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

March 4, 2018 - Carroll W. Hayes, Jr.,

Subject: Request for Public Comment on Proposed Fee Table
From: Carroll W. Hayes, Jr., MBA, CFP®
March 4, 2018

Comments of Proposed Fee Table

After re-reading your published document on a Proposed Fee Table I am not convinced that it will provide the distinctions that you are looking for in determining total costs to the prospective citizen/client.

It is not clear to me whether the document provides substantial differentiation in the assets under management section. For example, asset management companies that are associated with mutual fund firms may circumvent scrutiny by claiming to charge an asset under management fee of only 1% per se, while not disclosing the types of investments that would be utilized the investment management process. A firm like Fidelity may only charge 60 basis points for the management of an account based upon an assets under management fee but utilize underlying mutual funds that carry additional cost to the prospective client/citizen.

In addition, the frequency that the fee is charged is extremely important. A prospective citizen/client may understand that the assets under management fee is basically charged on a quarterly basis but may not understand that the mutual fund fee for the underlying investments is charged on a daily basis. This charge on a daily basis basically becomes a compounding of the fee over the course of the investment. How? It is general knowledge that there are more positive days in the market over the course of a year than negative. The daily charging of the fee just compounds that fee charge.

The Services aspect of the fee structure is also too vague. The Fee in this category should be broken down to both an hourly fee and an absolute maximum fee for completing a Financial Plan. Even then it would be misleading as the process to complete a Financial Plan at one firm may be entirely different from the process of another firm as well as the time and effort placed on the completion. In addition, who is completing the plan? Should the plan be completed by a CFP® or will it be completed by an administrative assistant? What software products are used to complete the plan. Some software, Fidelity’s for example, is anything but complete in its final product? Each of these issues would lead a prospective client/citizen to be unduly influenced by a cheaper product giving inferior results.

The Table of Fees and Services would have to have substantial notes available to the prospective client/citizen that would have to be somewhat standardized for the person to make a reasonable decision on which firm presents a better platform for the service that they would like to employ.

A separate concern is when the prospective citizen/client decides NOT to use a specific firm because of a published Table of Fees and Services when many RIAs and CFP®s take on clients that can’t pay even the minimums shown in these tables. Would this then discourage potential client/citizens in need of financial help to not even attempt to improve their circumstances by going to an RIA?

If the intent is to create a standardized system that sets fees on these services, I believe that during the Carter and Nixon Administrations that type of administrative strong arming failed miserably.

What about those individuals that are not RIAs but receive compensation based upon their relationship with an outside money manager. It is not uncommon for Fidelity Investments to pay their representatives for referring clients to outside money managers. How would those fees be captured in such a table?

Perhaps the best way to distinguish between all RIAs is to FIRST plainly require the RIA to state whether they are Fee-Only, Fee-Based, Commission Based, or Fixed Fee. SECOND, require the RIA to state if they use individual securities, ETFs, or Mutual Funds as investment vehicles and the percentage of each that is typical in the RIA practice. THIRD, have the RIA explain whether they pay third parties to manage the assets and what the third part’s fees are. FOURTH, ask the RIA if a Financial Plan, an Investment Policy Statement, are part of their fee. FOURTH, what other services will be provided to the prospective client/citizen as part of the overall fee that they charge.

At this point , you would now be able to provide an overview of their FEES for the different services they provide. By understanding the differences from RIA to RIA in steps First through Fourth, the FEES charged would have more meaning to the prospective client/prospect.

Carroll W. Hayes, Jr., MBA, CFP®
Charles Carroll Financial Partners