fees becoming a major source of scrutiny across the financial services
industry, many advisers are exploring alternative business models to stay
competitive. Global research firm Cerulli Associates recommends constructing
client portfolios with a focus on reducing overall costs through the right
securities to survive a low-fee
the past several years, the magnitude of fees has become a challenge that
directly affects the way in which financial advisers construct client
portfolios,” says Tom O’Shea, associate director at Cerulli. “New
regulations cast a spotlight on high-priced investment vehicles. Advisers
building portfolios should explore ways to reduce fees by using institutionally
priced mutual funds, low-cost model-delivered managed accounts, and ETFs [exchange-traded funds].”
also points out that consumers are becoming increasingly focused on how much
they pay in fees. With the expanding wealth of information available to
them, consumers can be expected to demand even more transparency in the future.
have long been unaware of the level of fees and the type of fees they
pay,” O’Shea explains. “About 45% of households believe the financial
advice they receive is free, or they are unsure whether they pay for financial
advice, but there are several forces driving consumers’ attentiveness to fees.
Both the media and the emergence of digital advisers have shed light on the
high cost of investing.”
excessive fees have been the cornerstone of several recent Employee Retirement Income Security Act (ERISA)
litigation cases, which experts expect defined contribution (DC) plans to
see more of in the coming years.
recommends analyzing alternative pricing models. It notes, “The use of low-cost
investment vehicles such as I-Share mutual funds, ETFs and model-delivered
managed accounts can only generate so much savings, particularly because
managed account sponsors have placed downward pressure on managers for years.
At some point, advisers need to scrutinize their own fees.”
insights are from the February issue of The Cerulli Edge - U.S.Edition, which explores low-cost investments, goals-based
planning and managed accounts as qualified default investment alternative