Recent market turbulence has once again highlighted a persistent challenge for wealth management firms: The traditional asset-based fee model can create awkward conversations with clients during periods of significant market volatility. The major market indices experienced their worst single-day performance since 2020 on April 3, following President Trump’s new tariff announcements. Many advisors are now facing difficult billing cycles and concerned clients.
Market Shock Renews Fee Structure Debate
The S&P 500’s 4.84% drop and the Nasdaq Composite’s 5.97% plunge on April 3 sent shockwaves through investment portfolios nationwide. For wealth management firms that typically bill clients quarterly based on assets under management (AUM), this volatility creates an uncomfortable dynamic. Those billing in arrears may be charging fees based on higher portfolio values that no longer reflect current market reality, while those billing in advance face anxious clients watching their portfolios fluctuate dramatically after fees have already been assessed.
This disconnect between fee timing and portfolio performance is not new, but each market correction brings renewed attention to the limitations of the traditional AUM fee model. Forward-thinking advisors are increasingly recognizing that market volatility presents an opportunity to reevaluate and potentially restructure their fee schedules to better align with client interests and stabilize firm revenue.
Monthly Billing: Smoothing The Volatility Curve
One straightforward adjustment gaining traction among advisory firms is the shift from quarterly to monthly billing. This approach offers several advantages in today’s volatile market environment:
Reduced timing risk. Monthly billing minimizes the impact of point-in-time market fluctuations on fee calculations, creating a more representative average of portfolio performance throughout the year.
More consistent cash flow. For wealth management firms, monthly billing creates more predictable revenue streams, aiding in business planning, expense management and compensation management.
Heightened fee transparency. Clients can more easily connect services received with fees paid when billing occurs on a monthly basis, potentially reducing fee-related conversations during market downturns.
Fortunately, most portfolio management software providers now support monthly billing options, making this transition relatively straightforward from an operational perspective. The administrative burden of more frequent billing has been largely mitigated by advances in financial technology and automated billing systems.
The administrative burden of more frequent billing has been largely mitigated.
Unbundling Services: The Rise Of Subscription Models
Beyond billing frequency adjustments, many progressive wealth management firms are fundamentally rethinking their fee structures by moving toward hybrid models that combine reduced AUM fees with subscription-based service charges. This approach acknowledges that investment management is just one component of the value advisors provide.
Subscription-based components can include specialized services such as:
Financial planning. Comprehensive personal financial roadmaps, retirement projections and goal-based planning services.
Tax planning. Strategic tax minimization strategies, tax-loss harvesting, income timing and coordination with accounting professionals.
Estate planning. Legacy planning, wealth transfer strategies, charitable giving advice and coordination with estate attorneys.
For high net worth clients requiring comprehensive services across all these domains, firms can offer bundled subscription packages that provide predictable costs for clients while ensuring the advisory firm is fairly compensated for the extensive expertise and time these services require.
Finding The Right Balance
There is no one-size-fits-all approach to fee structures in wealth management. Each firm must consider its client demographics, service offerings, operational capabilities and strategic positioning. Some considerations when evaluating potential fee model changes include client composition and sensitivity to different fee structures, administrative capabilities to support more complex billing arrangements, total revenue impact of proposed changes and compliance requirements for fee schedule modifications.
The recent market correction serves as a reminder that fee structures should be periodically reviewed and potentially adjusted.
The recent market correction serves as a reminder that fee structures should be periodically reviewed and potentially adjusted — not just in response to market conditions, but as part of an ongoing commitment to fair and transparent client relationships.
Looking Ahead
Competitive pressures from technology entrants, such as Robinhood’s new financial planning offering, and service expansion pressure from existing clients will all lead to diversification in fee structures. Now is an excellent time to examine your firm’s fee structures and evaluate whether more frequent billing, subscription-based service fees or other innovative approaches can reduce your firm’s top line revenue risk, normalize quarterly fees and advisor compensation, and reduce client stress.
A fee schedule that serves both your clients’ interests and your own business sustainability is incredibly important to your firm’s valuation and longevity. The firms that thrive will be those that align their compensation models with the actual value they deliver to clients across market cycles.
John O’Connell is Founder and CEO of The Oasis Group, a consultancy for the wealth management industry serving wealth management and technology firms.
