The traditional asset-based fee model for wealth managers is showing its age, falling behind the times, according to a new report from global consulting firm Simon-Kucher & Partners.

Its report, The Future of Fees: Real Life Pricing innovations in Wealth Management, stresses the need for innovative fee structures that are aligned with changing trends in the industry, from a suitability to fiduciary standard and from investment management to holistic planning as well as a growing younger client base

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“The future of fees is not a shift from the traditional AUM to a new fee model,” said Wei Ke, a managing partner in the firm’s global banking division and co-author of the report, in a statement. “The future will be characterized by more diversity where a variety of fee structures will emerge to meet the needs of new and underserved client segments, and changing market conditions.”

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The challenge for advisors is how ”to innovate on price and grow profitably,” according to the report. “If no one answers the question of profit growth, low-cost models could simply take over the profession, which would inevitably mean that low-value offerings will take over the profession.”

The report discusses eight different innovative fee structures designed to serve a variety of clients, each with an example of an advisor who uses that structure:

  • Charging by the hour
  • A three-part model that includes an hourly fee or retainer plus an up-front flat fee and a fee based on AUM
  • Annual fixed fees based on a client’s complexity, which will affect an advisor’s workload
  • The McDonald’s Menu, which bundles hours for planning packages
  • Gen X Model: Advice fees linked to income and net worth rather than AUM because many Gen X clients don’t have many liquid assets
  • Subscription Model: Clients pay for services they select based on their personalities: an upfront and monthly fee for financial planning (for collaborators); an upfront fee and higher monthly fee for financial planning + investment management (for delegators); and one single fee for a one-time financial plan (for DIYers)
  • The Super-Retainer: one-fee for standalone investment management plus fixed fees based on services delivered
  • Modular AUM-based Pricing: Varying prices based on the level of service; this helps solve the issue of discounting, which often relates more to client willingness to pay rather than value of service

“Rather than joining the price war, we recommend changing the game through fee innovation,” said Matthew Jackson, director in the global banking division of Kimon-Kucher & Partners. “Inaction is not a viable strategy.”