Ameriprise to Levy New Advisory Fee on Independent Brokers
(Updates in third paragraph with Ameriprise’s denial that it expects $75 million from the new levy.)
Ameriprise Financial will impose a monthly charge of $750 to $2,000 on independent contractors who use its discretionary advice platform next year to offset technology enhancements and regulatory costs, infuriating some brokers.
Ameriprise expects to generate as much as $75 million annually from the new charges, according to one advisor who said the number was floated by managers to top brokers before the announcement. An Ameriprise spokeswoman said the number is “significantly inflated,” but declined to comment further.
Speaking on condition of anonymity, the broker speculated that Ameriprise is imposing the pay cut to compensate for declines in revenue-sharing income expected from outside funds, as firms industry-wide change policies to meet new conflict-of-interest restrictions. It also may further a behavioristic goal of having brokers rely more on firm-provided model portfolios than on ones they design for their customers.
“Over the past several years, we have invested millions of dollars enhancing our advisor discretionary program to help our advisors deliver a compelling client experience while improving their ease of doing business,” said Kathleen McClung, the Ameriprise spokeswoman. “The fee on discretionary accounts…will partially offset the costs of these investments, and reflects both our enhanced capabilities and the significant evolution of the industry’s regulatory framework.”
The broker said that sales of proprietary and low-liquidity products such as privately traded REITs are a much more pervasive regulatory issue for Ameriprise than are advisory platform problems.
McClung declined to comment, but said that “oversight of discretionary accounts across the industry is an increasingly important regulatory priority.”
Brokerage firms have been encouraging advisors to move customers from transaction-based commission accounts to asset-based fee accounts that provide revenue whether or not customers trade, and that discourage brokers from churning trades to generate commissions. Regulators, however, have raised concerns about “reverse churning,” where customers who do little trading pay more in asset-based fees than they would have been charged in commissions.
Ameriprise, which like most firms deducts operational and platform fees from independent brokers’ monthly commission checks, booked $2.82 billion of management and advisory fees in its advice and wealth management division in the first nine months of 2019, up 7% from a year earlier. It does not break out how many of the assets are managed by independent brokers and how many by its smaller number of employee advisors.
The Minneapolis-based company had 9,930 financial advisors at the end of the third quarter, 78% of whom were independent contractors. The discretionary platform fees will not be assessed against brokers who work for Ameriprise directly in its employee channel, McClung said.
The tiers and associated monthly fees that Ameriprise will charge are: A minimum of $750 for up to 250 accounts on the discretionary platform; $1,000 on 250 to 499 accounts; $1,250 on 500 to 749 accounts; $1500 on 750 to 999 accounts; $2,000 on 1,000 accounts and higher.
The fee calculations will be based on accounts managed, not the smaller number of households that work with the advisors.