Subject: Re: Request for Public Comment on Proposed Fee Table
From: Annie McQuilken
June 21, 2018
1) It is important to include that fees may vary, or clients will be confused. For example, the amount I charge current incoming clients is different from the amount I charge existing clients (my rates have gone up, but I honor the existing fee agreement for ongoing clients). I also sometimes discount fees for the first year for incoming clients.
2) It would be appropriate to require advisors to send an annual accounting of actual fees to clients. In the past, clients have required this for their taxes, so many advisors send it. Now that advisory fees are no longer tax deductible, clients won't ask for this and advisors won't provide it.
3) It would be impossible to include mutual fund and trading fees, as these vary so much depending on the specific investments for each client. My software allows me to calculate the current fees being charged for a portfolio, but not to calculate the mutual fund fees charged historically, which can change both because the make-up of the portfolio changes or because the fund has changed it's fees.
4) 1-2%, as in your example for AUM fees, is far too broad. Most AUM advisors use a sliding scale, where the percentage goes down as the size of the account grows. For example, I charge 1% on the first million, .75% on $1-3 million, and .50% after that. So a $5m account would be charged 0.70% overall. Should I list this as .50% to 1.00%? This seems misleading since no one actually is charged 0.50%. In fact, I could say I charge 0.20% for amounts above $5m, and say my range is 0.20% to 1.00%, even though I don't have any clients with accounts above $5m, so no one is getting that rate. I could also say I charge 2.00% for accounts under $100,000, and say my range is 0.50% to 2.00% (again, I have no such clients). If advisors use a sliding scale, the table should allow them to put in the scale, along with an example of how that would be charged. If there is to be a range, perhaps it should be the range of percentages as actually applied to current clients.
5) The table should state whether there is a minimum fee. I have occasionally have clients with assets just below the minimum, so their percentage fee ends up being slightly more than 1.00%.
6) Are commissions actual/average commissions charged in the past year, or the hypothetical commission on a sale? If hypothetical, what assumptions are to be made about turnover in accounts? If fee-based or fee-offset advisors calculate commissions based on all accounts (including those paying fees, not commissions), it will understate the amount of commissions paid by those who are paying by commission. If hypothetical, it should be weighted by actual investments in each product (otherwise I could include a bunch of low-commission funds in my line-up and give an average commission that is really less than what is typically charged).
It's a great idea! I think you will need to include explicit instructions on how fees are to be calculated for the purposes of the table, though, or advisors will do whatever they want and it will be meaningless.
Forever Financial Advisors, LLC