Asset-based client fees are the most popular fee structure for U.S. advisors, according to a new Cerulli report, released Tuesday. The research firm expects its popularity to continue to rise.
Asset-based fees represented 72.4% of advisor compensation in 2024, the research firm said in the “Cerulli Edge: The Americas Asset and Wealth Management Edition—The Fees Issue.”
By 2026, 77.6% of the wealth management industry is expected to operate on a fee-based model, an increase of more than five percentage points from 2024, according to Cerulli.
The independent RIA channel is the only channel expected to see decreased asset-based fees by 2026, the report said. That comes as RIAs are expected to increasingly charge fees for financial plans and annual or retainer services, according to Cerulli.
The report said that currently, 87% of advisors say at least half of their revenue is fee-based. The firm expects that percentage to grow to 97% by 2026.
The shift toward fee-based services is being “driven primarily by a transition” from commissions to asset-based fees among the wirehouse and broker-dealer (BD) channels, the report said.
For 2024, commission-based revenue declined to only 23% of the average advisor’s revenue and advisors polled by Cerulli said they expected that to decline even further over the next few years.
While many clients prefer fee-based pricing, advisors also provide alternative fee structures for “a wide range of clients across all ranges of investable assets,” according to the report.
“The structure of advisor revenue differs based on the advisor’s core market,” the report said, noting 16% of advisors with a core market of under $100,000 charged monthly ongoing subscription fees, while those with a wealthier core market were more likely to charge annual or financial planning fees.
“While asset-based fees are on the rise, they are not suitable in every situation.”
– Andrew Blake
“While asset-based fees are on the rise, they are not suitable in every situation,” according to Andrew Blake, Associate Director at Cerulli. “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,” he said in a news release.
“Alternative fee structures and the option for clients to receive various planning services in one location can distinguish advisors and appeal to investors,” Cerulli said.
The firm said the most common nontraditional fee arrangement for advisors was financial planning with revenues from associated fees, with 21% of advisors using this arrangement.
Only 3% of wirehouse advisors polled received revenue from financial planning fees, in contrast to 38% of advisors in the insurance BD channel and 35% in the independent BD channel.
Due to growing demand for comprehensive financial planning, Cerulli recommended advisor practices “dedicate time to determine how they want to charge clients for the various services they offer beyond investment management.”
Pointing to one specific potential area of concern, Blake said, “A divide exists between practices that include financial planning in their advisory fees and those that charge separate fees.”
Therefore, he warned, advisors “must be clear and concise about pricing structure and options to engage with this clientele, who may need clarification on what an advisory relationship entails.”
“Open and candid discussions about the cost of services will build trust.”
– Andrew Blake
He concluded, “Open and candid discussions about the cost of services will build trust and strengthen relationships between clients and advisors while attracting prospective clients willing to pay for advice.”
Jeff Berman, Contributing Editor and Reporter at Wealth Solutions Report, can be reached at jeff.berman@wealthsolutionsreport.com.
