Seventy-eight percent of the wealth management industry is expected to operate on a fee-based model by 2026, an increase of more than 5 percentage points from 2024, according to a report released Tuesday by Cerulli Associates.
The move toward fee-based services is mainly driven by a transition from commissions to asset-based fees among broker-dealer and wirehouse channels, Cerulli said. Only the RIA channel is expected to decrease asset-based fees by 2026, while it anticipates increases in fees it charges for financial plans and annual or retainer services.
Asset-based fees are the most popular fee structure for financial advisors, the report said, representing 72% of their compensation. In contrast, commission-based revenues have plummeted to 23% of an average advisor’s revenue, with a further decline likely over the next few years.
An advisor’s revenue structure differs based on its core market. Sixteen percent of advisors whose core market is less than $100,000 charge monthly ongoing subscription fees, while those with wealthier clientele are more likely to charge annual or financial planning fees.
Cerulli said that advisors must be clear and concise about pricing structure and options as these clients may need clarification on what goes into an advisory relationship. A quarter of investors are unsure of the fee structure associated with their current financial advisor. Some 15% mistakenly believe that their advisor’s services are complimentary.
Although many clients prefer fee-based pricing, advisors offer alternative fee structures to draw on prospects across all ranges of investable assets.
“While asset-based fees are on the rise, they are not suitable in every situation,” Andrew Blake, associate director of Cerulli’s wealth management practice, said in a statement. “Alternative fee structures, such as annual or hourly fees, can provide greater flexibility in client service and a competitive advantage for firms in the fee-based business model.”
In particular, younger and high-net-worth clients will find these alternatives appealing. However, most advisors will not change their asset-based advisory fees by 2026, regardless of client size, Cerulli said.
Alternative Fee Structures
Alternative fee structures and the option for clients to receive a variety of planning services in one location can set advisors apart from competitors and appeal to investors, according to the report.
Twenty-one percent of advisors told Cerulli that they charge for financial plans and receive a portion of their revenue from the associated fees, making this the most common nontraditional fee arrangement. Advisors charge between $125 and $20,000 for comprehensive financial plans.
Only 3% of wirehouse advisors said they get revenue from fees for financial plans, but this figure shoots up to 38% in the insurance broker-dealer channel and 35% in the independent BD channel.
As the demand for comprehensive financial planning grows, Cerulli recommends that advisor practices dedicate time to determine how they want to charge clients for the services they offer beyond investment management.
Financial planning is time consuming, and implementing additional services complicates matters. As a result, the average minimum asset requirement for financial planning is some $662,000.
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