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Beyond AUM: The Business Opportunities with Alternative Fee-based and Fee-only Financial Planning

Brandon Heid August 19, 2021

beyond aum fees for financial planning

The wealth management industry once relied on product commissions to generate revenue, giving away financial plans for free. Over time, the assets under management (AUM) fee became the predominant form of charging for wealth management and financial planning. As the industry continues its client-centric shift towards leading with planning, new fee models are gaining popularity.

Competitive forces may have broken the link between the simple AUM pricing model and the true value being delivered. The industry is now considering more sophisticated and inclusive pricing models to remain relevant in a vastly different future.

The Need to Diversify and Strengthen Revenue Streams

While there are plenty of opportunities afforded to those who implement newer fees for planning as a service, part of the impetus to switch comes from wealth management firms facing increasing costs to serve their clients.

Clients are demanding more than ever from advisors; at the same time the profitability of investment management is waning. The revenue impact of this has been masked by a rising equity market in recent years, but it’s only a matter of time until financial professionals are required to offer more services without adding hours in the day or increasing their fees.

In an effort to serve clients more efficiently, firms have steadily turned to technology investments for workflow enhancements. Even with these efficiency gains, for many firms, there are still obstacles to managing costs. Staffing and service needs increase as clients demand more, and far too often legacy IT systems prove costly to integrate with or replace entirely.

Firms are constantly expanding their service offering as well in pursuit of delivering a highly personal, scalable, and holistic experience for their clients in a way their competitors cannot. As this trend accelerates, the AUM fee becomes less than ideal for planning-led relationships. Firms that can offer more straightforward fees in alignment with their true value have a much stronger value proposition in the eyes of clients.

The culmination of all these market forces is the need for financial advisory firms to find new ways of generating revenue.

The Benefits of New Types of Fees for Planning as a Service

Firms that implement new fee models for financial planning typically reap the rewards by producing more predictable revenue streams, demonstrating greater profitability, better articulating and delivering on the value of planning, and by positioning themselves to serve a much broader audience with advice now and in the future.

Increased Transparency in Financial Planning

Investors are becoming more aware of the fees they’re paying for financial advice. A recent Cerulli study showed that in 2020, 45 percent of investors didn’t understand what they’re paying, compared to 65 percent in 2011.1 In that same time, the number of investors who understand they’re paying fees based on their assets being managed has tripled.

With clients gaining a better understanding of what they’re paying and what they’re getting in return, it’s more important than ever for firms to easily tie their fees to the value they’re delivering, and of course, justify those fees. Using an hourly, subscription, flat fee, or other new form of fee structure is a far more intuitive way of pricing planning services. It offers greater transparency because it’s easier for clients to understand and it’s a form of payment highly familiar to them.

Predictable Revenue Streams

As I mentioned, I believe the revenue impact of changing client behaviors has been masked by a rising equity market, but the need to decouple investment management and financial planning will become more apparent when the market takes a downturn. Planning services really are independent of market performance, and thus charging for them that way shields firms from the ups and downs of the market and offers more reliable revenue streams.

Revenue is more predictable when fees are charged for planning as a service. Firms can calculate exactly how much revenue they need from each client, determine the value of each component of their planning services, and develop a price for planning separate from investment management. In this way, they can precisely anticipate revenue.

Greater Financial Planning Profitability

A recent study from BCG2 examined the profitability of successful firms versus average firms, based on their ratio of operating costs to income. One of two key factors in these firms’ success was smarter pricing models. In fact, firms that adopted smarter pricing practices could expect to increase revenues by 8 to 12 percent.

In 2018, the top performers in the study had a return on assets (ROA) of 85 basis points compared to the industry average of 69 basis points. They posted a pretax profit nearly double all others and grew revenue 5 percentage points faster. The study showed that better pricing is a crucial factor of revenue growth and a critical differentiator and a quickly changing wealth management industry.

Serving More Clients with Financial Advice

According to Cerulli1, nearly 90 percent of households have less than $500K in investable assets—these mass market and middle-market clients can’t afford advice at a cost of one percent of assets under management, nor does their plan’s complexity justify a fee that high. At the same time, 56 percent of investors today are willing to pay for financial advice—a huge untapped market that can’t be served under the AUM model.

Historically, the financial services industry has been hesitant to pursue this untapped market because it’s simply unprofitable to serve with an AUM fee model. But when other planning fees, such as an hourly rate or flat fee, are used this market can be profitable since the financial professional’s planning work is being directly compensated by the planning fee, as opposed to being compensated based on assets.

Firms that implement alternative pricing structures are immediately freed to pursue clients that would have never been approachable before. This means being able to do something the industry has long sought an answer for: profitably serving clients with lower net worth, with little to no assets to manage, and/or those much earlier in their financial lifecycle.

Exploring New Pricing Structures for Fee-based or Fee-only Financial Planning

While the upsides of charging fees for planning as a service may be clear, it doesn’t mean it’s easy to make the switch. Firms have to calculate the value of their planners’ time, the value of a financial plan, and a pricing structure and cadence that works for them and their clients.


1. “U.S. Advisor Metrics 2020: Dimensions of Diversity.” Cerulli Associates

2. Zakrzewski, Anna, Emanuelle Alm, Deepak Goyal, Łukasz Kowalczyk, Martin Mende, and Ian Wachters. “Solving the Pricing Puzzle in Wealth Management.” Boston Consulting Group, 2019. September 12. https://www.bcg.com/publications/2019/solving-the-pricing-puzzle-in-wealth-management.

About the Author

Brandon is a Practice Management Consultant in eMoney's Financial Planning Group. In his role, he provides detailed assessments and recommendations for firms looking to enhance their use of the eMoney platform and incorporate interactive financial planning into their practice. He works closely with Sales, Training, and Relationship Management departments to assist prospects and active users, as well as develop internal talent. He helps coordinate eMoney’s University Program, working with instructors, program directors, and students in over 70 CFP Board registered programs across the country. Prior to eMoney, he spent time on both the institutional and retail side of TD Ameritrade, in multiple business development roles.

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