“If this pattern continues to hold, the industry will experience continued and robust growth, further demonstrating its crucial role in the lives of investors. It’s an exciting time to be an investment advisor,” Gebauer added.
At the same time, compensation structures have become more flexible. Advisors have become more likely to offer fixed fees and hourly fees, in addition to asset-based fees over the past two decades, the study found. Still, 95.5% of SEC-registered investment advisors offer clients a fee based on a client AUM, while 44.9% of advisors also or alternately offer clients a fixed fee. Some 36.3% of RIAs offer performance-based fee arrangements, the study found.

Meanwhile, RIAs’ conflicted compensation arrangements are decreasing, in some areas more than others, the study found. Advisors recommending securities underwritten by a related broker-dealer declined by 8.3% from 2011 to 2020, reflecting the fact that only 16.8% of firms have affiliated brokers, down from 22.5% in 2011.

Advisors are also less likely to recommend proprietary products. Advisors offering these products fell to 21.0% in 2020 from 27.4% in 2011. Similarly, advisors using client commissions to purchase soft dollar research fell to a new low of 38.8% in 2020.

In contrast, the percentage of firms buying or selling securities recommended to clients increased to a new high of 77.1%. This practice creates the risk of conflicts of interest, the report said. Still “these investments can align advisor interests with client interests, especially if portfolio managers are investing alongside their clients,” the study said.

Discretionary authority by advisors also increased in 2020, with 93.3% of RIAs (up from 91.8%) having the authority to determine which securities and dollar amounts to trade. 

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