In April, Prudential Securities will launch a second version of its Advisor account that will charge a higher fee but have no transaction charges.
Dubbed "Pru Advisor II" to distinguish it from the first version, the new account will allow discretionary trading. That's one reason why the transaction fee has been dropped.
"Competitive pressures being what they are, we see a need to have a fee-based account that includes transaction charges," says Dennis Drescher, the firm's senior vice president and director of private client services.
"We still believe that for the bulk of our clients, Pru Advisor I is the right way to go," Drescher adds. "We do not anticipate that a large percentage of the accounts will be discretionary."
As of January, the fee schedule for Advisor II hadn't been established. It will be higher than the fee on Advisor I and reps will be able to negotiate the rate, Drescher says.
One broker at the firm says he's heard the fee will scale down from 2.2 percent.
Meanwhile, Prudential will start testing a third, no-fee version of Advisor this month or next, Drescher says. Under this arrangement, clients will pay only an hourly rate for occasional consultations with a broker, along with the24 dollars 95 cents a trade charge.
Prudential is also working on a fourth version, which allows for contingency fee pricing. If an account doesn't meet its goals, "then the compensation to the FA would be minimal," Drescher says. But if the account does better than planned, "the FA would participate in those high water marks."
No test date for the fourth arrangement has been set, Drescher says, because such a pricing method needs clearance from regulators. The NYSE, for example, doesn't allow its member firms to offer performance pricing. But Prudential's legal staff is currently working with regulators to get clearance, which is anticipated by the end of the year, he adds.
As of mid-January, the firm had close to3.5 billion dollars in assets in Advisor I accounts. The percentage of new money is now running at 30 percent, Drescher says. Back in September, when the asset level was around1.5 billion dollars (the account was launched in May 1999), the percentage of new money was 22 percent.
In January, Prudential Securities lowered the minimum on its Advisor I account from 100,000 dollars to 50,000 dollars.
The firm ran a test and found that lowering the threshold increased account openings by 40 percent, according to Dennis Drescher, the firm's senior vice president and director of private client services.
The new 50,000 dollars minimum matches Morgan Stanley Dean Witter's Choice account, which carries a fee of 2.25 percent on equity assets of 150,000 dollars or less and no transaction charges. Prudential will maintain the same 1.5 percent minimum rate, even on smaller accounts, while retaining the 24 dollars 95 cents a trade charge, Drescher says.