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The nation’s largest independent broker-dealers reached a milestone in 2017, when their fee-based revenue surged above commissions for the first time ever.

The reversal reflects the wealth management industry’s ongoing long-term shift toward advisory services and fee-based assets. Advisory assets under management will rise above 50% of all client assets across the field by 2025, consulting firm Aite Group predicted in a study last summer.

Over the last decade, revenue trends tracked in Financial Planning’s annual FP50 survey display why executives and experts refer to an industry going through a transformation.

Fee-based revenue makes up 43% of the firms’ revenue, nearly twice its 23% share of the mix in 2007. During the past ten years, fee revenue at the 50 largest IBDs has soared by 264% to more than $11 billion. At the same time, commissions have expanded by 21% to $10.9 billion.

The Department of Labor’s fiduciary rule, which was formally proposed in 2016, accelerated the shift in recent years. In fact, commissions have fallen each of the past three years, while fee-based revenue has grown.

The now-defunct fiduciary rule played a role in cutting into sales of commissionable products and brought about major changes at IBDs aimed at limiting conflicts of interest. Despite the rule’s demise, no one predicts the trend toward fee-based services will turn back toward commissions.

Indeed, several IBDs are galloping ahead of the pack by getting most of their revenue from fees, which experts point out are a more reliable source than the varying levels of product sales. Major players like Cambridge Investment Research and Commonwealth Financial Network now often call themselves RIAs.

Both firms made the list of top 10 firms ranked by percentage of fee-based revenue as a share of their overall revenue. Ameriprise, the No. 2 IBD, constitutes the largest firm to make the list. The firm’s advisory services have boosted its total fee revenue above all other firms.

None of those large firms, however, brought in the industry’s No. 1 fee-based mix. Those bragging rights go to a mid-sized IBD based in Centennial, Colorado. The list comes from the share of each firms’ 2017 revenue attributable to fees rather than commissions or other forms of revenue.

To see how the firms stack up, click through our slideshow. To view the top 25 firms sorted by total revenue, click here. And for a recap of the previous year in the IBD space, see FP50 2018: Independent broker-dealers adapt to survive.


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