Page 20 - Investment Advisor - December 2021

PORTFOLIO PERSPECTIVES

By Jane Wollman Rusoff

Rick Ferri: Advisor Fees Are ‘Last Bastion

of Gluttony’

Providing both advice and portfolio management is a conflict of

interest, says the consultant.

ick Ferri, founder and CEO of Do you think advisors are charging fairly
Ferri Investment Solutions, who for their services?
R was a financial advisor for 32 Most are charging way too much. This is
years, is attempting to influence new, the last bastion of gluttony in the invest-
young advisors to separate advice-giving ment industry. For years, I managed a
from portfolio management in structur- portfolio for a quarter of a percent, and
ing their compensation. In other words: we had a 30% profit margin.
Don’t charge a fee — like the prevalent How in the world advisors in good
1% — based on assets under management. conscience charge clients 1% or 1.5% per
“It’s a conflict of interest for an advi- year for literally the same thing is beyond
sor to provide both advice and portfo- me. If they have a client with a million-
lio management,” Ferri asserts. He sees dollar 401(k) rollover and charge them
fairer alternatives. $10,000 a year to manage that portfolio
The chartered financial analyst and and charge another client with a $2 mil-
fiduciary is a consultant to both indi- lion portfolio $20,000 if they roll over,
vidual investors and, under a separate Rick Ferri: No. There are a lot of other what is the advisor doing differently?
umbrella, to advisors. Index fund-ori- people saying this, a whole network The answer is absolutely nothing.
ented, he gives advice chiefly to do-it- trying to evolve the industry; we’re not And if the $1 million portfolio grows
yourself investors seeking confirmation trying to change it. You can’t change the because the market grows, now the advi-
as to whether they’ve been managing advisors who are charging 1% and those sor will get paid $20,000. Why should
their portfolios well; and he helps pre- who are doing commission business. But they get paid $10,000 more a year because
retirees with distribution planning. a lot of them are going to eventually get of that? The answer is, they shouldn’t.
Ferri’s interview podcast, “Bogleheads less business because of the evolution in
on Investing” — supported by the non- how advisors charge. Are you trying to convince most advisors
profit John C. Bogle Center for Financial to unbundle their fees?
Literacy — garners 30,000 downloads You say it’s a conflict of interest to both I know I’m not going to turn a 1% AUM
a month. provide advice and sell product, and pro- advisor into an hourly advisor or a fixed-
His career started as a broker at vide asset management services. Why is fee advisor charging an annual $8,000
Kidder Peabody, later moving to Smith that a conflict? or $9,000 to manage money and give
Barney when Jamie Dimon was presi- If your incentive is to get paid, the advice regardless [of] how much the
dent. He founded RIA Portfolio Solutions way you’re paid will determine sub- client has. I’m trying to influence the
in 1999, selling the firm to an equity consciously the advice you provide. new, younger advisors who haven’t yet
investor 18 years later, in 2017, and form- If you’re selecting a product you get decided how they’re going to structure
ing Rick Ferri LLC. Two years after that, paid a commission on, for example, their compensation. Charging 1% AUM
he launched Ferri Investment Solutions. your recommendation to the client is not the way to do it.
Here are highlights of the interview: will be to your own benefit. You’re
going to convince the client one way What’s the better way?
Investment Advisor: By calling for advi- or another to do what’s in your best Charging an hourly fee or a subscription
sors to unbundle advice from portfolio interest. That’s where the conflict where the client pays a small monthly
management, are you fighting a one- comes in. Incentives drive advice — amount for ongoing advice as they need
person battle? always have. it, or a flat fee, regardless of how much

18 INVESTMENT ADVISOR DECEMBER 2021 | ThinkAdvisor.com