The growth of fee-based compensation and new portfolio construction methods among advisors threatens brand name money managers that many advisors have traditionally relied upon, according to a new Casey Quirk study. New advisor models will grow at the expense of the legacy manager selector model—in which advisors invest most of their clients’ assets with a select group of fund families.

“Because of the commission structure, because you had to make trades within the fund family you went with, you went with firms that had really broad line-ups, who had usually a big brand name, and who gave you a good deal of support in the field,” said Justin White, director at Casey Quirk. “The risk is as reps have moved to fee-based and are looking for different types of investments, the question is how many of those legacy firms have those new unique products, have the client interface in the field, have those more advanced technical discussions with advisors?”

This legacy model is expected to decline from 33 percent of advisor-sold assets today to 24 percent by 2017, Casey Quirk predicts. Legacy managers are those that have relied on traditional wholesaling techniques and style-box products. They are decent but don’t stand out, and are known more for their distribution services and marketing than unique, cutting edge investments.

At the same time, four new advisor models have emerged—portfolio managers, passive allocators, multi-asset-class solution outsourcers and home office outsourcers—and their asset market share is expected to increase from 66 percent today to 71 percent by 2017. Casey Quirk’s research is based on how they believe advisors will manage money in the future, and the type of fund families they’ll work with as they change.   

Portfolio managers, one of the archetypes Casey Quirk identified, are more technically-oriented, build more complicated portfolios and seek specialist investment firms across a wide range of asset classes. Passive allocators rely on index products, while MACS outsourcers focus on multi asset class strategies as core products and allocate tactically for satellite positions. Home-office outsourcers rely on the broker/dealer’s packaged portfolios and advice.

The shift away from the legacy model is driven by the trend towards fees as well as a change in the way advisors allocate money, thinking more about outcomes as opposed to benchmark returns, White said. Advisors also have more asset classes to choose from.

“To build a portfolio five or 10 years ago, it was a fairly simple exercise,” White said. “As reps see the world becoming more complex in terms of what investors are looking for—‘I need income,’ ‘I want preservation,’ very specific things—to balance that with running a business, I think it’s becoming a little too much.”

Advisors in these new models are gravitating toward boutique asset managers, who have a unique niche, a distinct philosophy and specialty in a certain product area, White said.

As the number of advisors who rely on legacy managers diminishes, some fund families will have to evolve if they want to stay relevant, White believes.

“It’s hard to turn the Titanic when the world has changed around you,” White said. “I think you’ll see some try to reinvent themselves pretty aggressively. And I think you’re going to see some who are just kind of in the dark and don’t want to see this coming, and those are the ones that will likely suffer the quickest and the most because they refuse to play any sort of defense or go on the offensive around these changes.”