Wells Fargo Raises Some Revenue-Sharing Fees for Asset Managers
Wells Fargo Advisors has raised the upper limit of fees that third-party asset managers pay to get access to brokers who sell mutual funds and ETFs on its advisory platforms, according to a regulatory filing.
However, it has also lowered its “platform support” fees, which usually cover recordkeeping and other administrative costs about fundholders. The top of the fee range has been lowered to 30 basis points of fund assets held by Wells’ brokerage clients from “up to 35 basis points,” according to a comparison of April and June ADV filings with the Securities and Exchange Commission.
A Wells Fargo spokeswoman confirmed the changes, but could not immediately comment on the net impact of the changes to revenue, on broader platform changes nor on whether any outside managers are expected to leave the managed money platforms because of higher costs.
“The increase in the maximum for the data agreement fees is substantial and implies that Wells Fargo will likely receive more revenue than in the past,” said Nicole M. Boyson, a finance professor at Northeastern University.
It is difficult to assess the exact impact of the five-basis-point raise on the upper limit because Wells offers an alternative to funds of paying up to $25 per year per client account, she said.
Fees for the wide variety of sales services brokers provide money managers about advisors and investors are a major revenue stream for large firms, which loosely categorize the payments as revenue-sharing. The payments have become prohibitive for some smaller asset managers, while brokerage firms have for years been looking to slim their myriad offerings to better control services and management quality.
At the same time, asset managers who can afford the extra sales support have embraced data analytics, which provides aggregated sales data about various products and steers their salespeople, or “wholesalers,” to particular brokers interested in their products.
Morgan Stanley, for example, charges as much as $600,000 per year for allowing fund salespeople to market to its financial advisors at branch offices and conferences, with payments rising for firms that agree to reimburse brokers for expenses, according to a revenue-sharing disclosure document on its website.
Additional fees for analytics can add another $600,000 annually, and fund families may purchase supplemental data analytics on top of that.
Like Wells Fargo Advisors, Morgan Stanley also charges a platform fee to be listed on its product shelf. Fees range from 0.01% to 0.10% ($10 per $10,000) of assets per year held by brokerage firm clients.
The “shelf-space” fees are generally reimbursed to investors who have advisory accounts for which they pay asset-based fees. But investor advocates have complained that, despite increased disclosure, revenue-sharing remains obtuse and can raise costs to end buyers.
In the case of Wells Fargo, the opacity of the new disclosures makes it hard to gauge “the intensity of the conflicts of interest that it has with respect to certain mutual funds,” Boyson said.
Morgan Stanley garnered headlines two years ago when it stopped selling Vanguard Group funds, known for their low management expense ratios, because of the money manager’s refusal to pay for “shelf space” and access to the brokers.
Some brokers said higher data agreement fees could hurt niche managers that some prefer for separately managed accounts.
“As usual, small fund families and ETFs are, unfortunately, often priced out of the large platforms,” Boyson said. “I suspect that this trend will continue, and this change in ‘data agreement’ fees provides some evidence for this.”
The Securities and Exchange Commission’s Regulation Best Interest rule, which requires brokers to put client interests ahead of their own and takes effect on June 30, could affect revenue-sharing agreements, according to Aron Szapiro, head of policy research at Morningstar.
“Regardless of how Reg BI is enforced, a major source of conflict today is in revenue sharing,” he said, noting that its dependence on sales and assets under management create more conflicts than flat fees. “It will be important for firms to manage conflicts and take mitigating the conflicts posed by revenue sharing seriously.”