Advised U.S. Investors Prefer Fees to Commissions

Advised U.S. Investors Prefer Fees to Commissions

Fee preferences are largely bifurcated between do-it-yourselfers and outsourcers


February 2019, Boston. Moving to fee-based models has caused many advisors significant unease as they fear difficult client conversations. However, research from Cerulli Associates, a global research and consulting firm, has found that investors who regularly rely on their financial advisors are likely to prefer fee-based arrangements as opposed to paying commissions.

“Investors’ fee preferences are largely bifurcated between advisor-reliant investors who favor asset-based fees and do-it-yourself investors who prefer commission arrangements,” explains Scott Smith, director at Cerulli. “Investors who regularly work with advisors are more likely to indicate a preference for asset-based, retainer, or hourly fees.” In fact, 74% of advisor-assisted investors preferred a fee arrangement. This number jumped to 87% among advisor-directed households. In contrast, those with little advisor dependence prefer commission-based relationships.

Clients’ Preferred Fee Structure by Advice Orientation, 3Q 2018

“This underscores a clear divide between do-it-yourself investors and the advisor-reliant segment, which accounts for those who consider themselves advisor-assisted or advisor-directed,” adds Smith. “More independent investors will generally favor costs tied directly to specific activity, but the advisor-reliant segment is far more willing to pay a comprehensive fee to outsource the bulk of its responsibilities.”

Cerulli’s research shows that the percentage of fee-based assets has increased from 26% to 45% between 2008 and year-end 2017. Overall, Cerulli believes this movement toward fee-based models will continue as providers increasingly position themselves as clients’ partners in pursuit of long-term goals rather than transaction facilitators.Cerulli’s first quarter 2019 issue of The Cerulli Edge – U.S. Retail Investor Edition provides insight into how investors understand their advice providers’ current compensation arrangements and compares those results to how investors indicate they would prefer these relationships to be structured. In addition, this issue uses the filter of investors’ current fee relationships as a lens to highlight differences in satisfaction, involvement levels, and several other metrics.

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