Investors would rather pay commissions for the financial advice they receive than a fee based on assets under management, according to Cerulli Associates.
About 47% of 7,800 households surveyed prefer paying commissions, compared with 27% that would rather contribute a fee based on assets, according to the report. About 18% said they prefer paying retainer fees, which are generally lump sums negotiated between advisors and clients, and 8% said they opt for an hourly fee structure.
"Investors don't like the idea of paying a fee forever," said Scott Smith, associate director for Cerulli. "I think it rubs them the wrong way until the benefits are explained."
The financial advice industry has been moving towards a fee-based model in recent years, the report said. In 2010 about 66% of all advisors were compensated only or primarily by fees compared with 46% in 2003.
"If you're only going to trade five or seven times a year, it's probably more economical for you to pay a commission as opposed to paying someone 1% of your assets as a management fee," said Ira Hammerman, general counsel for the Securities Industry and Financial Markets Association, the lobbying group for the brokerage industry.
About 33% of investors surveyed said they didn't know how they pay for the investment advice they receive, and 31% said they thought their advisor or broker provided investment advice for free.
Those who were unsure of how they pay for advice were most likely to be unhappy with their financial advisor, with 47% reporting dissatisfaction, the study said. About 27% of those who said they pay commissions reported being dissatisfied.
