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Direct Sellers Make Gains Through Online Advice at Expense of Advisors

What’s the fastest-growing advisory channel? According to research by Cerulli involving 8,000 investors age 35-64 with over $100,000 in income, online firms are the leading channel, increasing AUM from $3.4 trillion in 2010 to $3.7 trillion in 2011.

These brokerage firms, like Schwab and TD Ameritrade, as well as direct fund sellers like Vanguard and T Rowe Price, have beefed up their advice offerings and have more advanced mobile and online access, as well as client portals, than do traditional advisors. Adding to the problem is a lingering trust deficit among consumers – a hangover from the Great Recession and the bad press that large financial firms received.

IRAs are a big target of these direct sellers and brokerage firms. Their advance into that niche may become easier when the DOL’s proposed regs on the definition of fiduciary are released, since the rules could limit plan advisors’ access to rollover opportunities from participants in their plans.

Schwab is making a big push toward online advice with their all-passive-strategy platform that imbeds advice into the cost. But both Merrill Lynch and LPL, giants in the plan advisor market, are betting that advice plus face-to-face meetings with advisors will yield better results.

Will online advice for the mass affluent — those with assets between $250,000 and $2.5 million — become like buying books online? Or will people still want to go to the bookstore?

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