Fee-only advisers share clients' losses, triumphs

The market downturn that has rocked the nation's investors has likewise affected financial advisers whose fees are tied to market performance.

"Any time that your income is tied to the assets you manage and the market goes down 40 (percent) to 45 percent like it has, your fees are going to go down as well," said Terry Conner, senior managing partner of The Mutual Fund Store in Springfield.

At The Mutual Fund Store and other fee-only financial advisory practices, fees are charged as a percentage of assets under management. This means that when clients do well, advisers do well, and when clients suffer losses, advisers suffer with them.

"(Our fees are) directly tied to how well our clients do," Conner said. "We sit on the same side of the financial table."

In the current market, that means sharing some pain. The Mutual Fund Store charges fees quarterly, and "come Dec. 31, I think it will be down 20 percent, probably, unless the market does some sort of substantial recovery," Conner said. The Mutual Fund Store's fees for assets under management vary by asset size and range from a high of 1.5 percent on amounts less than $1 million to a low of 0.9 percent on $1 million or more, Conner said.

Randal Saul, Springfield office director for BKD Wealth Advisors LLC, has some advice for other fee-only financial advisers who are navigating these financial times.

"You continue to grow your business," he said. Saul declined to disclose details on BKD Wealth Advisors' fees.

Investors who are unhappy with their current advisers are shopping for new ones, while people who didn't think they needed advisers in the up market are now seeking professional advice amid the downturn.

"Personally, we're picking up quite a bit of business right now," Conner said.

And he's not alone. The most recent "Pulse" survey by the Certified Financial Planner Board of Standards Inc., released Oct. 21, showed that two-thirds of CFPs surveyed have seen an increase in potential clients.

"The significant increase in the number of potential clients who have contacted CFP professionals during the past few weeks shows that more Americans are recognizing the value of working with financial planners who are held to rigorous standards of ethics and competence," said CFP Board CEO Kevin Keller in a news release.

Investor reaction

While assets under management have declined in recent months, Conner said, very few of The Mutual Fund Store's clients have pulled out of the market completely.

"Ninety-nine percent of the decline in assets under management is just the market's decline," he said.

A few people have pulled back, but "most of ours didn't go completely to cash or (certificates of deposit) or something like that. We just took an intermediate step back. Where maybe we had 10 percent cash in the portfolio before, maybe we raise that to 25 percent and let some of this blow over," Conner added.

The CFP Board's "Pulse" survey indicated that the majority of clients - 78 percent - are standing firm with their existing investment strategies. The survey also found that 57 percent are reviewing asset allocation, 48 percent are reviewing financial goals, 45 percent are moving assets to lower risk positions and 40 percent are taking advantage of investment opportunities.

For those bold enough to seize them, there are lots of investment opportunities to be had.

"It's the paradoxical nature of investing that when the markets are doing well, the emotional risk is very, very low, but the financial risk is substantially higher," Conner said.

"On the other hand, when the market's fallen in value, the emotional risk is very high - we feel poorly - but the financial risk is very low. Hence we want to buy low," he added.

Surviving and thriving

Ultimately, how well financial advisers come through a downturn depends in part on how well those advisers practice what they preach.

"The ones that are most successful took their own advice and they set money aside for a rainy day," Conner said.

While most seasoned advisers have done just that, Conner said, the ones who are suffering the most right now are those who are newest to the business.

BKD Wealth Advisors' Saul agreed.

"I can see where people who haven't been in the business very long could be challenged by (the downturn)," Saul said.

As a result, some new entrants to the industry may be reconsidering.

"It's kind of like real estate," Conner added. "Everybody wanted to be a real estate agent when the market was hot, but now that the market's turned down dramatically, you'll see a lot of people exit the business."

Times are difficult, he said, "but the good advisers, the ones who planned well, they survive and thrive. The ones who didn't usually are displaced into other industries."[[In-content Ad]]