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Advisers try one-off fees for services

Looking for new ways to attract clients, as well as to offset declining asset-based fees and commissions, some…

Looking for new ways to attract clients, as well as to offset declining asset-based fees and commissions, some financial advisers are turning to a new revenue source — fees for one-off services.

Will Byron, a managing director and adviser with Corporate Advisors Inc. in Charlotte N.C., which manages $1 billion in assets, now breaks out fees charged to retirement clients, billing separately for seminars and consulting services. This a la carte approach has attracted new clients, he said, especially those who have been paying heftier fees at other firms, but not using all the services they were paying for.

“It’s helping us get more business in a down market,” Mr. Byron said. “It’s really working; people really like getting a choice of the services they want, and not having to pay for the services they don’t want.”

Gregory Pierce, principal and senior portfolio manager for Reinhart Partners Inc. in Mequon, Wis., said his firm has increased revenues by selling its proprietary research reports on fund managers to other advisory firms.

“Many firms are seeking research, so now we’re charging for something we’ve always done,” said Mr. Pierce, whose firm manages nearly $2 billion.

Mike Flower, a financial adviser with Financial Principals LLC in Fairfield, N.J., recently began charging new clients a fee for creating a financial plan. The one-time charge can be as much as $5,000.

“We’re not going to charge existing clients for their plan,” said Mr. Flower, whose firm manages about $130 million in assets. That’s down from $170 million a year ago. Most of his clients have $750,000 to $1 million in assets.

James Barnash, a former chairman of the Financial Planning Association of Denver, believes that advisers have no choice but to charge existing clients additional fees.

“You need to tell clients that you’re feeling the shock of what’s going on in the markets too and have introduced a new service, which is project consulting,” said Mr. Barnash, whose new Chicago-based Stride Consulting Inc. assists about 30 advisers.

He said several of his adviser clients are in the process of establishing hourly consulting fees ranging from $100 to $250, depending on a client’s net worth. Mr. Barnash coaches these clients on ways to charge for reviewing insurance contracts and making insurance and annuity purchase recommendations.

Not everyone agrees with this approach.

“I don’t think clients will pay for those types of services, because the adviser’s commission is built in in most cases,” said Scott Smith, a senior analyst with Boston-based Cerulli Associates Inc. “It might work more on the holistic financial planning side of the business, when you move up to the $5-million-in-assets-and-up practice.”

Creating the billing infrastructure to charge hourly fees also can be problematic, said Eric Bennett, chairman and chief executive of Tolleson Wealth Management in Dallas, which manages $1.8 billion in assets and charges clients an annual retainer based on net worth. He said advisers who aren’t used to billing hourly will hate managing those fees.

“If you’re used to billing for 1% of assets and you change your model to bill hourly for services, clients won’t like it, and you won’t like it either,” Mr. Bennett said. “I wouldn’t encourage hourly or project-based fees. Clients feel like they’re being nickel-and-dimed, and sometimes they don’t see the value.”

But other advisers say wealthier clients often prefer fee arrangements.

Paul Comstock, chairman of an eponymous investment advisory firm in Houston that manages $1.6 billion, said he’s getting more business simply by offering to analyze prospective clients’ portfolios. He said his fee varies with the complexity and value of the client’s assets but can start at $10,000.

“The problem is, if I don’t charge for the consulting, then all the analysis I do has to be geared to try to get them as a client,” Mr. Comstock said. “This way, if I don’t get them as a client, I still have the $10,000. Did it build assets? No. But in this environment, it’s a nice fee.”

E-mail Lisa Shidler at [email protected].