For many investment professionals, the seemingly inexorable rise of robo-advisers constitutes an existential threat. The fear is simple and justified: Services now exist that provide investors with a portfolio that fits their expressed risk tolerance and reward inclinations for 0.25% of the assets invested in that portfolio.
That’s comparably a great deal and thus financial advisers offering a similar service are in a tough place.
If we use the example of a financial adviser currently making $75,000 a year, one who splits their fee down the middle with their firm, we can see this pretty clearly. At a 1% fee, this adviser can make a comfortable middle-class income if they spend 60 hours a week talking to 100 or so happy clients with a grand total of $15 million invested with the firm.
If their fee were lowered to 0.25% of assets, the adviser would need to either take on more clients (and provide less service to existing ones) or seek wealthier clients. Either way, their firm would need $60 million in assets instead of $15 million to make the same amount of money. Like, duh, right?
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