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Charles Rowlan, Advyzon

Practice Management > Compensation and Fees

RIAs Open to New Billing Methods, Study Shows

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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.

Of the firms that Advyzon serves, about 33% are breakaway firms, he noted. “The other two-thirds are … firms that are existing RIA firms [that] have been around for a while.”

With that in mind, he explained: “If you take the data that’s in this study and you look at it in those buckets, which we didn’t officially do in the paper … these trends are compounded,” he said.

Among breakaway RIA firms, the percentage of those firms that are “electing to go with monthly billing, average daily billing [and] flat-rate billing is even higher than what the study would show,” he noted.

The data point that stood out most from the study for Rowlan was that the percentage of RIA firms using average daily balances grew from 16% in 2021 to 19% in 2022, he said.

“That’s going to be one of those metrics where, if you were to look backwards and go back several years ago, the percentage of firms that were using an average daily balance was close to zero,” he said.

But he said: “Average daily billing is an extremely fair way to bill for both the client and the advisor. I believe that it’s very difficult to find an objection to billing using that [method] other than ‘I don’t have the tools to make it happen.’”

Another data point from the study significant to Rowlan was that the percentage of RIAs using a flat fee grew from 26% to 39% in 2022.

He was quick to point out that doesn’t mean that percentage of firms was using a flat fee exclusively. “What this means is that this percentage of firms are using flat fees with at least one client,” he explained. But it’s “still significant that many firms are leveraging a flat-fee in at least some cases” now, he added.

(Pictured: Charles Rowlan, senior vice president of business development at Advyzon)


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