FA-IQ reached out to top Financial Times-listed advisors to ask:
How has the race to zero commissions among online brokerages affected your practice?
Michael Nathanson of The Colony Group. Boston-based Nathanson has been in the industry for 16 years and manages part of the company’s $11.5 billion in client assets.
"Zero commissions may be another benefit produced by modern technology, a ruse, or a call to action. Regardless, we’ll be ready.
In short, it’s had little short-term effect on us, but it has further inspired us to innovate at the fastest rate in our 34-year history. The Colony Group is a fee-only advisor that does not itself charge or accept commissions.
[W]e have long believed that investment costs, including commissions, are a drag on performance. We therefore have sought to minimize expenses by, among other techniques, utilizing trading platforms with low commission structures.
One small benefit of zero commissions is that, in the case of some of our actively managed strategies, we can construct smaller portfolios because we do not need to worry about the impact of commissions when we purchase smaller positions. We can also be less sensitive to tax-neutral turnover.
[However,] we are increasingly mindful of brokerages that might eliminate commissions only to replace that revenue from other sources that could affect our clients. For example, we are vigilant about lower returns potentially being offered on cash and about other ways the brokerages might try to replace commission revenue.
We also are prepared for the possibility that the discount brokerages are actually in the middle of a paradigm shift. Perhaps they are moving toward an emphasis on custody fees. Perhaps they are shifting out of their sales and transaction model into a model built more around providing advice.
These possibilities — eventualities? — only inspire us to be better. We must constantly innovate our services and strategically add to those services in order to prepare for a future that will be shaped by increased competition and disruption.
We are now launching our Curated by Colony Platform, which will allow our clients to go beyond our investment, wealth-management and tax services and take advantage of life-enrichment services that range from healthcare and wellness to mindfulness, educational consulting, cybersecurity, travel, and other services intended to help them live better lives. Simultaneously, we are adding services such as business-management, business-owner and even dispute-resolution services."
Clayton Bland of CLA Wealth Advisors. Seattle-based Bland has been in the industry for 22 years and has $7 billion in client assets.
“The race to zero commissions is a move that many in the industry expected for some time and it’s nice that it finally happened. We custody with the first [major] firm that offered zero commissions last fall and while our clients were happy to hear the news, we don’t think it had much of an impact on our existing clients.
Trading costs were never much of a barrier for our clients, but it is always nice when our partners can reduce, or eliminate, expenses for our clients.
From a practice perspective, zero commissions allow us to invest new accounts we’ve onboarded from a firm or advisor acquisition into our proprietary models as we see fit without having the clients bear the cost of trading commissions. This makes for a more enjoyable and seamless client experience. Zero commissions also allow us to make changes within our models without our clients having to pay for those changes.
Our value-add is understanding the financial and life goals of our clients and creating a plan that will accomplish those goals. The ability to submit and execute trades is a means to an end; it’s not why clients hire us.
The race to zero commissions has allowed us to remind our clients that what they hold in their investment accounts is just part of their overall financial plan. Among other things, insurance and non-publicly traded products also play a large role in helping them meet their financial and life goals.”
This is part of an ongoing series in which we ask Top Financial Times 400, 300, and 401 Advisors to answer pressing questions about the industry, their practices or their clients. Brokers and advisors make it to the respective Financial Times lists based on scores in six criteria: AUM, AUM growth rate, years in existence, advanced industry credentials, online accessibility and compliance records. Responses have been edited for clarity and concision.
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