How Advisors Get Paid Now

There's a shift afoot in advisor compensation.

While the lion's share of advisors' revenues continues to come from getting paid as a percentage of assets under management, RIAs are increasingly interested in supplementing revenue with other fee sources, according to a new survey.

Nearly all (94%) of RIAs are getting paid as a percentage of AUM, according to an inaugural survey of advisory firms around the country from RIA in a Box, a compliance and registration firm. The report found that 55% of surveyed advisors also charge their clients on an hourly basis, 43% charge fixed fees and 10% get performance-based fees.

Even though this survey is the firm's first, RIA in a Box Chairman Will Bressman said he's seeing increased interest from firms seeking to supplement the traditional AUM fee: "We're seeing hourly and fixed fees being used more with smaller clients and for other discreet services." - Charles Paikert

SEC Targets Conflicts, Marketing

The SEC plans to take a close look at potential conflicts of interest in the investment advisor practices that its examiners oversee, and will ramp up scrutiny of the marketing and performance claims of federally registered advisors, according to examination guidelines the agency issued recently.

As the SEC zeroes in on "areas that are perceived by the staff to have heightened risk," examiners will be looking for conflicts stemming from undisclosed forms of compensation, such as fees and solicitation arrangements, referrals to affiliated entities and payments from specific funds and fund platforms or other third parties. "Marketing and performance advertising is an inherently high-risk area due to the highly competitive nature of the investment management industry," the SEC said. "Aberrational performance of certain registrants and funds can be an indicator of fraudulent or weak valuation procedures or practices."- Kenneth Corbin

Mike Tyson Sues Ex-Planner for $5M

Mike Tyson is preparing for another fight - this time, with his former financial planner.

The former heavyweight champion is suing planner Brian Ourand and his former firm, SFX Financial Advisory Management Enterprises, for allegedly stealing money and costing him millions in potential earnings.

"They feel betrayed in the worst possible way by their financial advisors," one of Tyson's lawyers, Ben Meiselas, said of the boxer and his wife Lakiha, who is also a plaintiff. "But the Tysons are fighters, and [they] have a legal team in place with unlimited resources to make sure [they] receive justice." They are seeking more than $5 million in damages.

The trouble began in 2011, the suit alleges, when the Tysons discovered that SFX had replaced Ourand with Eugene Mason, the firm's compliance officer and part owner. The Tysons had grown close to Ourand and trusted him. They invited him to their wedding and gave him full authority over their accounts, with the power to write checks, the suit says.

Neither Mason nor Ourand returned calls seeking comment. A spokeswoman for Live Nation, which owns SFX, declined to comment. - Ann Marsh

Succession Plan Worries for Advisors

Not enough advisors are planning for successions and transitions, said Waldemar Kohl, vice president for Fidelity Institutional Wealth Services.

Most advisors would like an internal transition, passing the practice on to junior advisors at the firm, according to Fidelity research. However, of that group, 71% say they have not identified a successor.

This is one of the major challenges Kohl sees when it comes to succession planning in the advisory industry. "There's a gap between those who started the business and the younger, talented advisors who don't know how to run a business," Kohl said. Advisors will need to teach the business mind-set to junior advisors, he said, if an internal transition is to work. - Samantha Allen

Advisors Teaming Up

Advisors across all channels are teaming up rather than working solo, according to research firm Cerulli Associates.

In 2012, 69% of 10 advisors operated in a team-oriented structure, up from 61% in 2011.

Teaming is gaining traction because it allows advisors to specialize in their areas of individual strength, broadening "the entire offering as a practice," said Cerulli analyst Sean Daly.- Margarida Correia

Tight Credit Spreads Continuing

Advisors with clients focused on muni bonds have watched credit spreads narrow considerably over the past three years. And they aren't expected to reverse course anytime soon.

"It's the kind of market where investors are looking for as much yield as they can get," said Hugh McGuirk, head of municipal investments at T. Rowe Price. "And for probably most of the last couple of years, investors have favored bonds with spread to them, and that extra demand for spread has naturally tightened up spreads pretty steadily over the last couple of years."

Spreads between triple-A general obligation bonds and their single-A peers in the 10-year range have contracted by 50 basis points from highs over that span.- James Ramage

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