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New research suggests advisors need to do a better job of explaining fees to potential clients.
Cerulli Associates, a wealth and asset management research and consulting firm, in conjunction with research and marketing firm Marketcast, surveyed more than 1,600 investors in the second half of 2023 and found that 46 percent of those without an advisor said they believed a lack of cost transparency would be the most difficult part of working with an advisor. Thirty-four percent stated they wouldn’t be sure if advisors were recommending the best products, and 28 percent stated that advisors would be too expensive. (Respondents could choose more than one answer.)
Comparatively, 11 percent of investors who are most reliant on a financial advisor said cost transparency was the most difficult part of working with an advisor, while 12 percent cited uncertainty about the products their advisor recommended, and 12 percent said advisors are too expensive.
“Given the variety of ways in which an advisor typically charges for services, whether asset-based fees or commission-based, it can be a challenge for prospective clients to fully understand how much they are paying for financial advice, how they will pay for it and what type of advice they will receive,” wrote Cerulli.
“As more investors transition from being solo traders to seeking formal financial advice, they will want an advisor who understands their needs,” John McKenna, a Cerulli research analyst, said in a statement. “That begins with the advisor being open not only about how advice delivery is carried out, but also the methods through which it is delivered.”
Cerulli suggests that in coming years, RIAs are likely to increase the fees for their smaller clients even as they lower them for clients over the $1.5 million threshold in order to compete for high-value clients. Of the approximately 2,000 financial advisors surveyed by Cerulli, the company found that among those who charge fees based on assets under management, the average self-reported fee for clients with $750,000 was 103.7 basis points, compared with 88.1 basis points for those with $1.5 million in assets. The average estimated figures given by advisors for 2025 were 104.0 and 87.6 basis points, respectively.
Investors who work with an advisor are less stressed and more optimistic about their financial situation compared to the unadvised. Additionally, retirees with a financial advisor have on average nearly double the monthly income of those without a financial advisor. Despite this fact, only about 35 percent of all Americans work with a financial advisor.
Lead generation plays an important part in any advisor’s growth. Unfortunately, lead generation is expensive. A 2020 analysis by Kitces.com of more than 800 financial advisors found that the average total cost to acquire a new client for a financial advisor was $3,119 per client, and 83 percent of the total cost of acquisition was purely the “time cost” for the financial advisor.
In recent years, a number of tools have debuted in wealth management aimed at making this endeavor easier for financial advisors.
However, Cerulli believes that fee transparency is an important part of any prospective client communication and one that can drive growth.
“Regardless of how one communicates with a prospective client, it must be transparent from the first encounter on,” said McKenna. “This will remain critical for growing one’s book of business and building long-term, loyal relationships.”
