With declining revenue and client growth, nearly two-thirds of registered investment advisors are offering fee discounts and starting to unbundle their fee structures, new research released Monday by Fidelity Clearing & Custody Solutions shows.
The 2017 Fidelity RIA Benchmarking Study reveals that RIA revenue yield has dropped three basis points, revenue growth has fallen to 7%, and client growth is down to 5%—the lowest level in five years.
Now, 64% of RIAs are offering discounts on their fees, and RIAs are starting to formally unbundle their fee structures. To improve their results, 41% of RIAs are considering or already using a digital solution, while 33% may implement a digital solution in the next 18 months.
"It's a tale of two cities," said David Canter, head of the RIA segment for Fidelity Clearing & Custody Solutions, said in an interview. "RIAs are still having a record year by virtue of the fact that on an aggregate basis the markets are doing well, and many RIAs still bill [clients] based on assets under management.
"What we are seeing is canary in the coal mine, and [the situation] is getting more competitive for advisors in terms of getting more clients," Canter explained.
The Fidelity team, he adds, sees that advisors are having to offer incentives in the way of fee discounts, for instance, in the face of a growing RIA population.
"Ultimately fee discounts" are becoming more prevalent, according to Canter. "Clients are more diligent in their understanding of fees."
Robo Revelations
In terms of the 41% of firms considering or already using digital-advice solutions—meaning robo-advisors or other automated portfolio services, "This is a significant [development] vs. four years ago, when you wouldn't see that penetration," Canter said.
"We think it will continue to grow, and five years out, there should be more widespread use," he added.
According to Fidelity's latest research, digital solution users can support nearly three times the number of investors clients as non-users (566 vs. 202). Plus, they have 2.5 times higher assets under management ($533 million vs. $209 million) and three times the revenue ($4.2 million vs. $1.4 million).
