For the time being, AUM-based fees will remain the best way to serve long-standing, older clients, said Anderson.
“For the large block of advisors’ current clientele, I wouldn’t really suggest making a change,” said Anderson. “They’re used to paying it, it’s a decent business model in a frictionless environment.”
Pressure to change fees will come from two directions, Anderson said: first from younger, less affluent clients who will balk at the high cost of financial advice, then from high-asset-worth clients who will demand an explanation for why they should pay a higher price than clients with fewer assets for similar levels of service.
In Anderson’s ideal scenario, advisors would link the price for their services to what it costs them to serve the client.
Consumers have become more fee-sensitive, according to SEI, with fewer of their consumer respondents willing to stay with their advisors if fees are too high or they don’t receive a reduction when requested.
Investors may also like a flat fee model because they know the exact dollar amount they’re going to pay for advice before incurring the expense, allowing them to incorporate planning and advisory fees into their budget. Similarly, a flat fee model also gives advisors more certainty over their revenue generation, said MacKillop.
“Flat fees are advantageous for the advisor,” said MacKillop. “Assuming a stable client base, once you’ve set your price, and your clients have agreed to the price, you know precisely what your revenue will be for the year so you can plan your activities accordingly. Life becomes less volatile for flat fee advisors.”