Overview of Wealth Management Accounts
Investors who aren’t confident enough to do their own trading and financial planning might want to consider the services available with a wealth management account
at a traditional brokerage house. Yes, a wealth management account does cost more than a self-directed trading account at a discount broker. But you usually get a
lot more, especially if your money management skills are below par. Let’s take a look at the pricing schedules of some of the more popular full-service firms and see how they compare to the costs of low-cost brokers.
Wealth Management Prices and Minimums
Edward Jones offers managed accounts for a percentage of account value. An investment advisor with the broker will monitor the account and make all trading decisions. The cost of the service varies from 0.85% to 2.5% per annum. The larger the account, the lower the fee. Adding more asset classes also increases the fee. The annual fee is billed monthly.
Different account models have different minimums. One has only a $5,000 minimum, while another has a $500,000 minimum. In any case, substantial assets will be required to secure the broker’s more favorable rates.
A nice advantage with this traditional broker is that investors don’t have to pay any commissions for trades. Edward Jones also operates the largest chain of branch locations of any broker in the U.S., so it’s a good choice for people who want some extra assistance and guidance.
One of Edward Jones’ major rivals is Raymond James. Unlike its rival, Raymond James charges for commissions. Stock and ETF trades cost $9.99 each. Fixed-income, CD’s, options, and mutual funds are a more expensive $30 per trade.
On top of the commission schedule, Raymond James charges an annual advisory fee of 1.0% to 2.25%. Account size determines the exact rate. There is also an annual account fee at Raymond James. It is $50, although it is waived for accounts that have at least $100,000 in assets.
Raymond James maintains some minimums for certain accounts. These can be anywhere from $25,000 to $100,000, depending on account type. There is no minimum required for hourly consulting and planning services. Like Edward Jones, the broker’s best rates are for large accounts.
Merrill Lynch Wealth Management is a major player in the traditional brokerage industry. The cost of account management varies from 2.8% to less than 1.5% for very large accounts. There is no annual account fee and no commissions on equity transactions. However, the firm does charge for bond transactions. Besides regular brokerage accounts, Merrill Lynch also provides education savings accounts and several different IRA’s.
Merrill Lynch does not publicize exact account minimums. However, based on its variable annual fee, it takes a million dollars to reach its first breakpoint. And $25,000,000 is required to reach its best pricing.
Other Features of Wealth Management Firms
When looking at the variable pricing that most traditional firms advertise, keep in mind that the prices can often be negotiated. The firms usually state such in their mandatory filings with the securities regulators. For example, financial planning services are often available at these firms. Some brokers charge extra, although others will offer it for free for large accounts. More specific services such as estate or retirement planning can also be obtained at many of the traditional brokerage houses. Some firms may also offer consulting services to clients without any account assets.
Managed Accounts at Low-Cost Firms
While traditional wealth management accounts still exist in the 21st century, they are being challenged by the rise of low-cost managed accounts with on-line discount brokers.
For example, E*Trade offers several different managed packages. They start at just 0.30%, and go as high as 1.25%. The least expensive option is a robo-advisory
package where a computer makes all trading decisions. A $10,000 balance is required for a non-retirement account, while an IRA only needs a $5,000 deposit.
Fidelity Investments also has a selection of advisory options for clients who would prefer to turn over their accounts to financial professionals. The broker’s robo-advisory account costs just 35 basis points, while human-managed accounts can cost as much as 1.7%. An account’s balance and investment strategy determine the exact rate. Minimum investment amounts vary from $5,000 to $2,000,000.
While robo-advisory services are pushing the cost of portfolio management down, one broker has been able
to keep human advisors and still charge a low fee. TradeKing Advisors offers
a managed account solution at just 0.25% per year. Instead of a robot making trading decisions, an actual human advisor manages the account. The service offers
investments only in low-cost ETF’s.
Are Wealth Management Accounts Worth the Money?
Whether a wealth management account is worth the price paid will depend on a variety of factors. The traditional brokerage account is a good value for clients who have a lot of money to invest. It usually takes a million dollars or more to secure a firm’s lowest advisory fee. Large institutions with a sizeable endowment or pension fund would be a perfect fit for a Merrill Lynch account, for example.
Small investors who don’t have a lot to deposit will end up paying the highest advisory fee, which doesn’t seem very attractive in today’s competitive brokerage environment. This seems especially true if those investors have the ability to do their own financial planning and account management.
If you have less than $25,000 and can invest it on your own, you’re probably better off without a wealth management account. But if you have $100,000 or more, and don’t feel confident enough to make trading decisions, or simply don’t have the time, then a traditional wealth management account might be a good bet.
Wealth management accounts are pricey, but may be worth the cost for certain investors. Before opening an account, be sure to do plenty of homework and comparison
shopping. Many good deals can be found today from competing brokers.
Updated on 3/24/2017.