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While the industry continues to weigh how best to levy clients’ fees (and whether subscription or asset under management fee models make for the best approach), firms must contend with how the industry’s opacity on fee information makes it harder for clients to understand—and compare—what advisors offer.
During a discussion at last week’s WealthManagement EDGE conference at The Diplomat Beach Resort in Hollywood, Fla., Megan Gorman, the founder and managing partner at the San Francisco–based Chequers Financial Management (and frequent guest on WealthMangement.com’s “Celebrity Estates” podcast), bemoaned the lack of serviceable tech options for letting clients clearly understand what a firm does and how they charge.
“Because when you’re trying to pick a financial firm to work with, it’s a little bit of hoping that maybe that chemistry is there, that the initial tools that get put in front of you, that that promise is delivered upon,” she said. “And I think if you asked a lot of clients, a lot of them have probably been disappointed by our industry, or made more cynical by it.”
Chequers is a fee-only firm focusing on high-net-worth and ultra-high-net-worth families, and, according to Gorman, the firm will charge an AUM fee when it manages all of a client’s assets, while opting for consulting fees if assets are not managed in-house. Gorman found that clients with an AUM fee did not mind it as long as it was “competitive.”
Brent Weiss, the co-founder of Facet Wealth, said it wouldn’t surprise anyone that he was not a fan of AUM fees, and detailed how the model didn’t work for Facet’s client base or strategy. Facet charges clients a subscription-based fee tied to a client’s complexity, rather than assets or income, with co-founder Anders Jones describing it as a good fit for households with too much nuance in their finances for a robo, but below the asset level conducive to many HNW advisors.
For Weiss, a subscription model promoted access to this swath of potential Facet clients.
“Those are the clients we’re helping, and an AUM fee breaks down for them,” he said. “You’re not going to transition from a subscription fee to an AUM fee once they have money, so that model works really well, and I think the proof is in the pudding.”
As “proof,” Weiss noted the firm had expanded from onboarding about five to 10 clients monthly to as many as 1,000 per month in two years’ time. Earlier this year, the firm closed a $100 million Series C funding round, following a Series B funding round in 2020 when it raised $25 million. The firm’s funding has totaled $165 million since it was founded in 2016.
Gorman said she had several “golden rules” when setting fees with clients, key among them being to clarify the value clients receive. She also stressed that an advisor’s experience level mattered, given that not every client’s financial situation was equal in complexity.
Additionally, firms need to consider how they discuss fees with clients after the original one is set. Gorman recalled how she ran estate strategies for a wealthy couple who periodically reached out to question whether Gorman was being paid enough for her services, considering their expectations. It forced a fee discussion, but Gorman said setting a fee fairly was important to clarify clients’ needs and advisors’ responsibilities.
“I don’t want to have to look for planning problems to solve if there aren’t problems to solve,” she said. “There’s enough out there; there’s enough meat on the bone to focus on.”
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