A Fee By Any Other Name

In a famous passage of William Shakespeare’s Romeo and Juliet, we are asked “What’s in a name? That which we call a rose / by any other name would smell as sweet.”

Words and nomenclature have power and, if adopted and evangelized, can shape and define our existence.  Giving something a name means you have power over it.  We give names to our pets and children.  Despite the power of names and labels, the above passage reminds us that , in the end, the name of a thing does not affect, or change, what the thing actually is.

Nor do names define a thing’s characteristics.  Take investment adviser fee models, for instance.

Investment adviser fee models seem to be a hot topic lately in the investment adviser community.  I do not know why.  Investment advisers and their representatives have been paid the same way for a long time.  The operational and regulatory challenges surrounding fee models, although not static, have not changed all that drastically.

Investment advisers are paid directly by clients.  Whether it is a fee based on the level or amount of assets under management, flat fees, or hourly fees, the fees are paid by the client to the investment adviser firm.

Contrast this to transaction-based compensation where there is an intermediary (a broker-dealer, for example) that pays a registered representative a commission of selling a product.  This schism has widened since Regulation Best Interest and is continually widening.  But this divide and controversy has moved beyond the “RIA vs BD” fight.

Times were when an investment adviser could rightly and justifiably proclaim he or she was “fee only” because transaction-based compensation was not received.

Times are here when investment advisers receive “fee based” compensation and dare call themselves “fee only.”

Here is some news.  A fee based upon assets under management is still a fee.  And, if you do not receive any other type of compensation for your investment advisory services you are “fee only.”

That should be the end of it, but I know that is asking a lot.  Those who are advocating for “fee only” should realize they are fighting the wrong battle.

A Fee By Any Other Name
Venturis Solutions, Paul Mallory 13 May, 2021
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