Cerulli Finds Growing Dominance in Fee-Based Advisory Programs

The latest issue of “The Cerulli Edge—U.S. Monthly Product Trends” highlighted the growing dominance of fee-based advisory programs in retail wealth management.

Over the past decade, assets in fee-based systems, such as managed account programs and those overseen by registered investment advisers, have grown by 169%, compared with a 92% increase in overall adviser assets. Assets managed by brokerages, by comparison, grew by about 40% in that same time period.

According to Cerulli Associates, this shift reflects investors’ preference for holistic, fiduciary-aligned advice tailored to their financial goals. Cerulli noted that fee-based managed account platforms have become pivotal in this trend, as they allow advisers to offer fee-based services in other areas as well, such as financial planning, goal tracking and tax management.

“For the retirement plan adviser, this represents an inflection point, deciding the practice’s commitment to the individual retail wealth management,” says Scott Smith, Cerulli’s director of advice relationships. “Fee-based advisory relationships primarily operate on the chassis of comprehensive financial planning. Serving retail planning clients can’t be done competently and at scale without being a core element of the practice.”

The evolution of fiduciary standards has also played a significant role in the shift away from the previously dominant brokerage commission model, according to the consultants.

While the SEC’s June 2020 implementation of Regulation Best Interest enhanced investor protections, it fell short of a true fiduciary standard, Cerulli stated. Managed account platforms, by formalizing advisers’ commitment to prioritizing client interests, meet the expectations of an increasingly informed investor base, while also freeing advisers up to provide other services.

Portfolio construction, traditionally the cornerstone of financial advisory services, is undergoing rapid transformation in part because of these shifts. As the wealth management industry continues to embrace goals-based advice and fiduciary frameworks, Cerulli predicted an increasing proportion of new assets will flow into managed accounts.

Investment Trends

Cerulli’s report also tracked retail investment vehicles through October.

Lower-cost exchange-traded-fund assets dipped slightly, falling 0.4% to $9.9 trillion in October. However, the sector achieved record-breaking inflows of $123 billion, marking the second-best month in history and the strongest for 2024. Passive ETFs excelled, surpassing $800 billion in assets and $30 billion in net flows for the first time.

Active ETFs also showed notable progress, with companies such as J.P. Morgan, Fidelity, Dimensional and Capital Group collectively drawing more than $2 billion in inflows. Large-blend ETFs were the top contributors, gathering $43.3 billion, while China region ETFs followed closely with $9.6 billion, supported by optimism spurred by China’s stimulus initiatives.

Meanwhile, mutual fund assets experienced a 1.8% decline in October, falling to $20.2 trillion, driven by $41.4 billion in net outflows. Active funds bore the brunt, with $11.4 billion in outflows, consistent with the 2024 monthly average.

Equity and allocation funds, with various types of investments, lost a combined $77.9 billion during the month, with large-cap equity funds accounting for $43.6 billion of these outflows. Despite these challenges, firms such as Baird, J.P. Morgan, Bridge Builder, PIMCO and Lord Abbett stood out, each attracting more than $1 billion in inflows, primarily through fixed-income offerings.