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Asset-based fees

The case for asset-based fees

John Hewison
Founder and Director
14 Apr 2014

There has been recent criticism around asset-based fees charged for ongoing management of financial affairs.

 I argue that asset-based fees can be appropriate and fair depending upon the circumstances and certainly hold advantages over fixed fees.

Let me state first that I am absolutely against product based fees of any type, but most particularly trailing of so-called service commissions. Asset-based fees should consist of a clearly stated and delivered service proposition to the client, with charges completely transparent and calculated at a percentage of assets under management.

Asset-based fee charges are simply a mechanism of calculation – no more, no less. At Hewison Private Wealth, the asset based fee is charged on a reducing scale. This means that as the asset value grows, the percentage rate decreases. Therefore, this is not a matter of Hewison Private Wealth making more money as a client’s assets increase; in fact in some cases it means the exact opposite.

It comes down to a question of service value for money and the client’s comfort with the arrangement. We are more than happy to offer fixed fees to our clients, however they see asset-based fee arrangements as being fairer all round.

A good example of this is was during the global financial crisis. As share market values fell dramatically between 2007 and 2009, all clients’ investment portfolios were affected to some extent. Under these circumstances, our clients’ fees decreased relative to the reduction in asset value. Certainly this put a financial strain on our business, however in our view this was a fair and reasonable situation – and our clients agree. It would have been difficult to justify a fixed fee arrangement in these circumstances, where the client has suffered a reduction in asset value through market volatility and we continue to charge the same amount in fees.

A second issue is the complexity of ongoing service. We offer a complete service advice and management business. We actively manage direct investment portfolios, cash flows, SMSF compliance and administration, and ongoing strategy review packaged under the one fee for service proposition. Our clients must be comfortable that we are constantly monitoring and reviewing their requirements and pro-actively advising them on a continuing basis. I would argue that the only fair way of delivering this service for all clients; regardless of their portfolio value, is through an asset-based fee scale.

This “one-size-fits-all” debate about asset based fees is simply not appropriate. It comes down to an evaluation of the service provided and establishing a fair method of charging where the client sees good value for money.

Hewison Private Wealth is a Melbourne based independent financial planning firm. Our financial advisers are highly qualified wealth managers and specialise in self managed super funds (SMSF), financial planning, retirement planning advice and investment portfolio management. If you would like to speak to a financial adviser on how you can secure your financial future please contact us 03 8548 4800, email info@hewison.com.au or visit www.hewison.com.auPlease note: The advice provided above is general information only and individuals should seek specialised advice from a qualified financial advisor. The views in this blog are those of the individual and may not represent the general opinion of the firm. Please contact Hewison Private Wealth for more information.