Managed account programs are largely resistant to fee compression, according to new research from Cerulli Associates
"Within the managed accounts practice at Cerulli, the questions most frequently asked by our clients relate to fees," explains Tom O'Shea, associate director at Cerulli. "Since 2008, there has been very little price change in the explicit fees that consumers pay for subadvisory separate accounts, mutual fund accounts, rep-as-portfolio-manager, and rep-as-advisor accounts. The explicit costs of all programs with the exception of unified managed accounts (UMAs) varied only three to six basis points between 2008 and 2014."
"In contrast, the explicit fee for UMAs dropped 20 basis points during the same time period." O'Shea continues. "When Cerulli began tracking fees for UMAs in 2007, the product category was fairly new, with little competition. Since then, several firms have entered the space, including direct-to-consumer firms, which have driven down the explicit cost of UMAs."
Industry observers continue to debate whether consumers really understand fees. Cerulli research indicates that clients are often confused by the fees they pay for advice, though the trend is toward greater understanding of the cost of advice.
"In 2014, 51% of consumers reported that they were not sure how they paid for investment advice or thought they did not pay for it," O'Shea adds. "This statistic has declined from a high of 64% in 2010."
O'Shea cautioned, though, that new entrants into the managed account space might heighten consumers' sensitivity to fees. "Perhaps the most intriguing and powerful force to open clients' eyes to the cost of investing has been electronic RIAs (eRIAs), or robo-advisors as they are dubbed in the trade press As these alternative approaches to financial advice grow in popularity, especially with the Millennial generation, they could slowly destabilize the equilibrium price for managed accounts."
Cerull's first quarter 2015 issue of The Cerulli Edge – Managed Accounts Edition explores fees in the managed accounts space. It explains the difference between explicit and embedded fees, and also examines the use of exchange-traded funds (ETFs) and alternatives in managed account programs.
