US investors prefer to pay a fee instead of commission to their financial adviser as the percentage of fee-based assets has increased from 26% to 45% between 2008 and year-end 2017, research from global consulting firm Cerulli shows.
"Investors' fee preferences are largely bifurcated between advisor-reliant investors who favor asset-based fees and do-it-yourself investors who prefer commission arrangements," said Scott Smith, director at Cerulli.
"Investors who regularly work with advisers are more likely to indicate a preference for asset-based, retainer, or hourly fees," he added.
Investors who regularly work with advisers are more likely to indicate a preference for asset-based, retainer, or hourly fees"
The figures show that 74% of advisor-assisted investors preferred a fee arrangement. This number jumped to 87% among advisor-directed households. In contrast, those with little advisor dependence prefer commission-based relationships.
"This underscores a clear divide between do-it-yourself investors and the advisor-reliant segment, which accounts for those who consider themselves advisor-assisted or advisor-directed," said Smith. "More independent investors will generally favor costs tied directly to specific activity, but the advisor-reliant segment is far more willing to pay a comprehensive fee to outsource the bulk of its responsibilities."
As investors are becoming increasingly fee-conscious, the market has reacted. Last year saw brokerages compete over low-cost funds. In August, Fidelity introduced two ZERO mutual funds that slashed expense ratios to zero, charging nothing for their management.
In August, Vanguard made 1,800 of its ETFs - about 90% - commission-free. The move made Vanguard's offering the largest array of commission-free ETFs. Meanwhile JPMorgan Chase launched the YouInvest program, offering investors 100 commission-free stock and ETF trades.
These moves followed an aggressive 2017, where many brokerages slashed trading fees for stocks and ETFs. Among others, Fidelity cut fees, as did TD Ameritrade, and Schwab shredded prices not once but twice.
Fidelity and Schwab have fired the latest salvos in the brokerage fee war after both announced they would expand commission-free trading to hundreds more exchange-traded funds.