Marin Community Foundation
Declining Advisor Fees
Research

Adviser pricing for ultrawealthy clients is under pressure

Originally published by Investment News [link] on September 12, 2016

Advisers who specialize in helping ultra-high-net-worth families with all aspects of their money management are finding the market is softer today than it was a few years ago.

Family offices that handle clients with wealth of $20 million or more report having lowered their prices for new clients by about 15% since 2012, according to the latest FOX Wealth Advisor Benchmarking Study that surveyed 24 Family Office Exchange members.

A third of the family office firms lowered their fees for new clients since 2008, and none have raised them, the data show. There hasn't been the same price pressure on existing clients.

“There are a lot of concerns about showing value and about competition in the marketplace,” said David Toth, FOX director of adviser research. “It's tough to demonstrate the value of these services before you provide them.”

Competition among service providers to attract wealthy families is intense, and many family offices have added more services in an attempt to attract and retain ultra-high-net-worth clients.

But they continue to struggle with how to value those services.

With more family offices providing “softer” services like education planning, it's more difficult to price what that's worth, compared to the investment side, which has an expectation around pricing, Mr. Toth said.

In just the past year, the survey shows a significant rise in firms that have lost confidence in their price structure, he said.

About 48% of advisers said prospects have misunderstood what services they would receive from the firm and at what price, requiring the adviser to explain more about the firm's value proposition for the client, the survey found.

Only about 4% of existing clients misunderstood.

“On the client side, it's more of an issue of making sure firms are fully expressing the value they provide and making sure clients are fully aware of all the services they can provide existing clients,” he said.

Some of the strategies family offices are taking to rethink the value they provide clients include building more flexibility into the pricing structure, using alternative pricing methods such as flat-fees and hourly fees, and creating pricing committees that make sure the firm is providing the services the client wants at the right price.

About 79% of total fees charged by family offices are based on client assets, while 10% come from retainer or flat-fees, and 9% from hourly fees, the survey found.