Registered investment advisors, or RIAs, are offering customers discounts on fees as they face a slowdown in revenue and client growth.
According to a new survey by Fidelity Investments' Fidelity Clearing & Custody Solutions – the unit that provides clearing and custody services to RIAs, broker-dealer firms, family offices, retirement recordkeepers and banks – the revenue yield among RIAs has dropped three basis points, while revenue growth has dipped to 7% and client growth is down 5%, the lowest level in five years. As a result, Fidelity said that RIAs are making changes to their businesses, including offering discounts on their fees, gearing up to embrace more technology to boost productivity and focusing on client segmentation. Of the survey respondents, 64% said that they are offering discounts on fees, while 33% said that they will invest in productivity-boosting technology, and 57% will focus on client segmentation in the new year.
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"While discounting can contribute to revenue yield erosion, some erosion can be expected against the backdrop of new strategies increasing scale and driving down the cost of business," said David Canter, head of the RIA segment for Fidelity Clearing & Custody Solutions, in a press release announcing the results of the survey of 1,367 RIAs. "With revenue and client growth dropping, RIA firm leaders will have to ensure that they make up in volume what they are discounting in fees. But, discounting could signal that RIAs are bridging to the practice of unbundled fee structures, which may help to attract fee-sensitive clients, align services with value and protect against the commoditization of investment management."
According to Fidelity, RIAs aren't slashing their stated prices, with core basis point fees remaining stable across all firm sizes. Instead, the RIAs are discounting fees, with mid-sized and larger firms more likely to offer discounts on fees than their smaller counterparts. Of the firms with $500 million to $999 million in assets, 79% are providing discounts compared to 57% of firms with assets between $50 million and $99 million. The average discount in fees is 21 basis points. For firms with more than $1 billion in assets, the average discount increases to 28 basis points, Fidelity found.
The survey also indicated that clients with $2 million or more in assets under management receive fee breaks that are 10 to 15 basis points higher than those provided to other clients. Clients with high levels of assets under management are also able to pay lower fees across the board, noted Fidelity.