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

March 7, 2018 - John R. Power

Subject:  Fee Table comment
From: John R. Power
March 7, 2018

Let me say first I think the idea of a fee table has merit; it would mandate a simpler way of explaining what people charge.  All in all, the proposed approach isn’t bad, but I believe it could be improved with some adjustments.

  • Several fee models – The proposed table seems a bit cumbersome for an advisor with multiple fee models.  Perhaps there should be a provision for multiple lines under various categories.  Some advisors use a flat fee plus a %  assets under management, for example. The table as proposed doesn’t provide an obvious solution.
  • Sub-advisor fees – I’d say Yes, but limited.  For example, if an advisor uses a sub-advisor to do investment management, the fees are usually (or should be) clear.  But a problem arises with sliding fees based on type of account and break points.  For example, a sub-advisor might have a different charge for a brokerage account vs. a mutual fund account.  And the break points might be different.  How does one disclose accurately and differentiate?
  • Additional fees – This is far too complex to include in a table.  A mutual fund portfolio will have a wide variety of fees.  There is almost no way to be precise.  A generic statement about such fees is all that is possible.  I recommend this be NOT included in the fee table but be included in the Form ADV.
  • Total Fees – Probably a good idea, but how does one represent.  State a flat fee and an AUM fee?  What about break points?  There is almost no way for a firm with a mixed approach to be correct, and that opens them to prosecution for violations.
  • Portfolio management vs. financial planning – What services are include in the fee structure is an important component.  That is what the public really needs to know; what they are paying and what they are getting for what they paid.  There are many models in operation in today’s environment.  There must be a clear way of distinguishing in the form.  Perhaps there could be a table of services a firm could choose from and an agreed definition.  While that might be difficult, it is the only fair way to present the data.  Otherwise firms that have limited service offerings  will look to be the same as those that provide full financial planning services. 
  • Cost and benefit  --  Once some of the issues are clarified, this should not be a major cost driver.  I anticipate I could draw up a table in Excel in about an hour that would fully comply.

I recommend the Securities Division reach out to the Financial Planning Association of Massachusetts.  The MA chapter of that association has about 1000 members who would be impacted and most provide full financial planning services to include investment management.  I suspect they could provide unbiased insight into any problems that might pop up. Contact the executive director, [redacted]. I believe that would result in good response and the FPA chapter in MA has often appeared on Beacon Hill to address such matters.

John R. Power
FPA National Board of Directors
Power Plans