Industry News

Going to a fee-based structure has contributed to positive growth in AUM and revenue for advisors as well as increased clients’ satisfaction and trust in these advisors

By Tessie Sanci |

Financial advisors who have adopted the fee-based compensation model declare overwhelmingly that the change has had a positive impact on their revenue and their clients' level of satisfaction, according to a new report from Toronto-based Vanguard Investments Canada Inc.

The report, Following a New Path, looks at a small sample size of 50 advisors who have adopted the fee-based model. More than three-quarters of survey participants (77%) say the change to their compensation structure has contributed to positive growth in revenue and 72% indicate that their clients are more satisfied following the change.

In addition, 73% of those fee-based advisors saw growth in assets under management and 86% say the move to a fee-based model had a positive impact on their clients' trust in them.

The report identifies multiple reasons advisors are making the move to a fee-based compensation structure, which include the advisor wanting to depend on a consistent income stream; reduced costs for clients; a greater focus on relationship building; and that the industry is heading in this direction.

In fact, 98% of the total 164 fee-based and commissions-based advisors surveyed for this report say that the industry is shifting toward a fee-based model, and 83% of total advisors believe a fee-based model, as opposed to a commissions-based business, would be better for their practice.

"We are in the midst of a period of great change in the financial advice sector, driven partly by the second phase of the client relationship model reforms requiring advisors to provide greater transparency on investment cost and compensation," says Jason McIntyre, head of distribution for Vanguard Canada, in a statement.

"But this also presents an opportunity for advisors to discuss the value and benefit they provide to clients, including offering more relationship-oriented guidance rather than trying to outperform the market," he adds. 

Ipsos conducted the research for this report by conducting online quantitative surveys between July and September 2015. The Canadian survey uses responses from 164 advisors of which 50 have adopted a fee-based compensation structure and who then participated in qualitative interviews with Julie Littlechild, a Toronto-based financial services industry consultant. The report is part of global research conducted for Vanguard's parent company, Valley Forge, Pa.-based Vanguard Group Inc.

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