http://www.pricemetrix.com/transitioning-to-fee/

Transitioning to Fee

August 2012

Introduction

One of the most important trends in the retail brokerage industry over the past decade has been a shift away from traditional, commission-based business toward arrangements where clients pay an advisory fee based on the value of the holdings in the account. In the past three years alone, the percentage of industry assets in fee-based accounts has grown from 21% to 28%.

While many investment firms have encouraged advisors to transition their accounts and households to a fee-based model, advisors tend to lack guidance as to what the best approach is in making the transition, and what the financial impact might be.

In this edition of PriceMetrix Insights we show that:

  • There are few ‘purely fee’ or ‘purely transactional’ advisors – almost all books contain both;
  • Increasingly, individual clients are choosing to hold both kinds of accounts;
  • An increase in fee asset concentration of an advisor’s book leads to an increase in the overall return on assets;
  • The pace at which advisors choose to transition their books to fee varies widely;
  • The pace at which advisors choose to transition has a meaningful impact on results, not only in terms of asset and revenue growth, but also in terms of the quality of the overall book.

This report is made possible by PriceMetrix aggregated retail brokerage data representing 3.2 million investors, 500 million transactions, 1 million fee-based accounts, 4 million transactional accounts, and over $900 billion in investment assets. PriceMetrix combines its patented process for collecting and classifying data with proprietary measures of revenue, assets, and households to create the most insightful and granular retail wealth management database available today.

All results are reported as of May 2012. PriceMetrix found no significant difference between the U.S. and Canadian markets, so all results presented in this paper are for the combined North American market.


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