How many advisors have adopted a flat-fee model to serve their clients? It may be more than previously thought, according to research from portfolio management fintech Advyzon.
A study of Advyzon’s roughly 1,000 client firms found that 26% have adopted some form of flat-fee revenue model for some or all of their clients, a result that surprised Charles Rowlan, senior vice president of business development at Advyzon.
“I thought that the percentage of firms billing a flat fee would be more like 10% to 12%,” said Rowlan. “Interestingly enough, we also found that things were fairly level between large firms and smaller firms.”
Among Advyzon clients, flat-fee revenue models were somewhat more popular with larger firms than smaller firms. While just 25% of advisory businesses with under $100 million in assets under management had adopted flat fees, that proportion increased to 36% for firms with more than $100 million in assets.
While the gap between large firms and small firms is still significant, Rowlan said it was also evidence of technology’s impact on the industry.
“Firm size is not a significant factor in billing methods,” said Rowlan. “I think that’s a complement for the technology available to smaller firms. Now they are able to build out in some of the same ways that larger firms do.”
Flat fees may be more popular “around the edges” of the advisory industry, said Rowlan. Large firms with the ability to scale may charge flat fees to attract and retain heirs of current clients or the next generation of investor, while newer, smaller firms may offer flat-fee services to attract new clients so that they may more quickly achieve the scale of their incumbent competition. He added that Advyzon’s results should be a reasonable snapshot of the RIA industry since 98% of its client firms are RIAs.
Still, most firms aren’t charging assets-under-management fees or flat fees exclusively, said Advyzon, with 80% of its clients using more than one fee schedule.
For firms charging a traditional percentage-of-assets-under-management fee, most (85%) use a tiered fee schedule, with lower rates for assets above a certain threshold. But even these advisors differ on how their fees are applied.
Most of these advisors charging tiered traditional AUM fees, 76%, use a “blended” tier rate that, similar to federal income tax brackets, applies the higher-tiered fee only to assets exceeding a certain amount. A minority, 24%, use a “best” tier rate, applying the best possible fee calculation to all of a client’s assets.