Investors are willing to pay premiums for fee accounts, finds an analysis from PriceMetrix.
Advisors who increased their assets in fee-based accounts by 25 percentage points or more have seen revenue growth of 47% over the last three years.
That’s more than double the average growth rate of 21%. Advisors who increased their assets in fee-based accounts by less than five percentage points in the same period only saw revenue growth of 19%.
The reason, says PriceMetrix, is “the fee-based model tends to command a higher revenue on assets because it forces the advisor to define and clarify [his or her] value proposition.”
PriceMetrix also finds the average fee-based account is 46% larger than the average transactional account, and generates revenue that’s more than three times higher.
Fees aren’t for everyone, though.
“It appears as though investors over the age of 65 have been hesitant to convert to the new style of business, while many younger investors lack the asset base required to access the many benefits offered by fee-based platforms,” says the report.
As well, an increasing number of households prefer to hold both fee-based accounts and transactional accounts. Such households have increased 41% in the last three years and are more profitable than both fee-only and commission-only households.
Average annual revenue for a commission-only household is $1,790; for a fee-only household, $5,591; and for a dual-account household, $8,711.
Takeaways for advisors
PriceMetrix recommends the following strategies:
- Learn to service both fee-based and transactional accounts. Be able to define the features and benefits of both and explain the differences in pricing models;
- Review your client roster and determine which clients might be better suited for a different business model; and
- Understand the demographics of your book: young and very old investors may find less appeal in fee products.