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: