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December 29, 2022 at 04:59 PM
What You Need to Know
- RIA firms have traditionally relied on quarterly billing of their clients.
- They are now, however, expanding to other billing systems, including monthly and flat fee, thanks to new tech tools.
- Advisors are also using monthly and flat-fee billing to smooth out their cash flows.
RIA firms are increasingly trying billing systems beyond the traditional quarterly method that’s been used in the sector for many years thanks to the introduction of technology that has made it significantly easier for advisors to use other billing systems, according to a new white paper by Advyzon called “What Fee Models Are Advisors Using?”
“There are many, many ways that advisors are billing their clients” today, which is one clear takeaway from the study’s findings, Charles Rowlan, senior vice president of business development at Advyzon and the main author of the white paper, told ThinkAdvisor in a phone interview on Tuesday.
“I don’t think any particular way is right or wrong,” he said. “I think advisors have lots of choice depending on what works best for the advisor as well as their end client.”
The largest driver behind this change has been technology, he said. “I think one of the reasons why there’s more variability in billing styles than there once was is due to technological tools that give advisors the ability to use some of these styles that were once less popular,” he explained. “They’re becoming more popular because they’re not as hard to execute as they once were.”
But we’re also “seeing advisors make choices” now when it comes to billing “to basically smooth out their cash flow,” he pointed out. “More advisors are choosing things like monthly billing. More advisors are choosing flat-fee billing. So they’re taking out some of the variability in their billing.”
Prior to this, the “traditional billing mechanism has always been quarterly in advance [in which] advisors were being paid four times a year and account balances were being evaluated four times a year,” he noted.
“Moving to a monthly billing [cycle] not only smooths out the cash flow for the advisor,” he said, “the advisor now gets paid 12 times a year but they’re taking 12 snapshots a year, which is likely more fair to both parties as well. And that’s even compounded with the use of a daily average billing.”
Noting that it’s the second time Advyzon has issued a study like this, Rowlan said it’s “pretty intriguing that flat-fee monthly billing and average daily are [both] trending up.”
Meanwhile, “another thing that I think we can provide more data around in future years” of the planned annual study is “these different billing styles — particularly monthly billing, average daily, flat-fee — they’re even more popular [among] breakaway firms,” he told ThinkAdvisor.
The study was based on about 1,000 RIA firms. “This is not a survey,” he stressed, noting: “We didn’t send out a survey and allow advisors to respond back with how they bill. Advyzon is able to “look at live data and see how firms are actually billing” thanks to its billing tech tools, he said.
