Fee-based advisory programs became the dominant retail wealth management engagement model in the U.S. over the past 10 years and that trend is expected to continue, according to The Cerulli Edge—U.S. Monthly Product Trends, November 2024 Issue by Scott Smith, Director of Advice Relationships at research firm Cerulli.
“Advisors increasingly are choosing fee-based arrangements as the core of their client relationships,” the report said. “The ability of these programs to manage portfolios at scale allows advisors to broaden the breadth of the financial planning process they offer clients.”
The firm projected “increasing reliance on managed accounts within the wealth management industry for the foreseeable future.”
From 2014 through 2023, total advisor assets increased 92%, while assets in fee-based relationships (including managed account programs and RIA assets) soared 169%, according to the report.
The firm said its “investor research consistently has found that clients want wealth management relationships in which trusted advisors offer clearly articulated holistic advice solutions customized to their needs and goals.”
“When used optimally, managed account platforms can be the hub of advisory relationships, connecting financial planning, goal tracking, tax management, reporting, client communications, portfolio management, and compliance systems into a comprehensive solution that benefits both advisors and clients,” Cerulli said.
That fiduciary framework “essentially formalizes clients’ widely held expectation that advisors already are obligated to prioritize clients’ interests over their own on an ongoing basis,” the report went on to say noting that it was “not the case under the suitability standard that governed brokerage relationships” until the SEC’s implementation of Reg BI in 2020. According to the firm, Reg BI “increases investor protection but still falls short of a true fiduciary standard of care.”
According to the firm, Reg BI “increases investor protection but still falls short of a true fiduciary standard of care.”
The firm expects the proportion of new assets in managed accounts to increase due to investor preferences for “ongoing engagement and fiduciary alignment, combined with wealth managers’ consistent progress toward goals-based advice rather than transactional relationships.”
The report said that managed account providers are increasingly offering financial planning in an effort to broaden their services beyond portfolio management, and advisors and home offices can differentiate through tracking toward client goals rather than market indexes.
Going on to discuss channel allocations, the report said, “The impact of an increased reliance on fee-based relationships is evident when examining the prevalence of assets in managed accounts at the channel level. Anchored by their early adoption of separately managed accounts (SMAs), managed accounts historically have had a strong foothold at wirehouses, with an industry-high 33% of client assets in the program in 2014—which has risen to 45% since then.”
The percentage of client assets in managed accounts has grown by at least 12% in each advisor channel since 2014, Cerulli pointed out.
The report also analyzed mutual fund and ETF product trends as of October.
Jeff Berman, Contributing Editor and Reporter at Wealth Solutions Report, can be reached at jberman@wealthsolutionsreport.com.
