Investors Prefer Commissions to Fees, Cerulli Says

Wednesday, June 08, 2011 07:06
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Investors Prefer Commissions to Fees, Cerulli Says

Most of the investors who have a preference prefer to pay their advisor via commissions instead of fees, industry research firm Cerulli Associates has learned.

 

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Cerulli polled 7,800 relatively affluent households and found that 47% would rather pay for advice on a commission-based basis. Only 27% preferred to pay via fees -- and perhaps not surprisingly, 33% had no idea how they were paying.

 

As trusty A4A readers have pointed out, this demonstrates confusion among investors about just how their advisors get paid and where their money goes. 

 

[NOTE: an earlier version of this article erroneously reversed the statistics to indicate "a triumph for the fee-only movement." Obviously that would be a stretch.] 

Comments (7)

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bramsay
http://www.investmentnews.com/.../110609950

You got the stats backwards, it was the other way around, and points to continued confusion on the part of the public, the public thinks they get stuff for free when they are in a commission relationship.

63% of broker customers also thought their broker is held to a fiduciary standard.

And from the article, here's SIFMA with one of their standard red herrings

"“If you're only going to trade five or seven times a year, it's probably more economical for you to pay a commission as opposed to paying someone one percent of your assets as a management fee,” said Ira Hammerman, general counsel for the Securities Industry and Financial Markets Association, the lobbying group for the brokerage industry."

Does anyone on the planet under age 85 have a broker who only does 5 or 6 trades in non packaged product securities? Heck, does anyone on the planet under age 85 have a broker who works on a commission basis with only individual stocks and bonds?
bramsay , June 08, 2011
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dmorton
I suggest Mr Martin re-read the study. At best, he's too busy to edit what he writes here or at worst, he's an industry shill trying to convince all people that fee-based is the way to go. I'm personally alarmed at the number of fee accounts I come across where there is little or no information of any real value communicated to the client but those quarterly fees keep coming out. I do challenge the client as to how long this went on with varying degrees of success.
dmorton , June 08, 2011
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ScottMartin
I'd like to think dmorton's best case scenario is what happened here. It's been a 40 hour week already and editing fell down this morning. Thanks for stepping up and letting me know I screwed it up!
ScottMartin , June 08, 2011
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agluck
The fact that so many investors prefer commissions (47%) versus fees (27%) is a stunner. But as BRamsay points out, there are so many mitigating factors. The way the question is asked matters.

But you don't need a survey to know that what investors want is a fair deal. I don't think they care whether they're paying fees or commissions as long as they get good value.

This debate about an advisor's mode of compensation, which has created a schism in the financial advice profession for decades, serves no one.

Mode of compensation does not determine an advisor's professionalism and integrity.
agluck , June 08, 2011
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stvnrsmth
That the consuming public is ignorant of what is really valuable in an advisor/client relationship is no more surprising than "keep your government hands off my Medicare!"
stvnrsmth , June 09, 2011
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bramsay
Of course there is a schism- they are not us, we are not them. The birth and growth of the Financial Services Institute as the FPA continued to try to evolve financial planning to a true profession is a prime example of the fact that the schism exists. We will not join them and they will not join us.

Imagine if doctors were paid commissions for drug sales. Commissions just add problems to what is correctly viewed as a fiduciary relationship by the public. Commissions simply introduce conflicts where they should be minimized.

And the existence and (current) market share of the commission industry retards the development and growth of fee advice for middle and lower income groups.


Australia gets it

http://faircanada.ca/dialogue/australian-plans-to-introduce-commission-ban/

bramsay , June 09, 2011
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agluck
Using doctors' as an example of a professional compensation scheme that works is laughable. Doctors every day are prescribing procedures people don't need to generate fees. Compensation is not what makes doctors professionals. It's education, certification, integrity. Until financial advisors open the tent and stop infighting, you cannot create a profession of the business of giving financial advice.
agluck , June 10, 2011

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