Just over a year ago, fee-based brokerage accounts got the ax when the Financial Planning Association (FPA) successfully sued the SEC to overturn the “Merrill rule.” As of October 1, 2007 non-advisory managed-account programs could no longer charge an asset-based fee. The result: Assets in nondiscretionary rep-as-advisor programs have ballooned, says Cerulli Associates.
Merrill Lynch's program saw the most explosive growth: The firm's Merrill Lynch Personal Advisory program grew 2,703 percent in the fourth quarter, mostly due to conversion of accounts from its fee-based brokerage program, says Cerulli. Meanwhile, Morgan Stanley reported asset growth in its rep-as-advisor program of 237.8 percent for the quarter, and UBS, of 185.4 percent. In fact, as of the third quarter of 2007, some 53 percent of the fee-based brokerage programs tracked by Cerulli had been dissolved, with nearly 73 percent of those assets flowing into rep-as-advisor programs. (By the fourth quarter, Cerulli had stopped tracking fee-based brokerage assets all together.)
Newly launched rep-as-advisor programs include Wells Fargo's Wells Advisor and Morgan Stanley's Morgan Stanley Advisory. But Smith Barney's SB Advisor and 1st Global's IMS Flex Choice were in force pre-ruling. Cerulli Associates says the rep-as-advisor programs are “positioned for steady growth” in the long term.