Assets in fiduciary accounts grow to 42% of total

Regardless of how regulators resolve the fiduciary issue, more client assets than ever are being held to a fiduciary standard, according to a report by Cerulli Associates.

Almost $18 billion — or 42% of total client assets — were held in accounts subject to a fiduciary standard in 2016, the Boston-based research firm said, up from 41% in 2015 and 33% in 2010. As recently as 2005, retail investor assets subject to a fiduciary standard accounted for less than 25% of assets held with a traditional financial advisory firm, Cerulli said.

“Product providers need to prepare for a future where every product decision will be driven by a concern for fiduciary alignment,” the Boston-based research firm said in its most recent U.S. monthly product trends report.

Somewhat ironically, Cerulli notes, the growth of fiduciary assets has created concern about incidents of “reverse churning,” or situations where advisers shirk their ongoing supervisory responsibilities and don’t sufficiently trade within accounts.

Another downside for broker-dealers, Cerulli found, is less adviser motivation to add new clients. Firms have found that in the current rising-market environment, advisers who have built substantial books of fee-based assets are relying on the ongoing income generated by those accounts rather pursuing new client relationships.

“The most important implication of this evolution for investment product providers,” Cerulli said, “is that their sales teams will need to be able to provide measurable and thorough justification for the use of each product they are hoping to place on a fiduciary platform, and ultimately in investor portfolios.

“Facing increased scrutiny under a fiduciary standard, advisers will need to be able to provide detailed explanations of their investment selection criteria and how each of their selections measured up to competitors during the process.”