8 Innovative Advisor Fee Structures

(Related: Top Trends Shaping Advice Industry: Fidelity)

The challenge for advisors is how ”to innovate on price and grow profitably,” according to the report. “If no one answers the question of profit growth, low-cost models could simply take over the profession, which would inevitably mean that low-value offerings will take over the profession.”

The report discusses eight different innovative fee structures designed to serve a variety of clients, each with an example of an advisor who uses that structure:

• Charging by the hour
• A three-part model that includes an hourly fee or retainer plus an up-front flat fee and a fee based on AUM
• Annual fixed fees based on a client’s complexity, which will affect an advisor’s workload
• The McDonald’s Menu, which bundles hours for planning packages
• Gen X Model: Advice fees linked to income and net worth rather than AUM because many Gen X clients don’t have many liquid assets
• Subscription Model: Clients pay for services they select based on their personalities: an upfront and monthly fee for financial planning (for collaborators); an upfront fee and higher monthly fee for financial planning + investment management (for delegators); and one single fee for a one-time financial plan (for DIYers)
• The Super-Retainer: one-fee for standalone investment management plus fixed fees based on services delivered
• Modular AUM-based Pricing: Varying prices based on the level of service; this helps solve the issue of discounting, which often relates more to client willingness to pay rather than value of service

“Rather than joining the price war, we recommend changing the game through fee innovation,” said Matthew Jackson, director in the global banking division of Kimon-Kucher & Partners. “Inaction is not a viable strategy.”