#286 2015 · Ritholtz Wealth Management · Financial services / wealth management
Ritholtz Wealth Management cut its fees only for clients who did nothing for three years
问题
Panic-selling in a downturn wrecks returns more than bad picks do
背景
Financial advisors are typically paid a percentage of assets under management, a fee structure that says nothing about whether a client's own behavior helps or hurts their returns. The single biggest driver of a typical investor's underperformance against the market isn't a bad stock pick or a high fee — it's behavioral: selling in a panic during a downturn and buying back in only after the recovery has already happened, locking in the loss and missing the rebound.
Every incentive in a standard advisory relationship runs the wrong way on this. A client who panics and pulls out is easy for the firm to accommodate, since it still gets paid on whatever assets remain, and nothing in a standard fee schedule rewards staying the course through a bad quarter — the discipline of not trading has to come entirely from the client's own willpower, with no financial encouragement built into what they're paying for.
换别人会怎么做
Keep the standard assets-under-management fee structure and rely on advice, communication, or the client's own willpower to prevent panic-selling during downturns -- the conventional approach, which pays the firm the same regardless of whether a client's own behavior helps or wrecks their returns, and puts the entire burden of discipline on the client with no financial incentive built in.
他们看到了什么
Ritholtz saw that the biggest driver of underperformance wasn't a bad investment pick or even a high fee, it was client behavior -- panic-selling low and buying back in high -- and that the standard fee structure did nothing to discourage the exact behavior that hurt clients most. If behavior was the real problem, the fee itself, not just the advice, needed to be redesigned to reward the specific behavior (staying invested) that determined whether clients actually captured the returns available to them.
那一手
In September 2015, on the firm's second anniversary, Ritholtz Wealth Management (co-founded by Josh Brown and Barry Ritholtz) announced that any client who stayed invested with the firm for a full 36 months would automatically receive a fee reduction worth roughly 16% a year, with further reductions at later tenure milestones — a discount triggered purely by not leaving, an idea Brown said he drew from a Wall Street Journal report on hedge funds offering similar loyalty-tiered fees.
为什么管用
By tying a meaningful fee reduction directly to tenure -- automatically triggered at three years, with no action required beyond simply not leaving -- Ritholtz created a financial incentive that ran in the same direction as good investment behavior for the first time, rather than leaving discipline entirely up to a client's willpower during a stressful downturn. Because the reward is for the absence of self-sabotaging behavior rather than for any positive action a client has to remember to take, it works quietly in the background exactly when a client is most tempted to panic-sell, reinforcing exactly the behavior the firm's own advice was already trying to encourage.
值了多少
The roughly 16%-per-year fee cut applies automatically once a client crosses the three-year mark. Brown framed the logic directly: the firm 'constantly preach[es] the message that behavior is the most important determinant of investment success over the long term,' and the fee itself, not just the advice, was redesigned to reward that behavior.
什么时候会失灵
This mechanism only works when the firm can financially absorb the fee reduction for the clients it's designed to reward, and depends on client tenure genuinely correlating with the good behavior being incentivized rather than with unrelated reasons a client happens to stay (inertia, high switching costs) that would make the discount a giveaway rather than a real behavioral lever. It also requires clients to know the discount exists and factor it into their thinking during a downturn; an incentive that isn't salient at the exact moment of temptation to panic-sell provides little practical deterrent even if it's structurally well-designed.
后来呢
The program is cited in wealth-management trade press as an example of a fee structure engineered around behavioral finance rather than assets or performance — pricing the one variable, staying invested through volatility, that most determines whether a client actually captures the returns the market offered instead of trading their way out of them.
资料来源
- [1]Ritholtz Lowering Fees For Long-Term ClientsWealthManagement.com, 2015wealthmanagement.com
- [2]A Word About Our New Fee Reduction ProgramThe Big Picture (Barry Ritholtz's own blog, Ritholtz Wealth Management), 2015ritholtz.com