Study Indicates That Investors Prefer to Pay Commisions Instead of Account Fees


A study by Cerulli Management shows that more investors would rather pay commissions for financial advice than a fee based on a percentage assets under management, according to articles by Elizabeth Ody ( – “Investors Prefer Commissions to Account Fees, Study Says”) and InvestmentNews (“Fees vs. commission: No doubt which investors prefer”).

The study covered 7,800 households. Approximately 47 percent prefer paying commissions; 27 percent prefer an asset-based fee; 18 percent prefer paying negotiated lump-sum retainer fees, and 8 percent prefer an hourly fee structure.
“Investors don’t like the idea of paying a fee forever,” Scott Smith, associate director for Cerulli, was quoted as saying, adding: “I think it rubs them the wrong way until the benefits are explained.”

The financial advisory industry has been moving towards a fee-based model for several years. In 2010, 66 percent of providers of financial advice were compensated only or primarily by fees, compared to 46 percent in 2003.

“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,” Ira Hammerman, general counsel for the Securities Industry and Financial Markets Association, the lobbying group for the brokerage industry, was quoted as saying.

Approximately 33 percent said they did not know how they pay for the investment advice they receive, and 31 percent thought their adviser or broker provided investment advice at no charge.

Approximately 47 percent were dissatisfied with their investment advisor. About 27 percent of those who pay commissions were dissatisfied. Those who did not know how they pay for the investment advice were even more likely to be dissatisfied.
Approximately 64 percent of all respondents believe their financial adviser is held to a fiduciary standard of care, which requires the advisor to put the clients interests ahead of its own. The 64 percent includes 63 percent of clients of the largest broker-dealers.

Depending on the circumstances, broker-dealers may be held to a lesser standard of care called the “suitability” standard. The brokerage industry is fighting hard against the proposed imposition of a more stringent fiduciary standard.

In January, the U.S. Securities and Exchange Commission recommended a common fiduciary standard for brokers and registered investment advisers who provide personalized investment advice. The SEC is scheduled to propose a rule implementing the standard between August and the end of the year.

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