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New SEI study re-examines changing fee model through the eyes of advisers and investors

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As financial advisory fee structures continue to evolve, SEI Advisor Network has replicated its 2015 research to find that, in 2018, there is still a gap between an adviser’s price and perceived value.

Based on data from SEI’s 2018 primary research among financial advisers and investors, changing client demands, fluctuating regulations and industry pressures are prompting advisers to continue their shift to an assets under management (AUM) fee-based model, while experimenting with additional fee structures.
 
“In our 2018 updated report, we find that transparency is improving, consumers are becoming more fee-savvy and the industry is transitioning to a traditional professional service model – one that resembles the legal and accounting professions that command respect and are viewed by clients as true fiduciaries,” says John Anderson, Managing Director and Head of Practice Management Solutions for the SEI Advisor Network. “Today’s consumer is driving change and continues to push advisers to more client-centric pricing models, which likely would not evolve if left solely to the adviser or advisory firm.”
 
Three years after SEI’s first “Fees at a Crossroads” research report, this replicated primary research among advisers and investors is part of a larger SEI Advisor Network report called, “Fees at a Crossroads Revisited: Closing the Gap Between Price and Value.” The report, which was co-authored by SEI Advisor Network and Bob Veres, publisher of Inside Information, assesses the current advisory-fees landscape and examines how it has changed implications for advisers and the industry since 2015. The report explores the latest pricing trends, pressure points and strategies along with actionable steps advisers can take now to rethink their fee models.
 
The latest research reveals that advisers are making progress revisiting their value proposition and are focusing more on striving to meet client goals through financial planning and advice than previous years. Fifty-two per cent of advisers have changed their fee structure within the past four years; 27 per cent have added planning fees and retainers; and 37 per cent have made other pricing adjustments. Furthermore, 34 per cent of advisers are segmenting their clients in 2018, compared to just 25 per cent of advisers in 2015.
 
The “Fees at a Crossroads Revisited” study reports that more than two-thirds (69 per cent) of advisers now say that they charge AUM only or a combination of AUM plus upfront fees for initial planning work, which is up from 58 per cent in 2015. When asked what changes advisers had recently made to their fee structures, an additional 19 per cent indicated they had added financial planning fees to an AUM model, beyond the 30 per cent who added planning fees in 2015. Additionally, advisers’ use of retainers has increased to 24 per cent from 15 per cent in 2015.
 
Anderson adds: “The biggest changes we have witnessed from our 2015 study include greater acceptance and demand for financial planning—among both advisers and consumers. It’s also a lever for models that is helping attract new clients and justify a variety of fee arrangements.”
 
Down from 38 per cent in 2015, SEI’s research this year found that only 28 per cent of investors either do not understand how their advisers are compensated or do not believe they are paying their advisers, showing some progress has been made over the past three years. Notably, correlated to the increasing shift from commission-based to AUM-based pricing, only 13 per cent of investors said they pay transaction fees in 2018 compared to 27 per cent in 2015.
 
In addition, 2018 research shows that more than 83 per cent of investors responded that they value financial planning equally or more than investment management services. Additionally, slightly more investors this year reported that they are willing to pay for investment advice, supporting a trend that has grown steadily over the recent years (57 per cent in 2018 compared to 51 per cent in 2015).
 
“The evolution in what and how financial planners charge their clients is likely to become one of the most important practice management issues of the next decade,” says Veres. “It could impact a shift in market share from the laggards to the early adopters.”

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