Phillip Rogerson, head of the RIA channel for Envestnet, and his team have noticed a trend that should come as good news for every financial advisor: Assets-under-management fees have been going up.
Rogerson spoke to me about the trend at the annual Schwab Impact conference in late October, but it was also mentioned at Envestnet’s fourth annual RIA Forum in September, too.
“We administer the fees for more than 100,000 advisors, and we’ve noticed over the last five years that every year the average advisory fee, in very narrow account-size tiers, has actually gone up,” Rogerson said.
Advisory fees on Envestnet’s platform in specific asset bands have generally risen by two to four basis points from 2018 to 2022, the company said. Envestnet looks at specific bands because aggregate data can be impacted by the mix of investors that advisors have in different asset ranges. Those account-size bands range from a low of $10,000 to $50,000 to a high of $5 million-plus. Rising fees are also consistent with data from Cerulli’s “U.S. High-Net-Worth and Ultra-High-Net-Worth Markets 2022” report, which shows that, for high-net-worth practices, advisory fees have increased across all client asset bands, Envestnet noted.
Rogerson acknowledged that some components making up the AUM fee have been subject to price compression. But what has more than compensated has been the fee for advice, which has been going up over the last several years, he said.
“There are multiple dynamics, but certainly one of the reasons has to be that advisors are being pushed to provide advice over a much broader range of topics,” Rogerson said.
It’s no secret that in addition to investment management, clients who are 50 and older in particular are looking for advisors to provide advice on a host of decisions. They can include how best to finance college expenses for children, whether they’ll need to work if they retire, can they afford to start a business, should they buy a vacation home, how much they need to retire, how an adult child moving home might affect finances, how to minimize taxes when withdrawing from portfolios, how to get a handle on healthcare and caregiving expenses, what to consider in estate planning, and so much more.
Careful Consideration
However, adding such varied services takes careful consideration, time and intention, Rogerson said. In making those decisions, advisors need to consider their current client base and their capabilities.
“Our role in that problem is to make sure that we’re providing the advisors with a technology platform that actually allows them to do that in a scalable way without completely destroying the economics of their firm,” Rogerson said.
For example, Rogerson said, Envestnet launched a service in 2021 for registered investment advisors and broker-dealers to help provide estate planning and trust services. The company created the Envestnet Trust Services Exchange, in partnership with Trucendent, which provides tools to simplify estate planning. The exchange provides a network of trust attorneys and administrators who work with advisors to handle trust account documentation, asset transfers and regulatory compliance. Once a trust account is opened, the advisor, client, attorney and administrator can work together on the exchange’s platform, where the advisor will maintain custody of the client’s assets.
Another offering that’s part of the Envestnet platform is Healthpilot, which uses data and artificial intelligence to help clients learn about, shop and enroll in Medicare plans. Envestnet says Healthpilot, also introduced in 2021, provides personalized advice that transformed the cumbersome, open enrollment process by leveraging AI to offer customers a stress-free way to view their Medicare plan options.
In the future, Rogerson believes, advisors may want to add other kinds of services.
“I think there’s all kinds of really interesting things that could develop in this space outside of what we’re doing,” he continued. “For example, career counseling services. … If I retire at 65 and I actually think I’m going to live to 100, 35 years is a long time. What are the things that I could be doing to keep mentally active and engaged? And I think legitimately, people look to their wealth managers for help.”
