BOSTON — Fidelity Clearing & Custody Solutions, the division of Fidelity Investments that provides clearing and custody to registered investment advisors (RIAs), broker-dealer firms, family offices, retirement recordkeepers and banks, today released new research from its 2017 Fidelity RIA Benchmarking Study1, which found that RIAs are taking new measures to adapt to a changing wealth management landscape amid declining revenue and client growth. According to the study, RIA revenue yield has dropped 3 basis points (bps), revenue growth has fallen to 7 percent and client growth is down to 5 percent, the lowest level in five years. The study identified shifts happening in three areas:
- Pricing: 64 percent of RIAs are offering discounts on their fees, and RIAs are starting to formally unbundle their fee structures.
- Productivity: 33 percent of RIAs are looking to implement a digital solution in the next 18 months.
- Segmentation: a 57 percent increase in the number of RIAs naming client segmentation as a top focus area.
"While discounting can contribute to revenue yield erosion, some erosion can be expected against the backdrop of new strategies increasing scale and driving down the cost of business," said David Canter, head of the RIA segment for Fidelity Clearing & Custody Solutions. "With revenue and client growth dropping, RIA firm leaders will have to ensure that they make up in volume what they are discounting in fees. But, discounting could signal that RIAs are bridging to the practice of unbundled fee structures, which may help to attract fee-sensitive clients, align services with value and protect against the commoditization of investment management."
The changing landscape means firms must evolve and find ways to deliver value in new, meaningful ways. Currently, 41 percent of investors would be more likely to work with a financial advisor if their fees were lower2. The study uncovered shifts in pricing as RIAs begin to think about value differently and realize that alternative pricing structures may be critical to attracting new clients.
- RIAs are not reducing stated prices, as core bps fees across all firm sizes have remained stable; instead, the study found that RIAs are discounting their fees: 64 percent of RIAs are discounting their fees, showing a gap between their expected and actual bps.
- Mid-size and larger firms are more likely to be discounters, with 79 percent of firms with $500-$999M in assets offering discounts compared to 57 percent of firms with $50M-$99M in assets.
- The average discount across all firm sizes is 21 bps, but the discount jumps up to 28 bps for firms with more than $1B in assets. Discounters set fees 10bps-15bps higher than other firms for clients $2M and above, but then appear to negotiate lower fees across the board.
- This discounting behavior implies that fees being charged in the market could actually be 10-20 bps below what is being reported.
- In addition to discounting, which can be seen as an ad hoc unbundling of services, RIAs are also starting to formally unbundle their offerings. The study found that unbundling is taking place across all services, namely: retirement plan services (15 percent fewer), trust services (14 percent fewer) and investment management (10 percent fewer).
According to the study, RIA productivity is at or near its highest level in five years with assets under management per client remaining steady at $1.1M, and assets per advisor and clients per advisor up 11 percent. RIAs have improved productivity to maintain profit margins but are also starting to look to more transformative, longer-term initiatives like digital solutions and client segmentation to deliver value in new, meaningful ways:
- The study found that 41 percent of RIAs are considering or already using a digital solution; 33 percent are looking to implement a digital solution in the next 18 months.
- Digital solution users work with nearly 3X the number of clients as non-users (566 vs. 202), have 2.5X higher assets under management ($533M vs. $209M) and 3X the revenue ($4.2M vs. $1.4M).
- Technology remains a priority for RIAs with 49 percent reporting that investing in new or existing technology is a strategic priority for their firm.
- The study found a 57 percent increase in the number of RIAs naming client segmentation, a key productivity driver, as a top 5 focus area.
To access the findings for The 2017 Fidelity RIA Benchmarking Study, visit go.fidelity.com/benchmarking. To learn more about Fidelity’s Value Drivers and the steps firms can take to deliver more value, go to go.fidelity.com/valuedrivers.
About Fidelity Investments
Fidelity’s mission is to inspire better futures and deliver better outcomes for the customers and businesses we serve. With assets under administration of $6.7 trillion, including managed assets of $2.4 trillion as of November 30, 2017, we focus on meeting the unique needs of a diverse set of customers: helping more than 26 million people invest their own life savings, 23,000 businesses manage employee benefit programs, as well as providing more than 12,500 financial advisory firms with investment and technology solutions to invest their own clients’ money. Privately held for 70 years, Fidelity employs more than 40,000 associates who are focused on the long-term success of our customers. For more information about Fidelity Investments, visit https://www.fidelity.com/about.