Hybrid Advice Priced at 25 to 50 Basis Points

Nearly half – 48 percent – of managed account sponsors price their hybrid advice at between 25 and 50 basis points, or between $250 and $500 on a $100,000 account, according to a recent survey conducted by Cerulli Associates.

Another 28 percent of sponsors believe an internet algorithm backed by a flesh-and-blood advisor should be priced at between 50 and 75 basis points, or between $500 and $750 on a $100,000 account, the survey found.

Digital advice algorithms have emerged in recent years as an alternative to traditional advisors and proponents of digital solutions say they are more convenient and cheaper.

Young, technologically savvy investors with simple retirement needs and relatively low account balances are particularly well suited to receiving digital advice.

But what might be suitable for a millennial might not work for baby boomers, financial advisors point out. The more complex the financial need — tax and estate planning, for example — the more investors will rely on human advice, advisors say.

Indeed, many advisories are now offering a combination of both as the industry moves toward a middle ground, which industry consultants have taken to calling “hybrids.”

“The emergence of hybrid platforms offers industry participants an opportunity to examine evolving models of how firms combine the efficiency of financial advice generated by an algorithm with the ability of flesh-and-blood advisors to connect with clients,” said Tom O’Shea, associate director at Cerulli, in a news release.

The survey of digital advice price points appear in the second-quarter 2017 issue of The Cerulli Edge-Managed Accounts Edition published earlier this year.

Drilling Down

Following the launch of digital-only advisories, the advice market appears to be moving toward a middle ground in which some advisors born of digital means and Internet-only algorithms are adding a tiered menu of flesh-and-blood advice.

Traditional advisors are trying to keep up by adding Internet tools to websites to give clients a better grasp of asset performance.

Adding certified planners to an Internet-born advisory is bound to raise costs, while adding algorithms to traditional flesh-and-blood advisors are bound to lower them.

Vanguard’s Personal Advisory Services charges 43 basis points, or $430 on a $100,000, and Schwab Intelligent Advisory charges 50 basis points, or $500 on a $100,000 account, Cerulli researchers found.

Betterment Plus charges 40 basis points, or $400 on a $100,000 account, while the premium service charges 50 basis points, or $500 per $100,000, the survey found.

Because some of the firms have placed account minimums for annual advice, and limited interaction with a human advisor to a one-hour long call each year, the value of a hybrid advisor starts at about $150 per hour, Cerulli estimates.

Prices include a stated advisory price as well as the expense ratios of the underlying investments since firms generate revenue from the investments, Cerulli said.

“Considering the account minimums, we observe that Vanguard has placed a value of $2,150 per year on hybrid advice,” the Cerulli report said. “Betterment has valued year-long advice at a minimum of $1,250 per year through its Premium product.”

Access to a certified financial planner requires an account minimum of $500,000 at Vanguard Personal Advisory Services, $25,000 at Schwab Intelligent Advisory, $100,000 at Betterment Plus and $100,000 at Betterment Premium, Cerulli found.

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

© Entire contents copyright 2017 by InsuranceNewsNet.com Inc. All rights reserved. No part of this article may be reprinted without the expressed written consent from InsuranceNewsNet.com.