Preliminary Request for Public Comment on Proposed Fee Table for State-Registered Investment Advisers

February 7, 2018 - Steve Stanganelli

Subject: Public Comment on Proposed Fee Table
From: Steve Stanganelli
February 7, 2018

As a member of NAPFA, I am certainly in favor of more transparency when it comes to explaining fees and services to clients.
I applaud the Division’s intention behind this initiative.
As an adviser who offers multiple fee arrangements to clients in an effort to provide consumer choice, I am concerned that some of the options I and other fee-only advisers may offer are not going to be easily reflected in the proposed table format.
For instance, while I like others offer a conventional assets under management (AUM) declining tier-based fee, I also offer both a fixed fee determined at the beginning of each year that does not change with the value of any investments that may be managed. I also offer a fixed-rate option (for example 0.40% or 0.80% depending on the custodian platform and mix of investments that are available).
The biggest issue I have with the proposed fee table is that it does not really cover the non-investment activities that a financial planning-centric adviser may offer. For financial planning services, I, like some other NAPFA members, use a “net worth” calculation or some combination based on net worth and/or income of the client. This fee (usually a fixed amount as opposed to an hourly rate) may cover a range of financial planning activities from comprehensive to something less comprehensive. It may include investment advice on “held-away” assets managed directly by the client on the custodial platform of the client’s choosing.
When it comes to hourly rate options, there are advisers who offer a “sliding scale” rate based on income and net worth as a way to provide financial planning services that are accessible to those who may not have significant assets to manage but may still benefit from financial advice, coaching, and non-investment-centric planning.
As for disclosure of outside fees that may be charged by custodial platforms or third-party asset managers (TAMPs), I believe that this information should be included. While this information may be available separately from the various disclosure materials offered by a custodian or manager, most consumers will not likely find this information easily available and in a format that is easy to compare. The way that my firm and I handle this is to show on a table what the costs are for the average investment used (i.e. expense ratio as disclosed by prospectus for a mutual fund, ETF, stock, or other investment), what the average trading costs may be, and what the custodial platform may charge (since more platforms are offering consolidated services including trading for a fixed fee or AUM-based charge).
I recommend an option to the proposed table format to not only help identify the fees but also the services that may be offered for such fees. I also suggest that advisers who may have more robust and detailed comparative matrixes be allowed to offer these in addition to any minimum requirement that the Division may adopt.
By way of comparison, you’ll find attached an illustrative format that I have adopted for use to explain to prospective clients the different planning-only and combined planning-investment options. In the section illustrating investment options, please note that there are spots that cover other investment-related costs (i.e. custodian, trading, IRA, investment expense ratios).
I’m happy to discuss my reasoning behind such a chart in greater detail if interested.
Thank you.
Steve Stanganelli, CFP®, CRPC®, AEP®
NAPFA-Registered Financial Advisor
Accredited Estate Planner ®
Plan Well. Invest Smart. Live Better.