While a fear of fee compression is always a topic of conversation among financial advisors, the reality is that most advisor fees have risen since 2018, according to research from financial planner Michael Kitces.
The new study from Kitces.com, “How Actual Financial Planners Do Financial Planning,” found that advisors’ 2020 median fees significantly increased relative to 2018 fees. That translated into a 12.4% increase for standalone fees, while both retainer fee and hourly fee rates jumped 25%.
Meanwhile, median fees tied to asset under management remained relatively stable. That said, there was an 8% increase at the 10th percentile and an 8.7% increase at the 90th percentile for fees charged for a $1 million portfolio. Roughly 800 advisors participated in the survey.
“Although there has been concern that the fee compression evident with financial services products would also apply to financial planning advice, we found little evidence that this was the case,” Derek Tharp, lead researcher at Kitces.com, said in a new blog.
“We also observed pricing trends by industry channel, with advisors in the RIA channel charging higher median fees than those in the B/D channel for work completed on a standalone or retainer basis, as well as for a complete financial plan billed on an hourly basis,” Tharp said. “Similarly, financial advisors with a CFP designation generally charge higher fees than those who are not CFP professionals.”
Team structure did not seem to have much impact on standalone fees charged by solo advisors, solo advisors with support or ensemble advisors. Silo advisors, however, do appear to charge lower standalone fees than other team structures, the study found.
For financial plans completed on an hourly basis, silo teams had the highest median fees and solo advisors the lowest. That trend was reversed regarding retainer fees, where solo advisors had the highest median fees and silo teams had the lowest.
“Because advisors provided us with detailed information about their business practices and pricing, we were also able to compute implied hourly rates for advisors using non-hourly billing models, which can be helpful in understanding what ‘reasonable’ rates are for hourly advisors,” Tharp said.
At median levels, Kitces.com found that primarily AUM advisors are generating revenue at rates that imply hourly fees between $350 and $800. “This is in stark contrast to the $100 to $300 implied hourly fees generated by advisors operating on a primarily hourly basis, and speaks to the challenge of building an hourly practice that is as financially successful as advisors operating on an AUM basis at common fee levels,” according to the study.
Top-earning AUM advisors (defined here as those between the 85th and 95th percentile), are generating implied hourly fees in the $950 to $1,600 per hour range, Tharp said.