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Quarter of RIAs Now Charge Flat Fees: Study

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What You Need to Know

  • The trend appears to be tilting toward a set rate, according to a white paper from Advyzon.
  • Fifty-two percent of firms surveyed favor advance billing, while 46% bill in arrears.
  • Quarterly billing creates potential for big revenue fluctuations in volatile markets, which may explain the trend toward flat fees.

Charging a flat fee for services is a topic of heated debate among advisors. Now the trend appears to be tilting toward a set rate, according to a new white paper from Advyzon, a technology provider for RIAs.

Twenty-six percent of firms in a survey of about 1,000 of Advyzon’s clients reported that they now use a flat fee in some capacity.

“It was higher than expected,” Charles Rowlan, Advyzon’s senior vice president of business development, said in a statement. “The trend is definitely moving more toward incorporating some type of flat-fee element.”

Flat fees are more popular with firms managing more than $100 million in assets, according to the survey, with 36% using them, compared with 25% of all firms. The bigger firms are also  more likely to have multiple fee schedules, although these are popular with firms of all sizes: 89% versus 81%.

Billing Preferences

The research also looked at trends in asset-based fees and billing. Overall, 52% of Advyzon firms favor advance billing, including 60% of larger firms, while 46% bill in arrears; 47% of smaller firms bill both in advance and in arrears.

Quarterly billing based on either beginning or ending balances remains the industry standard, with 74% of firms that work with Advyzon using a quarterly model. 

It is more popular with larger firms: 81% of firms with more than $100 million in assets, compared with 70% of firms with less than $100 million.

The white paper says quarterly billing creates potential for big revenue fluctuations in volatile markets, which may explain the trend toward flat fees. It notes, however, that flat fees are not the only way to address this issue. 

Twenty-one percent of firms in the survey use monthly billing, and 16% use average daily balances to calculate their fee, versus a beginning or ending balance.

“We get questions about just about every element of fees and billing,” Rowlan said. “Advisors want to know what other firms are doing, whether it’s billing in advance or arrears, quarterly or monthly, average daily balances, everything.” 

He said most of these questions come from breakaway firms, but existing ones also ask questions about how to do things better, whether that is by using flat fees or building in average daily balancing.

The white paper’s advice: “Whatever pricing you decide on, make sure you’re presenting it in a way that highlights the value you’re offering your clients.”