Fee or commission — what’s the best business model? According to research by Cerulli, it appears that the answer is “both.” The AUM of so-called “hybrid” advisors who can earn both fees and commissions grew 19.1% in 2012, while pure RIAs grew 14.7%. While the argument has raged in the DC market over the last decade, with some pundits declaring the commission-based model dead, the best answer seems to be that advisors should be flexible enough to be able to serve clients and sell products based on their needs, not on the desired business model.
Especially popular among plan advisors, the hybrid model allows them to collect trails from commissioned products they might have sold in the past even if they currently sell fee-based only; some advisors keep their broker dealer affiliation for variable annuities.
Converting commission-based plans to fee-based can take time, and not all providers are willing and able. Aggregators trying to attract new advisors prefer the hybrid model, since many advisors look to own their RIA apart from their broker dealer — especially advisors moving from the independent BD model.
