Cogent: Two-thirds of industry compensation to be fee-based by 2015

Wirehouses and regionals pick up trend; mutual funds feeling pressure

Jul 23, 2013 @ 1:10 pm

By Jason Kephart

The glacial shift toward fee-based compensation is expected to accelerate over the next two years, according to Cogent Research LLC.

It is a bad omen for the mutual fund industry, which already is under pressure.

"I'm not surprised given it's widely more profitable than transaction-based business models," said James Osborne, founder of Bason Asset Management. "It's much more sustainable for the adviser."

Two-thirds of industrywide compensation is expected to come from asset-based fees, up from 59% today and 55% in 2007, according to the 2013 Cogent Advisor Brandscape.

The study surveyed 1,700 financial advisers across all channels during the first quarter. The respondents had an average of just over $100 million in assets under management.

The leap forward is thanks to wirehouses and regional broker-dealers moving away from commission-based models. Asset-based fees are expected to make up 70% of wirehouse advisers' compensation in 2015, up from 58% last year, and 57% of regional advisers' compensation, up from 42% in 2012.

Registered investment advisers remain the most devoted to the asset-based model with 84% of compensation derived from it, up slightly from 78% in 2007.

The biggest loser in the industrywide shift toward asset-based compensation could be actively managed mutual funds.

“Advisers are increasingly reliant on fee-based compensation, which is affecting their general business approach, as well as product selection,” Meredith Lloyd Rice, senior director of syndicated research at Cogent, said during a webinar announcing the study's findings. “In fact, advisers are more focused than ever on lowering costs this year.”

Ms. Lloyd Rice wasn't immediately available to comment further.

The focus on costs has led to a rise in the use of exchange-traded funds at the expense of traditional mutual funds, which tend to be more expensive.

ETFs' market share grew to 12% this year, up from 8% in 2011.

Mutual funds' share fell to 33%, from 39% over the same period, according to Cogent.

And for the first time since Cogent began releasing the Brandscape report in 2007, advisers plan to allocate as many new dollars to ETFs as they do to mutual funds, with both expected to receive about 22% of new dollars invested.


What do you think?

View comments

Recommended for you

Sponsored financial news

Featured video


The #MeToo movement and the financial advice industry

Attendees at the Women to Watch luncheon commend the #MeToo movement for raising awareness about the issue of sexual harassment and bringing women together.

Latest news & opinion

Stocks plunge, advisers tell clients to hang tight

Though planners encourage calm, some are preparing investors for a correction.

Lightyear Capital's Donald Marron said to be in the hunt for Cetera Financial Group

The veteran brokerage executive, who bought Advisor Group in 2016, owned Cetera once before.

What to watch for next with the DOL fiduciary rule

Much hinges on whether the Labor Department appeals the 5th Circuit decision by April 30.

Social Security benefits losing buying power

Low inflation combined with rising Medicare costs threaten the adequacy of seniors' income.

Finra looks to streamline broker-dealer exams

CEO Robert Cook says three examination teams may be consolidated.


Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting It'll help us continue to serve you.

Yes, show me how to whitelist

Ad blocker detected. Please whitelist us or give premium a try.


Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print