In two separate reports, the Boston-based firm examines trends in advisors' use of "passive" investment entities, and looks at compensation practices among wealth management professionals.

Broker/dealer revenues continue to face headwinds as advisors escalate their preferences for passive products, avoiding the revenue-sharing payments that asset managers have depended on for so long, a report by Cerulli Associates says.

And separately, the Boston-based firm says that many businesses, particularly wirehouses, are consistently modifying compensation plans to achieve corporate-level initiatives and increase advisor productivity. While these changes may benefit the firm, they can be difficult for advisors to navigate – especially if adjustments are frequent.

In its comments on passive investments and the approaches of advisors, Cerulli said that across all channels, about one-quarter of all advisors create custom portfolios for each client and nearly two-thirds of all advisors report that their primary portfolio construction influence comes from within their own practice. However, as advisors confront margin pressures and scale, they are becoming increasingly conscious of the price they pay for access to investment strategies.

The comments came in the Cerulli Edge - US Asset and Wealth Management Edition.

The report said that asset managers must make available separately managed accounts, exchange-traded funds, environmental, social, and governance-oriented products, and other portfolio elements that appeal to advisors’ needs for flexibility and products emphasizing lower cost and sustainability.

Across all channels, approximately one-quarter of all advisors create custom portfolios for each client and nearly two-thirds of all advisors report that their primary portfolio construction influence comes from within their own practice.

“Cost plays a significant role in advisors’ investment decisions, placing greater pressure on managers to ensure active strategies are priced appropriately to compete with passive options,” Matt Belnap, associate director, said. 

Compensation
In its report on compensation trends, Cerulli said that advisors are generally satisfied with their compensation plans, but there is room for improvement among wirehouses and large broker/dealers. These comments came in The Cerulli Report - US Advisor Metrics 2022: Trends in Advisor Compensation. 

Seven in 10 B/D advisors are happy with their compensation structures. However, advisors in the wirehouse channel are significantly more likely to be displeased with their compensation structures (24 per cent), compared with advisors at national/regional (5 per cent) and independent B/Ds (7 per cent). 

More than half (62 per cent) of wirehouse advisors believe that their compensation plans have become too complex and 47 per cent agree that their firm alters their compensation structure too frequently.  

Half of wirehouse advisors report that their firm’s compensation plan reflects factors which they cannot control, such as years of service, and 30 per cent of Millennial B/D advisors between ages 26 and 41 think that account size minimums have limited their business development opportunities. 

Compensation is already a leading motivator for advisors choosing to switch firms – close to half (45 per cent) of advisors who switched B/Ds in the past three years cite the amount or structure of compensation as a key reason for joining a new firm.