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Daniel Ketchum prides himself on his low fees and independence, but after 27 years as a financial adviser he is finding it harder to make a living working with smaller clients.
Increased government regulations and savers becoming more knowledgeable about investing have created what he calls the “Amazon effect” for US financial advisers.
“Clients want more now, but for less,” Mr Ketchum says. “There seems to be a disconnect where more services, delivered faster and in a more convenient fashion, no longer adds up to higher prices in the minds of consumers, and it has spread to this industry as well.”
His Californian practice ended 2016 with 75 per cent of assets in plans below $1m. But after a significant number of plans had growth spurts, now less than 10 per cent of the $235m he oversees is in plans below that figure.
Mr Ketchum will now not even consider prospective clients unless they are of a certain size. “I beat my sales guy with a wet noodle if [he sets up] a meeting for a plan under $2m,” he says.
Increased regulation and higher expectations of plan participants make it harder for independent advisers like Mr Ketchum to work on small plans. “Quite frankly, I don’t know if they’re profitable,” he says.
Mr Ketchum, who has been a Raymond James adviser since 2004 and was previously part of the Merrill Lynch and UBS networks, began working with workplace retirement plans, known as 401(k)s, around 2008 because he “saw a lot of plans that were being overcharged and under serviced”.
But the US Department of Labor’s fiduciary rule, which came out this year, is making it harder for him to make a profit from advising small plans, he says.
The regulation requires advisers servicing retirement accounts to work in the best interest of the client and has disrupted the wealth management industry.
While the regulation seems simple, it has made brokers more susceptible to litigation and changed the way the industry operates. This has added to Mr Ketchum’s workload, he says. “There’s only so many hours in the day.”
His team of five, including himself, offers to analyse prospective clients’ plans for free. Half these businesses sign up with his practice.
He charges 25 basis points on a plan’s assets for those below $5m, and 20 bps for larger clients.
Plans above $2m receive quarterly performance updates, while those below receive annual updates. But he is hoping that digital tools can help reduce some of the costs and time associated with servicing smaller clients so that he can eventually open his office to the smallest plans again.
“I am trying to see if there’s an area where we can do this online and don’t need to leave the office,” he says. “If every plan had the economics of the smaller guys, it would be tough to pay staff, office rent and marketing.”