Investors Moving To Fee-Only Advisers During Crisis

Murray Coleman
May 05, 2009

Investors are moving to fee-based advisers now more than ever.


The ongoing two-year-old financial crisis is apparently giving a boost to fee-only investment advisers.

In a new report published on Tuesday, researchers at Strategic Insight say they've found the growing trend of investors shifting away from commission-based advisers gaining momentum during the ongoing market downturn. 

While the report deals strictly with traditional mutual funds, both no-load as well as load, it does add another notch to the belt of fee-based advisers. (It has been fee-based advisers who've been leading the charge into exchange-traded funds, especially among individual investors.) 

Other market research firms, such as Cerulli Associates, have long found assets and advisers shifting towards the fee-only model, where investors pay set hourly rates or a predetermined percentage of assets under management for services. 

But new evidence suggesting such a trend has picked up during the most recent market swoon is interesting. The study was based on a survey of large fund companies that distribute primarily through financial advisers. According to SI, the survey's participants managed in aggregate roughly half of industrywide U.S. open-end stock and bond fund assets as of the end of 2008.

Some of the reports findings included:

  • No-load share classes or traditional "A" shares where the loads have been waived were the biggest growth areas in 2008. Altogether, these two categories of share classes accounting for a combined 62% of new fund sales via intermediaries last year among survey participants, up from 56% in 2007.
  • Sales via no-load mutual fund share classes accounted for the highest proportion of total fund sales in 2008, at 33%. These shares also experienced the largest increase as a proportion of total sales in 2008 vs. 2007, rising 3.9 percentage points-from 29% of total fund sales in 2007. 
  • Fee-based compensation models gained sales "market share" last year in mutual funds-especially in the fourth quarter-as fee-charging mutual fund wrap programs and fee-based registered investment advisers were the two fastest-growing areas of fund sales in 2008.

Another side note is that the survey found almost half of the no-load mutual fund shares used by advisers were being bundled into some sort of "wrap" program. 

A safe assumption would seem to be that these sorts of plans, combined with already high-fees of most actively managed mutual funds, suggests a double-edged sword in investment trends. 

Clearly, investors are catching onto the concept of fee-based advisers offering more objective viewpoints with less conflicts of interest. However, reading between the lines of this latest SI report, investors still don't seem to be realizing the importance of low fees and controlling costs if they're migrating toward wrap accounts.

That's not to say that instances of advisers offering "wrap" services at lower costs to investors aren't taking place. However, from other studies and feedback from low-cost minded fee-only advisers we've been talking to over the years, that would still seem to be the exception rather than the rule. 



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A number of funds focused on U.S. equities lost money on Friday, May 1, but rising markets offset net outflows and lifted total U.S.-listed ETF assets to $2.142 trillion.

'SPY' and a number of other SSgA funds paced that firm's issuer-leading outflows on Friday, May 1, as rising markets lifted total U.S.-listed ETF assets to $2.142 trillion.


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