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Advisors Crave More Control Over Asset Management: Aite

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A new Aite Group report shows that nearly 60% of advisors across all industry segments voiced a strong preference for advisor-directed asset management, either on a discretionary or non-discretionary basis, with “rep as portfolio manager” and “rep as advisor” the clear standouts over separately managed accounts and mutual fund advisory.

“Clearly, advisors crave more control in the asset-management process,” according to Aite Group, a financial services research and consulting firm based in Boston, in its Nov. 3 report, “Managing Wealth: Advisor Perspectives on Investment Products and Fee Business.”

Conducted in March, the Aite Group’s online survey of 440 U.S. financial advisors got responses from a range of advisory firms, including independent registered investment advisors and wirehouse and other self-clearing broker-dealers.

“Rep as portfolio manager,” defined as the management of client assets by the financial advisor on a discretionary basis, “is without a doubt the asset-management style most sought after by financial advisors,” according to Aite report authors Alois Pirker and Sophie Schmitt.

“Rep as advisor” non-discretionary advisory accounts currently comprise 36% of fee-based assets compared with 27% “rep as portfolio manager” advisor-directed fee-based assets, the report shows.

Market Volatility Drives Desire

Advisors’ desire for control has become especially apparent during the extreme volatility the markets have experienced in 2012, Pirker and Schmitt said.

“Advisors seem to be dissatisfied with traditional asset-management methods like separately managed accounts (SMAs), which give them little influence on the management process,” the authors wrote in their conclusion. “Their hands must have felt tied as they were not able to take immediate action when markets showed a great level of volatility, particularly given that they compete with independent RIAs—which are nimble, small firms at which advisors are more often than not the portfolio managers of client assets.”

Further, while many regulatory changes have not been finalized, the spirit behind them is already affecting the way advisors do business, Pirker and Schmitt said.

“For example, leading wirehouse firms Bank of America Merrill Lynch and Morgan Stanley Smith Barney have recently reported that fee assets now constitute around 30% of total client assets, an all-time high for brokerage firms. This number is expected to grow in the near future,” they wrote.

Fee-Based AUM Keeps Growing

Assets under management-based fee business represents between 25% and 40% of advisors’ average revenue at brokerage firms in the United States versus independent RIAs, which derive three-quarters of their revenue from AUM-based fees.

“This percentage has been growing steadily over the last several years as large and midsize broker-dealers in North America have focused on transforming former transaction-oriented brokers into advice-oriented financial advisors capable of maintaining and deepening client relationships over the long term in exchange for an annual asset-based fee,” the authors wrote, pointing to the example of RBC Wealth Management U.S.

The firm reported a 26% growth in fee-based assets as a percentage of total assets between 2009 and 2010, and increased client assets from 18% to 23%. Morgan Stanley reported a similar increase, and now has around 30% of client assets generating recurring fees, much like Merrill Lynch, the Aite report shows.

In other report results, advisors said mutual funds continue to dominate their books of business, at 24%.

“Exchange-traded funds have so far been unable to unseat mutual funds. While this instrument class has made it into the top five, only 8% of an advised client’s assets are invested in ETFs,” the Aite authors wrote. “ETFs are expected to gain share of client assets as advisors across industry segments cite this instrument type among the top-three fastest-growing for the next three years.”

Read Wirehouses’ Share of SMA Market Declines to 56% at


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