"More than five years ago, RIAs were a niche piece at best," said Scott Smith, associate director at Boston-based Cerulli.
Advisors range from thousands of small firms, such as O'Brien's, to GenSpring Family Offices LLC, based in Palm Beach Gardens, Florida, with more than $20 billion under advisement.
"Clients never liked paying commissions, which come across as hidden fees," Christopher Battifarano, senior investment partner at GenSpring, said in an interview. "The change to the fee-only model doesn't guarantee you're going to get better investment performance, but we do sit on the same side of the table as the client."
Broker-dealers took notice in the early to mid-1990s as customers began leaving for fee-only advisors, Ben Phillips, a partner at consulting firm Casey, Quirk & Associates LLC in Darien, Conn., said in an interview. They encouraged their representatives to switch clients to a fee-based model.
Tech Bust
That push wasn't aimed only at stemming customer defections, Phillips said. Companies wanted the steadier revenue associated with asset-based fees, instead of the peaks and troughs produced by sales commissions linked to market rallies and declines. The technology-stock bust of 2000-2002 helped firms convert brokers in growing numbers to the fee-based model when commissions plunged.
Companies also were responding to the growth in online trading offered by discount brokers such as Charles Schwab Corp., Christine Pollak, a spokeswoman for New York-based Morgan Stanley, said in an e-mail.
The firm holds $470 billion, or 28% of customer money, in fee-based accounts, compared with 18% in 2001. Of the $14.1 billion its brokers gathered in new individual investor assets last year, 89% went to fee-based accounts.
"Fee-only advisors are no threat to our business because we can and do offer more options than they do," Pollak said.
'Grossly Overstated'