As you know we are not a fan of % based advisers and now it seems that in the US they might have found a limit to their business model.
In some ways financial advice in the US is ahead of the UK, but they are behind in terms of the transition from commission to percentage charging. Regulation in the UK has largely killed off commission advice (payment for a transaction, which incentivises constant churn of products) in favour of charging an ongoing percentage of your portfolio.
In the US the regulation isn’t as tight and so the market is slowly moving away from commission to % charging (which is an improvement).
As this article shows though, if all advisers move to % charging there aren’t enough clients with enough money for the number of advisers. Each adviser would only have 23 clients.
The obvious answer is for the market to move on from % charging to the fairer flat fee model that we advocate. That way everyone who could afford the fee could access the advice, regardless of the size of their portfolio.
Extraordinarily this is not the conclusion the article (or the market) comes to. So obsessed is everyone with the 1% of the portfolio model, they have instead started to look at other things to base the 1% on.
The suggestion is that those who don’t have enough money for the adviser to get paid well enough, should instead pay 1% of their income or 1% of their property value.
That sounds you can hear is a square peg being bashed into a round hole.
The percentage model creates a kind of myopia where it is seen as the only solution for the adviser and so it is the client who must bend out of shape to fit the model.
It is driven, as we have written here before, by the knowledge that humans don’t process percentage charges well. They have low ‘salience’ which means that advisers can get away with charging more.
Imagine an alternative world where you as a client describes the services you need and agree with the adviser the price that is appropriate to that service. You then pay that fee monthly whilst you still need that advice.
That world is a small one but growing, head to our home page to find an adviser who will work with you in this way.