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Triggered by the growing demand for greater value, the financial services industry is creating new categories of products and services that never existed, expanding access in ways that were never expected, providing greater transparency and simplicity — and driving down costs to unprecedented lows.
Clients benefit and this is clearly a good thing, as these costs savings go right back into their portfolios or straight into their pockets. But this race to the bottom for fees and expenses places significant pricing pressure on advisors. Fee compression is pushing downward — and the vast majority of advisors are feeling the pain. According to Nationwide’s most recent study of more than 1,700 advisor and individual investors, the vast majority of advisors (69% of RIA and fee-based advisors, and 79% of wirehouse and broker dealers) are concerned about the impact of fee compression on their business over the next 12 months.
As a result of fee compression, advisors are likely to see larger firms win by leveraging scale to cut costs and create greater efficiencies. They are also likely to see more acquisitions, as firms look to gain a competitive edge by increasing their size and scale. And advisors of all sizes will be forced to reengineer their current business models to remain viable. This is a watershed moment, as advisors will either join in this race — or be forced out.
So what factors are influencing fee compression and how can advisors keep pace?
The vast majority of RIAs and fee-based advisors say technology will have an impact on driving more fee compression over the next 12 months. As everything now moves at instant Internet speed, as more households are wired...