Nikko Asset Management NZ is testing a new method of paying advice fees at the product level that removes potential conflicts, avoids fund-level inequities and hands more power to consumers.
George Carter, Nikko NZ chief, said under the plan advisers could agree fee levels – including ongoing payments – with clients that the fund manager would deduct from individual investor accounts.
“It’s very transparent,” Carter said. “Importantly, the client would also be able to unilaterally turn off the adviser fee whenever they want.”
But the ability to charge clients via the product would still offer an attractive administration solution for advisers as well as removing a barrier that prevents many New Zealanders from seeking advice, he said.
Carter said linking advice fees to individuals was a fairer method than burying the cost of trail and upfront commissions in a manager administration fee, which is bourne by all fund investors.
Nikko is working through the nitty-gritty of its advice fee solution, which could eventually extend to the manager’s KiwiSaver scheme.
Meanwhile, Mint Asset Management had already seen a number of advisers use its new fee service, according the boutique’s head of sales and marketing, David Boyle.
Boyle said the recently-introduced system allows advisers to charge clients through Mint products.
Unlike the proposed Nikko service, the Mint approach targets one-off advice payments with the fee agreed between adviser and client.
The fee is deducted from the individual investor account after Mint administrator, MMC, receives formal written notice of the agreement.
While the admin component might be a little “clunky” for now, Boyle said Mint’s new fee option opens up new opportunities for advisers to service a large neglected cohort of New Zealanders.
“Most advisers prefer clients with at least $500,000 to $1 million to invest,” he said. “And it isn’t really economic for them to service lower-value clients with the increasing costs of running advice businesses.”
Clients with less chunky amounts of money to invest could also end up paying over-the-odds if they end up in platforms that bundle up asset-based advice, investment and administration fees, Boyle said.
He said there was a large number of New Zealanders who might have on average about $250,000 to invest who “desperately need advice” on the best use of their money.
“With interest rates at historical lows – and looking to stay there for a while – even more of this ‘missing middle’ group of New Zealanders are looking to earn above what they’re getting from term deposits.”
However, Boyle said there was a rising danger that these unadvised investors could fall for risky, undiversified products advertising slightly higher interest rates.
He said the Mint fee approach enabled advisers to charge for relatively simple one-off advice that would channel this neglected group of investors into risk-appropriate products that should product better long-term returns than bank deposits.
For example, investors can mix-and-match allocations to Mint’s diversified income and growth funds to build a risk exposure, Boyle said.
“Investors can get a fit-for-purpose portfolio and advisers can get paid for their time in a transparent way,” he said. “Also this is a good way to build a second-tier of business – advice-light – for advisers. It’s a win-win.”
As the Nikko move shows, other managers could soon start offering similar advice fee-collection services that bypass some of the problems inherent in traditional commission models.
In fact, the NZX-owned Smartshares launched a targeted fee-through-product program last April.
At the time, Hugh Stevens, NZX head of funds management, said: “We sign an agreement with each adviser. They agree to undertake ongoing monitoring of the account and provide an opportunity for an annual review of the investment strategy. In return we do all the fee collection.”
Like Nikko and Mint, the NZX fee model represents a novel take on the age-old problem of charging people for advice when they don’t want to pay.