Are Doctor Fees A Model For Advisor Fees?

Financial advisors are expected to rely more on fee income as the future moves to a best-interest world. But they might take a page out of the medical field’s playbook for how and where to generate fees, a financial leader said this week.

Fees charged under the advisory fee-for-service model will rise and advisors will find other ways to bill clients on a fee basis. This will be similar to doctors charging a fee for concierge services and a retainer fee for other services.

“We will see people opt in to that,” said Robert Moore, CEO of the independent financial advisors network Cetera Financial Group. Moore spoke during a panel discussion this week at that annual meeting of the Insured Retirement Institute in Palm Beach, Fla.

Fee-based advisors typically derive their fees as a percentage of client assets they manage.

A 1 percent fee on $1 million in assets under management generates $10,000 a year to the advisor.

If that fee gets whittled down to 0.5 percent, advisors must double the accountholder’s assets just to stay even. But if the fee doubles to 2 percent, advisors generate $20,000 a year on the same asset base.

Under a best interest contract, thousands of advisors and retail distributors are moving their advisories  to accept fees. Regulators say the best interest contract is necessary to remove potential conflicts of interest when selling commission-based products,

On the insurance company side, insurers have spent the past year repositioning products to be sold on a fee basis. Although those products still make up a small fraction of commission-based annuity sales, sales of fee-based annuities are on the rise\.

Concierge Services, Boutique Models

Many doctors, who have seen their insurance payments shrivel over the past 20 years, have turned to boutique practices that charge extra for a higher level of attention.

Boutique medical services include closing a practice for a few hours just to see one or two patients willing to pay extra, or traveling to a patient’s home and earning an annual retainer for extending the privilege.

In many industries, fees are hardly new.

Banks, airlines and even government programs rake in billions of dollars in renewal and surcharge fees every year.

Financial advisors who checked their bags to Palm Beach were hit with a $25 fee at check-in and were charged even more if they had to turn in their suitcase on the gangway before walking into the airplane.

For many advisors, the fee-based world represents a new world, but raking in new fees could also represent a more lucrative world as well.

InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].
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