The shift toward fee-based sources of compensation — including fee- and asset-based revenue and fee-for-service arrangements — has gained significant momentum during the past few years.
Slideshow: Move to fees is acceleratingSlideshow
The shift toward fee-based sources of compensation has gained significant momentum during the past few years. The adoption of CRM2 reforms, with their focus on enhancing the transparency of investment costs to clients, has been a major factor in this trend. Fees now account for 49.5% of the average advisor’s gross overall revenue while transactions now constitute only 21.3% of advisors’ revenue. That’s in stark contrast to 2008, when fees and commissions were virtually on par.
Stockbrokers’ businesses were once purely transactional and relied almost exclusively on trading commissions to generate revenue. How times have changed. Now, the average stockbroker reports that transactions account for 32.5% of revenue while fee-driven revenue — including fee/asset-based and fee-for-service arrangements — now accounts for 64.5% of the average broker’s revenue.
The shift toward fees is more dramatic among dealer reps, for whom transactions have dropped to just 26.4% of gross revenue from 46% in 2008. At the same time, fee-driven sources of revenue — such as fee/asset-based and fee-for-service arrangements — has risen to a whopping 72% of advisors’ top-line revenue from 50.8% in 2008. For these advisors, the enhanced cost disclosure on mutual funds is driving this shift significantly.