The fee-based financial adviser market is growing faster every year, and financial advisers are using new services and products, according to a survey.
Assets under management among financial advisers grew to $282 billion in 1995 from $200 billion, a rate of 41%. In 1992 the growth rate was 23%, according to the survey by Cerulli Asssociates Inc., Boston, and Lipper Analytical Services Inc., Summit, N.J.
Despite the sharp growth in assets, the number of financial advisers has not grown at the same pace, according to the report. The number of fee-based firms serving retail investors grew to 12,500 in 1995 from 11,000 in 1992. Reasons cited in the report include barriers to entry; the rise of service agents offering management tools has helped advisers provide more efficient service; and the market has become more concentrated as a result.
The businesses increasingly are relying on service agents such as Charles Schwab Co. and Fidelity Investment Advisers Group, which offer advisers technology to manage client assets and a whole selection of investment products from one source. According to the study, more than half of the financial advisers rely on service agents today, compared with approximately 30% in 1992. In the meantime, financial advisers' assets handled through direct relationships with fund companies have dropped to 30% from 57% in 1992.
Financial advisers are examining the 401(k) market, particularly for cross-selling purposes. The report points out the advisers have relationships with owners of small- and midsized businesses, which increasingly appear to be the segment with the greatest growth potential among defined contribution plans.
The advisers have not focused on the market yet, but many of the vendors are offering products that will allow the advisers access to the market, according to the report. Thanks to the rising interest in multimanager 401(k) plans, financial advisers will be able to show their value in sorting through plan offerings, according to the study.
Financial assets increasingly are invested in mutual funds, according to the report, which notes mutual funds make up 16% of the financial advisers' assets, compared with 5% in 1992. Total assets in mutual funds have increased to $45 billion from $7 billion in 1992, and Cerulli's analysis projects the amount will grow to $180 billion, or 20% of the assets under management, by the end of the century.
Additionally, the report points out variable annuities and insurance products are becoming more attractive to financial advisers as more become available without sales charges.
The report, The State of the Fee-Based Financial Advisor Industry, analyzed SEC filings and other data. Interviews also were conducted with more than 500 firms.