Am I the only observer that thinks this makes no sense at all? Bank of America has announced plans to revamp the fees charged to Merrill Lynch customers, which means that most will get hit with fee increases, though some could have lower fees. In fact, an article in Wednesday’s Wall Street Journal reports that, on average, clients will incur fee increases of 40 to 55 percent.
Fee pressure on financial advisors and financial advisory products, which has existed for more than the past decade, has definitely accelerated in the past several years. With the increase in registered investment advisory firms utilizing fee-only models, choices and transparency in this space has increased. All this means that most vendors of these products and services — and I don’t use that term lightly — are reducing, rather than increasing fees.
That’s because the financial advisory industry has become increasingly subject to commoditization. Clients believe, rightly so, that they have many options including DIY to select and purchase financial products and see little difference among the sellers of these products and services. In this type of environment, it is extremely difficult for advisors to differentiate themselves from their competition and to hold the line on current fees, let alone increase fees.
Yet Bank of America seems to believe that it has the pricing power and differentiation to be able to do this without experiencing mass defections of customers. Merrill advisors are complaining that the changes will remove the flexibility they previously had to charge lower fees to their best clients and encourage them to shop outside the firm for new advisors. Duh.
Fee increases are a tough sell in this environment, but a 40 to 55 percent increase is really ballsy. Even if it doesn’t come into effect fully for a year and a half, though this begs the question of why announce this change now? I guess in the hope that no one will pay attention in the summer and that clients won’t remember about the fee increase by the time it actually hits their bottom line.
I’ll be interested to see whether this sticks and if it does, what the bottom line impact will be on Merrill’s revenues, client retention and advisor retention. At a time when wirehouse advisors are fleeing the ranks en masse to open their own RIA firms, this seems like an open invitation from Merrill to get their best people to leave.