Advisor Perspectives: Fees vs. Commissions: Why An Old Debate Is New Again
In a recent article published in Advisor Perspectives, Bob Veres takes a look at how robo advice is changing the fees vs. commissions debate. The bottom line: Tech has disrupted the advice model such that now, advisors can offer service to middle market investors efficiently and effectively via robos. This negates the age-old argument that commissions are the only way to feasibly serve clients with few investible assets.
Veres also stresses the issue of the commission model de-valuing the work of the advisor. Baking commissions into the cost of investments obscures the fees, which makes them opaque to the end client, and gives the advisor’s hard work, and valuable advice the appearance of being free.
Shining a light on the insurance industry, too, he points out that even in an industry addicted to commissions, innovative insurance companies are building products for fee-based advisors and their clients. Our own Monument Advisor variable annuity is a case in point. Because there are no commissions, there’s no need for surrender periods. The product is simpler, lower cost, and built to leverage the power of tax deferral.
Evidence, too, suggests that the tide is turning: more advisors are billing on AUM. Veres states, “according to the various broker-dealer surveys in the industry magazines, fees represent the fastest-growing segment of broker-dealer revenues.”