Most financial advisors believe fee-based businesses lead to better client relationships, but their transition to fees continues at only a snail's pace, according to a new study by SEI.
Eighty-five percent of advisors believe a fee-based business model allows advisors to create longer, more satisfying client relationships, according to the survey of 106 advisors.
Eighty percent also believe fee-based advisors are perceived as more credible by investors.
The main reason for switching from commissions to fees, according to 67 percent of those surveyed, is that it provides a more predictable revenue stream. The second most popular reason for switching, cited by 25 percent of those polled, is that it allows for more objectivity in investment product selection.
Despite their favorable views on fees, advisors are moving to fee-based businesses slowly, according to John Anderson, head of practice management solutions for SEI Advisor Network, a global provider of asset management, investment processing, and investment operations solutions for institutional and personal wealth management
Citing a PriceMetrix study, Anderson says an average of 28 percent of advisors’ business was fee-based in 2012. This increased from 23 percent in 2010 and 26 percent in 2011.
“You have an aging advisor workforce that grew up doing business through commissions and they are reluctant to change,” Anderson says. “They think the fee-based model is better, but they do not know how to switch. They need more guidance in making the change.”
Advisory firms that charge fees rather than commissions are more valuable because they have a more predictable and steadier revenue stream, Anderson says.
“Advisors who do not make the switch are missing a huge opportunity to increase the value of their firm down the road,” Anderson says.