Trendspotter: Advisor Fee Structures Are Shifting

"Similarly, XY Planning Network has grown so rapidly that it is about to cross 1,500 advisors utilizing various fee-for-service business models, across nearly 1,200 firms. Notably, according to NASAA's own report, there are 11,342 state RIAs offering financial planning services. Which means in barely seven years, XYPN alone has grown to more than 10% of all state RIAs offering these new business models."

The growth of fee-for-service is not a function of the "'changing needs of the client.' The issue is simply that the AUM model only fits one kind of very narrow target client – someone who has accumulated significant assets, in a liquid portfolio, and who is willing and able to delegate the management of those assets to an advisor. As we've shown in our prior Kitces analyses – in particular – that market is less than 10% of all households. In other words, the AUM model is a niche that serves one particular type of clientele. The growth of fee-for-service is about advisors realizing that there are far more clients to be served than just those who already have accumulated significant investable assets."

Karen Barr, president and CEO, Investment Adviser Association:

"Over the past decade, advisor compensation has evolved to become more flexible and even more aligned with client interests. Today, advisors offer different combinations of fees tailored to meet client needs. Clients have been seeking more holistic fiduciary advice in addition to investment management, including financial planning. That has led to more firms offering fee arrangements that do not focus solely on the portfolio management aspect of advice. This same trend toward recognition of the value of fiduciary advice has led to a significant decrease in the number of firms charging transaction-based fees."

Hank Sanchez, a Bates Compliance managing director at Bates Group:

"Yes, I have seen this trend. It has been spurred by (1) the overall regulatory environment to address high fees, to lower fees for investors and increase fee transparency; (2) advisors' ability to utilize more technology in their business and to leverage the technology to better serve clients.

"With the ability of advisors to employ technology to support their business, they are able to grow their business and keep their fees lower. The technology allows them to do things such as employ robo-systems to execute trades, or to engage firms that use account trading and monitoring systems. These systems allow advisors to move away from Excel spreadsheets, and pencil and paper, to monitor accounts and to obtain automated performance reports. This, in turn, frees up time to grow their client base."