Wirehouses and regional firms rapidly are adopting fee-based compensation models and focusing more on financial planning than ever before, which are two characteristics that registered investment advisors (“RIAs”) have long used to separate themselves from the bigger players. What made RIAs unique for many years is no longer the case. According to Cogent Research LLC, by 2016, asset-based fees are expected to make up 70% of wirehouse compensation, which is up from 58% last year. At regional firms, asset-based fees are expected to grow to 57%, which is up from 42% last year.
Wirehouses and regional firms are shifting away from the traditional commission-based model for several reasons, including securing a more predictable revenue stream. However, the primary reason is that wealthy clients want it. At all four majors, Bank of America Merrill Lynch, Morgan Stanley, UBS AG and Wells Fargo & Co., there is a big push to do financial planning. For example, UBS Wealth Management Americas pulled in more than $3 million in the first half by charging an average of $4,100 for a financial plan, which is up from $1.4 million during all of 2012. In addition, the regionals are getting in on the action. Raymond James Financial Inc. elevated its financial planning capabilities with the launch of its Global Planning and Monitoring software last year.
The changes at bigger firms means that there will be greater challenges ahead for independent RIAs as the lines between the different options becomes less clear to clients. According to Cogent, there continues to be one clear distinction. Three out of five RIAs do independent research and customized portfolios while less than half of advisers at wirehouses and regionals do the same.
