How Fee Pressure on Asset Managers Could Hurt FAs
Fee compression in the financial services industry is nothing new, but the way asset managers are responding to it could potentially threaten the traditional bread-and-butter of wealth managers, according to a recent report from Cerulli Associates.
Asset managers are feeling fee pressure from a variety of sources, and they “compound upon each other,” Cerulli says.
Increased regulation, for example, led to a formalization of how investors buy products, which in turn drove up demand for low-cost passive investment vehicles, Bing Waldert, director at Cerulli, says in a press release accompanying the report.
With fees on asset management products approaching zero, asset managers are trying to make their fees from asset allocation, “a task traditionally performed by the wealth manager," he says.
"The growth of asset allocation advice demonstrates how asset and wealth managers are using these industry trends to enter each other’s value chains and attempt to capture a greater share of a shrinking fee pool,” Waldert says in the press release.
And that’s on top of the fee pressures in the wealth management arena driven by automation and robo-advice.
"Automation will lower the cost of transactions, bringing down fees in wealth management," Waldert says in the press release. "In addition, digital advice platforms emphasize asset allocation, which pressures fees in individual asset manager products and benefits exchange-traded funds.”