-under-management-based fees, net asset-based fees, or a combination of these. But from where I sit, none of these methods gets it right. Compared with commission sales, advisers' fee structures are certainly "fair" to clients, but are not always equitable to advisers, and that matters.

As a fiduciary, I make a promise to put my client’s long-term interests first when it comes to their investments. But we’re not a charity. I have overhead to cover, including the salaries of 15 employees.

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