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Practice Management > Compensation and Fees

Is It Time to Switch to Fixed-Fee Retainers?

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What You Need to Know

  • The fixed-fee retainer model now has higher client retention rates than one with asset-based fees, our research finds.
  • Even though younger investors increasingly prefer fixed-fee retainers, that doesn’t mean that the model is right for every advisory firm.
  • There are three situations in which fixed-fee retainers do make sense.

The changes in wealth management throughout 2020 shook the industry to its core in many ways, but perhaps none was more surprising than the changes around advisory fees.

For the first time since Herbers & Co. began tracking data on how advisors charge fees, the fixed-fee retainer model saw higher client retention rates than asset-based fees. In 2020, the fixed-fee retainer model rose to a retention rate of just below 98%.

Comparatively, asset-based fees have seen an average retention rate around 95% in the last decade. 

The strength of the data has many advisory firm owners asking the same question: Should we switch to fixed-fee retainers?

The answer isn’t a simple yes or no. Here are the considerations you should make before you adjust your fee model.

Look at why fixed-fee retainers are rising. Before adjusting your fee model, you should first understand why fixed-fee retainers are seeing such high retention rates. 

Fixed-fee relationships don’t always include direct asset management, so advisors may wonder if their long-term “stickiness” will be the same as that of asset-based fees.  

When we look at the data, there is a clear generational difference in who values fixed-fee retainer relationships.

In simple terms, consumers now expect to receive services via a subscription model. Global companies such as Netflix and Amazon have retrained Americans on how to interact with companies that provide goods and services.

2021 J.D Power survey found that three-quarters of millennials prefer a fixed-free retainer (or a subscription model, if you prefer) for full-service wealth management.

3 Scenarios in Which Fixed-Fee Retainers Make Sense

Even though there is a growing trend among younger investors to prefer fixed-fee retainers, that doesn’t mean that the model is right for every advisory firm. 

There are three situations in which fixed-fee retainers do make sense, though. If your firm fits any of these scenarios, you may want to consider the positive impact of adding fixed fees to your service offerings.

Scenario 1: You have problems marketing to high-net-worth clients.

As we’ve seen from the data, fixed-fee retainers are most appealing to millennials. If you have the patience to play the long game, fixed fee retainers can help you play to the mass-affluent marketplace and better market your financial planning services.

As you get more mass-affluent clients, especially those with high incomes, the hope is that they’ll have the trajectory to save and invest enough to become high-net-worth clients down the road.

Scenario 2: You have a growing specialization.

If you have a primary target market that is growing rapidly, such as a specialization in employees with equity at early-stage technology startups, fixed-fee retainers can give you a way to build more specialized services. 

In this situation, you can target a fixed-fee retainer model specifically to a custom client segment and tailor it to make the most sense for their needs.

Scenario 3: You want to reach legacy clients.

Advisors everywhere are worried about what the so-called Great Wealth Transfer, where today’s older clients transition their wealth to younger generations. If that wealth passes and the client’s children go to another advisor, the ripple effect in an advisor’s firm can be massive. 

Fixed-fee retainers can give advisors a foot in the door right now with the children of current clients. Again, the goal is to build a specific retainer relationship that can allow them to grow into long-term clients throughout their life with services that adjust to their needs over time.

If your firm fits any of these three situations, fixed-fee retainers may be well worth a look as an addition to your service offerings. 

While nothing can “future proof” an advisory firm, we also don’t expect the shift in consumer preferences toward subscription fees to change in the near future. As things return to normal, now is the time to act.