Fee Transparency: Delivering Value While Building Client Trust

By Vestmark Inc., Resources

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When trying to align pricing with value for their clients, wealth management firms should always be examining the effectiveness of the way they and their advisors communicate about fees to clients. In today’s environment, fee transparency and enabling flexible fee models are key to articulating value to investors and, ultimately, earning their trust.

With research showing that 45% of wealth management clients do not trust their advisors to charge them fairly, it’s no surprise that pricing transparency and competitive fees are two of the top five most important factors for clients when evaluating and selecting wealth managers.1 Firms and advisors obviously have work to do to better convey that their services are worth the fees they charge. The answer is not simply lowering fees, but rather a combination of increasing transparency and predictability, as well as improving how the value of their offerings and services is communicated to clients.2

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But to offer your clients the pricing clarity and competitiveness they demand, your wealth management platform provider needs to respond in kind by offering your firm detailed transparency into the components of their fees and enable you to fully understand and control all the factors that impact the way you charge fees and, ultimately, your firm’s profitability. When your platform provider allows you to assert greater control over fees and expenses—and choose only the products and services your firm needs—not only can your advisors communicate more clearly with end investors about services and fees, but your firm gains the potential to build more equity, reinvest in your brand, and continue building client relationships.

Simplification & Transparency Are In Demand

A recent Cerulli study reinforces the existence of transparency issues, with 87% of advisory clients preferring transparent pricing through mechanisms like asset-based, hourly or retainer-based fee models. The study also revealed that clients preferred visibility and itemization in advisory fees as well as unbundling of the various services that are included in the overall fee.3

While greater disclosure and simplification are important, it has become obvious that most wealth management clients want to pay for advice in a fee model that offers more transparency, objectivity and certainty.

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Shouldn’t You Control Your Own Profitability?

Cerulli research has also shown that, in 2020, one of the top priorities for wealth management firms was to reduce the expense of managed account products and/or platforms. In order for firms to be transparent and to control the way they are charging fees to investors, they must in turn demand transparency in the fees they are being assessed by their platform partners. After all, you can’t control your own profitability if you can’t see and determine exactly what services you’re paying your provider for.

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We can see that to earn—and maintain—clients’ trust, it’s imperative that firms help advisors provide pricing transparency as part of the conversation to convey what value they provided in exchange for the fees their clients are charged. In other words, transparency and communication are key. But shouldn’t your firm be entitled to the same kind of transparency, objectivity and certainty? Unfortunately, if your platform provider doesn’t share with you the clarity and level of flexibility (or lack thereof) behind the services that are being bundled into manager fees when using their model marketplace, there’s often no way to know what the components of the fee are, making profitability analysis, cost comparisons and fee transparency to clients virtually impossible.

Vestmark: Achieving Transparency, Trust & Potential Growth

At Vestmark, we want your firm to be in the best position possible to maximize revenue. That’s why we emphasize transparency and enable your firm to bundle additional costs into manager fees however you may choose. We strongly believe that you should have the freedom to bundle or unbundle fees at your own discretion and control your firm’s potential for growth, while offering clients the transparency and variety they demand. When you can facilitate your advisors’ explanation of fees and display the various parts that go into them, it makes it easier for clients to understand the fee paid for advice, asset management, planning, tax or transition management, and any other services.

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Forward-looking firms are already working to develop fee structures that offer clients more options, clarity and certainty. In addition to fixed and hourly fees, alternative models include pay-as-you-go and fee-for-service, where clients only pay for what they receive. Another trend includes unbundling fees for investment products and advice. By splitting fees more discretely, firms are experimenting with creating clearer delineations between receiving value from investment returns versus personalized financial planning and advice.4 This can be a challenge for firms and advisors who are dealing with platform providers that offer only bundled/non-transparent and inflexible pricing, taking away control from the firm and their advisors.

That’s why it’s important to scrutinize and challenge any tech platform partner to make sure you have full visibility into what you are paying for each component of the relationship and ensure you have the autonomy to charge fees in a manner that suits your business best and lets you determine the tools and services you choose to deploy.

1 EY. “How do you build value when clients want more than wealth?” 2019 Global Wealth Management Research Report.
2 Ibid.
3 Cerulli Edge. 2019.
4 EY. “How do you build value when clients want more than wealth?” 2019 Global Wealth Management Research Report.

By Vestmark Inc., Resources