'Rep-as-adviser' programs on rise

"Rep-as-adviser" programs are gaining interest among brokerage firms as an alternative to the banned fee-based brokerage accounts, according to a report by Cerulli Associates Inc. Rep-as-adviser programs are nondiscretionary advisory programs that use a wide range of investment types, Cerulli said in the report. The programs existed before fee-based brokerage accounts were outlawed under a federal appeals court decision in March 2007. The programs have different support requirements compared with fee-based brokerage, "which makes it difficult for sponsors to just repaper client accounts from a non-advisory program to an advisory program," Cerulli reported. Unlike the old fee-based brokerage programs, in rep-as-adviser programs clients need continuous and comprehensive attention from their financial adviser on asset diversification, Cerulli said. "However, the nondiscretionary and flexible nature of these programs makes them the most logical destination for fee-based brokerage clients who wish to continue in a fee-based relationship," the report said. As of the fourth quarter of 2007, the average rep-as-adviser client fee was 1.11%, compared with the average fee-based brokerage account fee of less than 1%, Cerulli said. About 53% of fee-based brokerage programs tracked by Cerulli dissolved as of Sept. 30, with nearly 73% of those assets going into rep-as-adviser programs.