May 30, 2014
by Diana Britton, WealthManagement.com
Nearly 37 percent of independent b/d reps agreed or strongly agreed that fees are becoming a bigger problem.
Independent broker/dealer advisors are getting tired of fees, according to WealthManagement.com’s annual compensation survey. When asked if they agreed with the statement “Rising fees such as ticket charges, technology fee, etc., are becoming a bigger problem,” IBD advisors scored an average 3.1 on a scale of 1 to 5 (5 being “strongly agree”). That compares with the industry average of 2.6. Nearly 37 percent of IBD reps agreed or strongly agreed that fees are becoming a bigger problem.
“I think that a lot of independent advisors may feel that firms are pulling different levers, and it’s kind of eating into their profit,” said Kenton Shirk, associate director at Cerulli Associates.
Jonathan Henschen, president of the recruiting firm Henschen & Associates in Marine on St. Croix, Minn., said in the last two years, many IBDs have raised the fees they charge to reps to deal with additional costs and strains on their revenue.
“The reps don’t want their payout dropped, so what are you left with?” Henschen said. “You got to raise fees.”
While ticket charges have stayed pretty static, Henschen said firms have increased errors and omissions insurance costs and deductibles because of increased litigation and blowups of alternative investments. Two years ago, E&O would range from $1,500 to $2,500 a year. Now it ranges from $2,500 to $3,500. Deductibles typically run about $5,000 to $10,000. But some firms have deductibles as high as $100,000.
“When you have a firm that’s under the gun with FINRA, they can really add costs, especially deductibles on E&O and E&O costs,” Henschen said.
With the increased regulatory scrutiny on firms, b/ds have had to expand their compliance and supervision departments by 25 to 30 percent. And some firms are now charging supervisory and audit fees.
“Those were fees that five years ago you rarely saw; now you’re seeing them,” Henschen said.
Technology fees are also an added expense that wasn’t there before. That can run from $100 to $300 a month.
All in, the static costs for an IBD advisor—including E&O, technology, and supervisory fees—will be about $3,000 to $4,000 a year, Henschen said.
But that doesn’t cover variable costs, such as ticket charges. Ticket charges are typically $18 to $24 for stock and ETF transactions, $25 to $35 for bonds, and $10 to $20 for mutual funds.
Some firms are also charging a postage and handling fee of $6 to $8 every time a trade is done.
“There’s a lot of nickel and diming going on,” Henschen said.