Independent Channel Broker-dealer Recruiter Jon Henschen Publishes "Advisors Have Much to Gain With Broker-Dealer Arbitrage"
MINNEAPOLIS (PRWEB) June 06, 2018 -- Jon Henschen’s June 2 ThinkAdvisor article, “Advisors Have Much to Gain With Broker-Dealer Arbitrage,” explores how advisors can change their broker dealer to take advantage of pricing and payout inefficiencies in the marketplace that are profitable enough to make a change worth the effort.
Henschen opens his discussion by noting that the expression, “Out of sight out of mind” applies to the topic of advisory administration fees, as does “I don’t know what I don’t know.” He comments that, “When I interview advisors regarding the expenses they currently pay, the answers tend to fall into two categories: they are either not aware of what they pay, or they know but have no idea of what pricing competition offers them in the marketplace.”
According to Henschen, advisors are aware of what they are paying for errors and omissions insurance, monthly expenses and miscellaneous expenses such as SIPC & FINRA assessment fees. However, when asked about what advisory administration fees they pay or how much markup on third-party money managers is being imposed on them or their clients, Henschen states, “a pregnant pause of bewilderment is more common than not.”
With the advisory space getting crowded as others flood into the same investment style, price compression is an increasing reality, making advisory cost savings increasingly important.
Henschen advises that cutting back dramatically on advisory expenses can make advisors much more competitive in a crowded space. He then offers several ways advisors can net more to benefit themselves and/or their clients.
First, Henschen reviews advisor-managed advisory platforms, of which there are two types. With the unbundled platform, advisors pay an administration fee for billing and client statements, with ticket charges paid separately. With an all-inclusive fee account, a single administration fee covers both administration fees and ticket charges. He then outlines common pricing structures for each platform and alternative pricing that can net advisors much more.
The second category is institutionally managed platforms, which are suitable if advisors choose to have others managing their client’s assets. In this category, there are two ways to achieve substantial savings: by avoiding markup on third-party managers, and with value-priced Separately Managed Accounts (SMAs).
Regarding markup, Henschen counsels advisors that if they are not sure whether they are paying a markup on their third-party manager, they should ask their broker dealer. If the BD is not willing to disclose the information, advisors can call outside advisory companies and ask them what the management fee is for a particular third-party manager.
In terms of value SMAs, typical pricing for programs where the advisor chooses an investment model and the assets are managed by others ranges from 30 bps to 100 bps (which reflects a combination of management and administration fees). The marketplace can offer a tactically managed platform using very low-cost mutual funds and ETFs, with the advisor choosing the model and institutionally managed for 20 bps. total expenses.
When evaluating cost-saving options, Henschen notes that the greatest benefits are achieved by higher-end producers and producer groups because their scale often will bring them payout advantages their current firm doesn’t offer, such as payouts up to 96% on all investments for advisors doing $1 million or more in year fees and commissions.
Pointing to numerous $1 million producers and groups that his firm has consulted with, Henschen says the combination of higher payout and lower advisory costs can yield cost savings of $150,000 to $200,000. These savings may come primarily to the advisor in the form of payout increases, or go to the client or advisor depending on who is paying the administration fees and ticket charges. According to Henschen, “Either way, it’s a win-win scenario.”
The sad side of this picture is advisors making the inquiry, getting excited about the cost savings and dreaming about what they will do with the additional revenue, but never making a move because they don’t want to repaper or simply because they don’t want to step out of their comfort zone.
According to Henschen, “Delaying a $150,000 savings for four years puts you at a $600,000 deficit, and that’s not taking into account the growth your practice could have experience by investing that savings back into business.”
Jon Henschen is President of Henschen & Associates, an independent broker-dealer recruiting firm located in Marine on St. Croix, Minnesota. With more than 20 years of industry experience, Jon is a staunch advocate for independent financial advisors, and is widely sought after by both reps and broker dealers for his expertise and advice on independent broker dealer topics. He is frequently published and quoted in a variety of industry publications, including ThinkAdvisor, Investment Advisor Magazine, Wealth Management Magazine, Financial Advisor IQ, Financial Advisor Magazine, Investment News and others.
Laura Rafferty-Jacobo, Henschen & Associates, http://www.findabrokerdealer.com, +1 415 860-3023, [email protected]
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