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Spotting trends in financial services can be an interesting task, in part because it can help answer questions advisors may have about how they stack up against their peers. One question that continues to interest advisors and industry observers is what may happen in the industry if there is an extension of the fiduciary standard to all advice givers.
To get some insight from the field, fi360 and AdvisorOne have jointly conducted their second annual survey of investment advisors’ and brokers’ attitudes about the fiduciary standard. Participants in the 2012 fi360-AdvisorOne Fiduciary Survey are an august group. The great majority of respondents—74%—reported that they have more than 15 years of professional experience in the financial industry; 41% of participants said they had more than 25 years of experience.
Fielded in March and April of 2012, the survey was completed by 380 advisors from across the spectrum of advisor business models and affiliations. The survey not only sought advisors’ opinions on the fiduciary standard but also gauged their understanding of what such a standard means now, or would mean, to their businesses.
Key findings in the first report on the survey pointed out that registered reps and investment advisors in the field believe that extending the fiduciary standard would not cost investors more for advice, limit access to advice or products nor price investors out of the market for advice.
In part two, we discussed participants’ attitudes about pending or potential regulation, and assessed their beliefs about some of the myths surrounding the implementation of those regulatory changes.
Here, in part three, we focus on demographic trends from the survey: who manages the most assets, how participants are moving between business models, and how they are compensated.
Models and Supermodels
Survey participants were closely divided as far as current business model: registered investment advisors/investment advisor representatives (RIA/IARs) total 54.5% of participants, an increase from 41.4% in 2011’s fiduciary survey, while a combined 45.5% are registered reps or dually registered (both registered rep and RIA/IAR) in 2012, down from 58.6% in 2011.
However, survey results showed that the number of registered reps dramatically decreased to 9.9% of participants in the 2012 survey, compared with the 22.0% who identified themselves as registered reps in 2011’s survey. Dual registrants constituted 35.6% of respondents in 2012.
Participant Trend One: Toward RIA Model
It is interesting to observe how the progression of advisors between types of registration in our survey indicates a strong trend for advisors to enter the industry as registered reps or dually registered but then change to to an RIA/IAR model, rather than the other way around.
Only about a quarter of advisors who identified themselves as RIA/IARs in 2012 had entered the investment business as investment advisors. The majority, 74.3%, had previously been dual registrants (43%) or registered reps (32%) before making the change to RIA/IAR status.
This migration to the RIA model increases the number of advisors who are adopting the fiduciary model, as RIA/IARs are required to put client’s interests first. But other types of advisors are also, individually, adhering to the fiduciary model. Over all, 63% of participants reported that they have fiduciary relationships with all clients, and breaking that down by compensation type shows 96% of fee-only, 85% of fee-based, 27% of fee/commission and 20% of commission-only participants said they have fiduciary relationships with all clients.
The path to dual registration is very different. Nearly 90% of dual registrants had been either registered reps before (56%), or started out as dual registrants (33%).
Most who identify themselves as registered reps in 2012 had entered the business as registered reps, 56.6%, or had been dually registered, 32.8%, while only 10.7% switched from RIA/IAR to registered rep.
Participant Trend Two: Toward More Assets
Assets under management (AUM) are trending higher for survey participants. In 2012, 36% of all survey participants have $50 million or less in AUM, versus 51% in 2011. In 2012, 9.4% of survey participants have between $250 and $499 million in AUM, up from 5.4% in that category in 2011. In 2012, 8.8% of participants manage $500 million or more, more than double the 2011 number of 3.3%. Even the $1 billion or more category of AUM has grown, to 9.4% of participants in 2012 from 6.1% in 2011.
Looking at AUM as measured by compensation model, the majority of participants, across all compensation types—fee-only (38%), fee-based (30%), fee/commission (34%) and commission-only (60%)—manage less than $50 million in AUM. But the percentage of participants managing the lower AUM brackets has fallen in each compensation category since the 2011 survey, indicating that AUM balances are growing for all participants. Where that changes is on the high end, where no commission-only participants manage more than $250 million.
Fee-only advisors have the most assets. They dominate the two largest AUM brackets in the survey: 13% of fee-only advisors have more than $1 billion in AUM in 2012, up 46% from 9% in 2011. Similarly, 12% of fee-only advisors have $500 million to $1 billion in AUM, up 142% from 5% in 2011. The largest area of AUM growth for fee-only advisors is the $100 million to $249 million bracket; 20% of fee-only advisors manage $100 million to $249 million in 2012, up 170% year-over-year.
Fee-based advisors held their own in the $1 billion-plus bracket, with 10% of them managing $1 billion or more, about the same as 2011. However, the percentage of fee-based advisors managing $500 million to $1 billion zoomed, up 194%, to 10% in 2012, from 3% in 2011.
Fee/commission advisors saw growth in the mid range of AUM, with 10% managing $250 million to $499 million in assets in 2012, up a whopping 206%, from 3% in 2011.
Participant Trend Three: Toward Fees From Commissions
Of those who are compensated in part or wholly by commissions, the majority (51.1%) said they have a “commission production” level of $100,000 or less, while 28% generate between $100,000 and $250,000 in annual commissions. Another 12.4% are at the $250,000-$500,000 level and 8.6% generate more than $500,000 in commissions.
Commissions account for 1% to 10% of annual revenue for 30% of those who include commissions in their compensation model (commission only, fee/commission and fee based). Another 20% indicate that commissions account for 11% to 25% of their annual revenue, while 27% say commissions account for 26% to 50% of their revenue. Finally, 21.8% say commissions account for more than 50% of their annual revenue.
Commission-only participants saw gains in AUM as well; 20% of commission-only participants manage $100 million to $249 million in 2012, jumping 340% from 4% in 2011.
The Three Trends Reprised
To sum up, among our fiduciary survey participants, we’ve discerned:
- Advisors are migrating from the broker-dealer model to the RIA/IAR model.
- Growth in levels of assets under management, with the growth at the highest AUM levels, $500 million-plus and $1 billion-plus, concentrated among fee-only advisors, most of whom are in the RIA/IAR, fiduciary model. Dual registrants have seen asset growth as well.
- Finally, there is a trend away from commission-only compensation to fee-only or a combination of fee-based or fee/commission revenue.
For more on the findings of the 2012 fi360-AdvisorOne Fiduciary Survey, see our survey home page.