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Story Capital's World View of the Investment Advisory Industry

Investment Management

Impact of Technology on the Investment Advisory Pricing Model

Across decades of technological advance in the Investment Advisory industry, technology’s effect has created a persistent reduction in the cost of providing investment management advice, yet we have not seen a corresponding reduction in fees on the consumer side. Today, apart from liability, there is little difference in cost, on the advisor side, between managing a $1 million client account and managing a $10 million account. Why then, should clients pay an advisor 7 to 9 times more to manage the larger account?

Question: What additional investment related service or investment performance premium is the advisor delivering on the $10 million account that was not already being delivered on the $1 million account?

Answer: Generally, none

The old-school pricing model of an uncapped, declining, asset-based fee causes a client to pay their advisor larger aggregate fees as their managed asset balance grows without receiving any marginal benefit. To date, clients seem to focus more on the declining marginal cost of investment management than on the increasing aggregate cost as the size of their account grows.

To Clarify

In many firms, the $1 million client pays the firm approximately $11,000/year (approximately 1.1% of managed assets). The $10 million client pays the firm a “discounted” $85,000/year (approximately .85% of managed assets). Though the marginal fee is lower, providing the appearance of benefit, the $10 million client is paying an aggregate 7.7 times more for investment management services than the $1 million client. The delivery cost for the advisor is approximately the same for both clients.

  • Where is the justice or sense in this pricing model? 

  • Whose best interest is served in this pricing model?

The investment management business, thanks to technology, has become one of the most profitable and scalable businesses in America. This is a pricing anomaly calling out for resolution.

Are You Subsidizing Your Firm’s Service Offering?

Many investment firms offer free or discounted services like estate planning, financial modeling, advice on option exercises, hosting family meetings etc. While these are all valuable services, they lie well outside of delivering core investment management counsel or process.

  • Why then are these non-investment-related, supplemental services paid for by over-charging for investment management alone? 

  • Do we pay 7 to 9 times more for milk so that we can purchase discounted, meat and potatoes at the grocery store? No, we pay what each product is worth.

Providing investment management and non-investment-related counsel are distinctly different businesses. Many investment advisors add these supplemental services to justify the larger aggregate fee being collected from their larger clients; a client retention “freebie” that really isn’t free at all! Perhaps it is time to reassess this old-school pricing model.

What Then, Does Story Capital Do?

At Story Capital, we have a deep bench of expertise and experience. Collectively, our team possesses 4 JD’s, 1 Masters in Tax, 1 former CPA, 3 CLU’s, 2 MBA’s, and 1 CFP. One of our Partners was the Chief Investment Officer of his predecessor firm where he had responsibility for guiding investment management process on just under a half billion dollars of direct assets under “old-school,” fee-based management.

Story therefore has the intellectual horsepower and experience to optimally deliver two different yet complimentary service offerings and our clients may engage us for delivery of either one, or both offerings.

  • Our team has a focus on financial empowerment with executives. In effect, our mission is to empower clients with the context and proactive guidance to make the same high quality decisions in their personal lives which they are empowered to make in their business lives. Story Capital is a multi-client, Family Office for the first 100 executives either at, or with the potential to be at $50 million of net worth within 7–10 years (including children and charitable accounts).
  • Our team also delivers stand-a-lone risk assessment and asset allocation across all assets in a client portfolio, not just the managed account. In so doing, Story Capital strives to deliver cost effective, continuously tax managed, investment management solutions

If Story Doesn’t Set Fees By Old-School, Asset-Based Methods, How Do You Charge?

Prospective clients interview Story and vice versa. Story desires to ascertain a prospective client’s service preferences and to learn about the complexity level of their circumstances and investments. Story Capital will then offer a flat subscription fee.

Clients are given a multitude of different methods of paying the flat fee; 1) out-of-pocket, 2) through an old-school, asset based charge, 3) a combination of 1 and 2 or soon, 4) via a systematic credit card draft.*

 Lastly, Story Capital adheres to an aggregate maximum subscription fee for all clients under $50 million of net worth. This maximum flat fee is a cumulative “cap” on Story Capital fees, be they for Financial Empowerment and/or Investment Management. This “capping” of our overall fee reduces the subsidy effect which discriminates against larger clients as discussed above.

*We hope to have this avenue of payment available by mid-2017.


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