Passive Investing Pitting Advisors Against Broker-Dealers

Passive Investing Pitting Advisors Against Broker-Dealers

Wealth management survey also finds offering ETFs and ESG products is critical.

Reviewed by: Michelle Lodge
Edited by: Michelle Lodge

New priorities and financial realities coming into focus may bode well for financial advisors and clients, and poorly for broker-dealers, a survey finds. 

Financial advisors are now more interested in selling passive investing products, such as exchange-traded funds. What that shift in focus means for broker-dealers is that they will miss out on a revenue stream of asset-sharing payments, which they have long depended on, according to Cerulli Edge—U.S. Asset and Wealth Management Edition.

To make up for the income shortfall, asset managers need to give FAs what they want. Among those changes are to make available separately managed accounts, ETFs and environmental, social and governance-oriented products—all of which also cater to advisors’ needs for flexibility and products that offer lower costs and sustainability to the client, added Cerulli.  

“Broker/dealer (B/D) revenues continue to face headwinds as advisors escalate their preferences for passive products, avoiding the revenue-sharing payments that asset managers have depended on for so long,” the report’s authors wrote.  

While broker-dealers contacted by didn’t immediately respond to requests for comment, at least one financial professional said the findings were positive for clients. 

“This is great for the end-client!” financial advisor Amir Noor, director of financial planning for the United Financial Planning Group in New York City, wrote to in in an email. “Lower fees and more options, without as many hidden fees, incentives or revenue-sharing agreements.” 

Cerulli noted that while mutual funds are the most widely used investment vehicle today, they will decline in popularity as ETFs ramp up. “Advisors across all channels are shifting their investment allocations away from mutual funds and their associated revenue-sharing payments and toward ETFs,” said Cerulli Associate Director Matt Belnap in a press release.  

Cerulli’s research also noted that advisors are more tuned in to business costs, as they face margin pressures and scale, and that asset managers would be wise to respond with products and prices that will help them permeate the market. Some 25% of all advisors produce custom portfolios for each client, and close to two-thirds say the underpinnings of portfolio construction emerges from their own practice, noted Cerulli.  

“Cost plays a significant role in advisors’ investment decisions, placing greater pressure on managers to ensure active strategies are priced appropriately to compete with passive options,” said Belnap.  

“Asset managers, particularly those targeting high net worth investors, should develop strategies that will be available in the SMA wrapper, as clients down-market will display an appetite for the product structure,” Belknap added. 


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Michelle Lodge is a journalist who is a contributor to many sites: Fortune, Money, Time, Barron’s, Investopedia, and