New Threats to the AUM-Fee Model

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My article last month on developments that imperil the AUM-fee model generated a spirited response. A recent report from Accenture Consulting and an interview I did with a compliance professional illustrate why this subject is more controversial than I originally thought.

The Accenture report

The accounting and consulting firm Accenture surveyed over 4,000 consumers in the U.S. and Canada. It was part of a “multi-year research initiative tracking consumer banking attitudes and behaviors.” While the focus was on attitudes towards banks, some of the findings have ramifications for investment advisors as well.

The survey found that loyalty to existing providers is fragile. In the past year, 11% of consumers switched banks. The rate of switching to a virtual bank “is at double-digit levels,” according to Accenture.

Most striking is the finding that 46% of consumers would be willing to use robo-advice in the future.

The survey noted the substantial savings offered by robo-advice in the wealth management industry and referenced studies showing the “automated investment advice market” will reach $500 billion in assets by 2020.

Most troubling for investment advisors was the response to this question: “In the future, how willing would you be to receive the following types of advice and services in a way that was entirely computer-generated, without any input from a human advisor?”

Willingness to receive advice about investments (asset allocation for wealth management) received an affirmative response from 79% of those surveyed in North America, including 80% of millennials and 83% of “mass affluents.” The percentages were only slightly lower when the question focused on advice about planning finances for retirement.