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

fees
+ Zoom

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.

0
Comments

What do you think?

View comments

Recommended for you

Sponsored financial news

Featured video

INTV

Help special needs families get started on a lifetime of planning

Managing editor Christina Nelson talks with special projects editor Liz Skinner about specialists who say any adviser can and should get the financial ball rolling for people in this community.

Video Spotlight

Are Your Clients Prepared For Market Downturns?

Sponsored by Prudential

Video Spotlight

Path to growth

Video Spotlight

Path to growth

Latest news & opinion

Top 10 financial firms ranked by investor satisfaction

Find out which firm took the top slot for overall investor satisfaction for the second year in a row.

What not to say to clients when the markets drop

Here's what advisers should steer clear of saying the next time stocks turn downward.

SEC bars former rep for alleged share price manipulation

George Thoreson tried to keep penny stock's price high to enable Nasdaq listing.

Nevada fiduciary law raises concerns among retirement professionals, brokerage industry

Critics complain that it conflicts with ERISA and SEC rules and has potential to spur other states to pass their own version of a fiduciary rule.

A special need for financial advice

Advisers don't have to be experts to help special needs families get a jump on lifelong planning.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print