At the beginning of this decade, there was an effort made by some financial institutions to move from a transaction-based to a fee-based business model to protect consumers from baseless transactions made only to generate sales commissions. Because nearly six in ten affluent investors have a primary financial advisor, (someone whom they rely upon for financial advice and counsel) this change in fee structure   affected most affluent investors and most advisors to the affluent. 

Currently three fourths (76%) of affluent clients are aware of the fees and fee structures of their  primary financial advisor. Those individuals who feel that their  advisor does a good job of explaining fees are much more satisfied with their advisors. But fees such as the 12b-1 fee (which is an  operational expense associated with mutual funds, and generally between 0.25-1% of a fund's net assets), as well as transaction fees paid when purchasing securities, are not as obvious to some investors compared to those fees paid directly to one’s primary advisor for services rendered. 

Seven in ten feel that their advisor does a good job of explaining fees and fee structures to them, leaving one-third who feel that advisors are inadequate in this regard.  One-fourth of investors feel that their advisor avoids talking about the fees and commissions charged, but overall, one-half of affluent investors are not very concerned with the amount they are paying in fees.  Regardless, there is a strong relationship with investor age.

Younger Investors Less Sure

With each successively older age segment, the proportion saying they are not very concerned with the amount they are paying grows larger. While the youngest age bracket is the most concerned with what they are paying, they are the least likely to feel they are also aware of what they are paying, and the least likely to agree that their advisors are doing a good job of explaining what they are paying.

Talking about fees and fee structures is a critical component in the advisor-affluent investor relationship. Fees and fee structures can be complex, multi-tiered aspects of  financial management. Younger investors especially need to understand the fees and fee structure they are working with as they  typically have fewer  assets and relatively more to lose if they aren’t aware of an advisor’s fee structure and feel they have been misled.

Opening a dialogue about fees can be uncomfortable and possibly difficult  depending on your client’s comfort level with the fee structure and interest in discussing it, but it is an important aspect of your advisor/client relationship; one that your client’s  should be fully aware of and have a good  understanding. A fee structure that is perceived as  unfair or out-of-norm  can cost an advisor important clients and referrals. Taking fees seriously is another way to protect the assets under your management and your client relationships.

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