A Shift in Fees | Vernon Litigation Group

Industry Changes Which Could Reduce the Costs of Portfolio Management

A Shift in Portfolio Management Fees, Artificial Intelligence to blame?

We agree with the Investment News assessment earlier this year that Schwab’s move from traditional assets-under-management fee to a flat monthly charge for robot-advising may begin to change the fee structure of the securities industry.

Based on our knowledge of the investment industry, we are also aware of many high-end financial advisors who are also moving towards a flat fee to manage money for ultra-high net worth investors.   These new fee structures for ultra-high net worth families are significantly lower than the current industry standards charged to these families.

Prior to the trend described above, many middle-class investors and retirees simply could not justify the fees charged by qualified professionals to actively manage their investment portfolio.  In fact, top investment professionals previously had no interest in managing these portfolios because their fee structure (of charging a percentage of assets under management) made managing smaller portfolios a bad financial decision for both the investor and the investment professional.

And, prior to this movement towards a flat fee for money management, we think many high-net-worth families were being overcharged for the services they received.  For example, a client with a $10 million portfolio under the old fee model might pay something in the range of $100,000 a year for portfolio management (assuming a 1% of assets-under-management fee).   And, if industry leaders push towards a flat fee model, this could lead to a situation in which a $10 million portfolio is comprehensively managed for a fraction of the $100,000 industry standard in the above example.

Over time, we believe the old fee models in the securities industry will begin to fade away and we think this industry disruption will result in significant savings and benefits for both the middle-class investor as well at the wealthy investor.

Of course, from an investors’ rights perspective, the investing public needs to make sure that less ethical retail investment firms are not using this new fee model as bait to gather clients and sell them high commission products (as well as charge them a flat fee).   We have specifically seen situations in which the investment professional promises a fiduciary duty in exchange for a management fee but then sells the client high commission insurance and annuities.  In doing so, the financial professional is not acting as a true fiduciary, is getting paid twice, and is draped in huge conflicts of interest that contradict the entire concept of a fiduciary.  We worry that these firms, who are often great marketers on local TV and local radio,  latch on to the industry disruption and promise lower fees as a way to lure investors into their model.

Predictions in the recent Investment News article mentioned above are that Baby Boomers will love this new flat-fee model and that firms such as Vanguard will likely soon follow Schwab’s lead.   And, we think the younger generations will likely embrace this less expensive and more transparent model as well.

Looking out into the future, we believe that the industry may begin to bifurcate into less expensive portfolio management, and then some of those savings may be spent on a family office level of services as a wrapper around this lower-cost portfolio management for high-net-worth families seeking a higher and more comprehensive level of service.  We also believe that this possible bifurcation of services might be an example of a situation in which technology is selective in the jobs it kills and that the job of relationship manager may be done by a portfolio manager and portfolio managers without the people skills to be a relationship manager may find themselves replaced by computer-driven portfolio management.   We do think this move will be slowed by the occasional stock market train wreck resulting from computers taking over trading at the retail level (which has already occurred to a great extent at the institutional level), but we do think it will be where we end up in the not too distant future.


The Vernon Litigation Group’s FINRA team of attorneys continues to represent investors and financial advisors nationwide against corporate wrongdoing in the securities industry.  Vernon Litigation Group is a law firm of financial litigators that represents clients in courtroom litigation, arbitration, and negotiations throughout the United States. Our lawyers are experienced in federal court, state court, mediation, and arbitration (including FINRA, JAMS, and AAA arbitration). For more information, contact Vernon Litigation Group by phone at (239) 319-4434 or e-mail Brooke Sandoval-Banker at

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