There are a lot of surveys and studies in the financial world both about advisors and their businesses, and investors and their preferences and tendencies. As with most things, some are more helpful than others.

Over the years, I’ve found that those in the “more helpful” category tend to be conducted by authors who are truly interested in revealing some truths about their subject, while those in the “less helpful” group tend to reflect their writer’s preconceived notions or preferred outcomes.

I was recently confronted with these two divergent possibilities as I read Janet Levaux’s March 16 ThinkAdvisor story, “Commission Clients Don’t Favor Switch to Fees: J.D. Power.” Here’s how Michael Foy, director of J.D. Power’s wealth management practice, described the conundrum:

“While [J.D. Power’s] annual Full Service Investor Satisfaction Study supports the intuitive hypothesis that current fee-based investors are generally more satisfied with what they pay their firm than those who pay commissions,” he said, “the findings of [our] DOL Special Report show there is significant resistance among those commission-based clients — especially the high-net-worth — to being forced to migrate to fees.”

What are we to make of the reported fact that while AUM-paying clients tend to be happier, the less happy commission payers — especially the more affluent — say they prefer their current state of unhappiness?

To sort it out, let’s look at the specifics of the report. It found that: “Almost 60% of investors paying commissions say they either ‘probably will not’ (40%) or ‘definitely will not’ (19%) stay with their current firm if they must move to fee-based retirement accounts.”

That’s a pretty darned big number, to be sure, especially among folks who are currently unhappy. The study’s data on more affluent investors, however, is a bit more revealing:

“In fact, the group’s February poll finds that a quarter, or 25%, of high-net-worth investors ‘definitely would not’ switch to a fee-based account if it had a 1% fee. More than half, or 52%, of investors with $1 million or more in investable assets ‘definitely would not’ move to a fee-based account that charges 2%.”

That kind of puts the study in a different light, doesn’t it? First off, in today’s world, investors with $1 million really don’t qualify as “high-net-worth.” But more importantly, we’re not talking about independent advisory fees here: We’re talking about “brokerage” advisory fees — 1% to 2% a year. And there seems to be a very significant difference.

It’s been awhile since I’ve seen the numbers, but chances are with the current pressure on advisory fees by robo platforms, my estimate is probably a bit high at between 70 bps and 80 bps for independent advisors to manage a $1 million portfolio, and quite a bit less for portfolios that are significantly larger.

While it’s true that “real” high-net-worth investors — folks with portfolios in the hundreds of millions of dollars — typically do pay 1% at private banks, they get a lot of services in addition to investment management at that price: Trust services, estate planning, risk management, tax planning and access to all kinds of esoteric investment products, etc.

Getting back to the J.D. Power study, I’d leave my broker-dealer, too, if they switched me from paying commissions to paying a 2% annual AUM fee — or even a 1%, if I had $1 million. So, the takeaway here seems to be that brokerage firms stand to lose a significant number of clients if they use a switch away from sales commissions to gouge their clients on AUM fees.

Frankly, I’m encouraged that the majority of brokerage investors seem to be savvy enough to see what’s going on here. And, if they really do, that means the shift by brokerage firms away from commissions toward AUM fees could trigger a large migration of brokerage clients to far more reasonably priced independent advisors.

— Read Rise of the Robo-Advisor Machines: Are They Really Advisors? on ThinkAdvisor.