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Work Backwards

Dylan Reece,

CFP, CLU, CIM
Financial advisor
Nicola Wealth Management, Vancouver

Commissions and fees don’t determine service levels; we decide first on the services we’ll provide our target client market. We focus on incorporated professionals and business owners, and address all their planning needs: investment management, retirement, tax, estate, insurance and so forth. Our average AUM per client is approximately $2.1 million, which means we can maintain an advisor-to-client ratio of 1:50 households.

Then we determine what it costs to deliver that service, and establish our fee schedule.

We charge a minimum financial planning fee of $1,500 and take new accounts of at least $500,000 in investable assets. As our AUM fee is 1.25% on the first $1 million, we need to generate at least $6,250 per client per year in gross revenue to deliver our service offering.

Our tiered AUM fees average 0.85% across our entire client base. Clients also pay the underlying costs of the investments they hold. However, the average MER of our investment pools is about 70 basis points, while a typical retail F-class investment fund has an MER in the range of 1% to 1.5%, plus the advisor’s fee.

Write it down

Duncan MacPherson,

Co-CEO of consulting firm Pareto Systems, Kelowna, B.C., suggests advisors document everything they do and spend for one month, and then classify those things within a service matrix. Higher-value clients should get better service, similar to airlines’ bronze, silver and gold classifications. Then, create a procedures manual that details those services.

Know when costs are higher

Marg Franklin,

CFA CEO, Kinsale Private Wealth, Toronto

Costs are highest during trigger events in clients’ lives, such as:

  • Selling a business
  • Investing personal assets in a business
  • Windfall from a highly profitable investment
  • Change in career
  • Death in the family
  • Trust dispositions as a result of the 21-year rule
  • Moving countries
  • Change in marital status

When something requires you to revisit the investment policy statement or the asset mix, you’ll have to consider taxes, time horizon, and risk tolerance. That’s time-intensive. We often have a good idea of when trigger events are coming. Depending on the complexity of the event impact, we will either do the analysis here or, if very complicated, outsource the analysis to best manage the issues.

We only charge management and performance fees. We don’t charge clients for planning because it’s a necessary part of the process to get to the proper asset mix.

Originally published in Advisor's Edge