Asset management is no exception to the rule that competition in a mature industry puts prices under pressure. Worldwide, average asset-weighted fees shrank from 46 basis points in 2006 to 39 in 2012, according to Casey, Quirk & Associates, an investment management consulting firm based in Darien, Connecticut. The mass-market end of the business is seeing a spate of new low-cost alternative offerings, including so-called robo-advisers that charge very little. Early in 2015, U.S. investment titan Charles Schwab Corp. plans to take this race to the next level by launching an online advisory service with no fees beyond underlying fund costs.
Wealth management has long resisted discounting because its specialized practical and luxury services for affluent families, from tax preparation to bill paying, have justified a higher price tag. But amid fierce rivalry, registered investment advisers and multifamily offices are changing their approach. “Wealth advisers need to be creative and innovative as they look to attract and begin servicing second- and third-generation clients who have different expectations and needs,” says Barbara Herman, senior vice president with Chester, New Jersey–based Diamond Consultants, which specializes in financial services recruitment and practice consulting.
The good news for advisers is that the very wealthy aren’t so price-sensitive. “We have seen an increasing trend among mass-affluent investors to shift toward fee-only advisers but also to make lowering the total fees paid the most significant part of the selection process,” says Linda York, head of wealth management syndicated research and consulting at Market Strategies International. “Once the investible assets rise above $2 million, however, we see fees become less important than factors such as service level and investment performance,” adds York, whose Livonia, Michigan–based firm surveys investors and their advisers.
Multifamily office Aspiriant has evolved with the times. “In our practice it is not unusual to deal with three generations of adults in a single client family, each with very different needs,” says CEO Rob Francais. Los Angeles–headquartered Aspiriant charges clients at all asset levels the same investment management fee, which it doesn’t disclose, with specialized wealth planning offered à la carte or on retainer. The firm, which manages some $8 billion in assets for about 1,000 families, has reverse-engineered its business to reach a new wave of wealth creators. Twentysomethings and new Silicon Valley millionaires may not require the same hand-holding as older executives with more complex lifestyles, Francais says. “As their planning needs grow, our service offering grows with them.”
A firm of Aspiriant’s size can keep costs low through economies of scale for services like asset management and still support tax and wealth planning staff. Diamond’s Herman points to this advantage over smaller players as a driver of consolidation: “It’s increasingly difficult for a sole proprietor or small partnership to truly service multigenerational wealth because those clients have become accustomed to a high-touch, highly customized approach.”
But large firms can be complacent, according to Tim Sallade, CIO of Lake Tahoe Wealth Management. Based in Zephyr Cove, Nevada, Lake Tahoe manages more than $20 million; it also advises entrepreneurs on succession and is launching a trust company in its home state to help estate planning clients maximize protection under local laws. Before joining this year to open a Rochester, New York, office, Sallade was vice president of investments at a big wealth manager that billed clients as much as 2 percent of assets annually, plus other fees for some services. Lake Tahoe rarely exceeds 1 percent in total.
“We want to be cutting-edge so that we can justify charging our clients a fair fee,” Sallade says. “Many of the older, established players have been content to continue to charge higher amounts that the current market will bear, but that really impedes their ability to attract new clients and retain client relationships with successor generations.”
