But when I imagine our industry five years from now, I think AUM pricing for the advice portion of wealth management will cease to be the norm. Simon-Kucher, the global leader in pricing strategies, released a 2017 report that every advisory firm should read and consider. The consultants foresee clients choosing the services they want on an annual or episodic basis—and paying only for what they use. When I started my career, we had an investment management fee and gradually added wealth and planning services bundled into that fee, a bit like, “free gift with purchase.” But we could still argue the cost of managing investments was high because we didn’t live in an automated world where information was also ubiquitous. We never had to put an actual price tag on the advice.

Now investment pricing has been demystified by robos, index funds and ETFs. Let’s say a benchmark is 30 basis points. If you are charging a 1% AUM fee, then 70 basis points per year is ostensibly for advice. Usually the first year is advice-heavy, but the next few years may be light. I’ve done my own consumer interviews and found that retirees are wondering about this. They have hit the retirement number; their estate plans are in place. Why shouldn’t they start thinking about how much they are paying for advice?

When I have floated the idea of people paying à la carte or unbundled pricing for advice, I’ve had pushback from advisors. They say clients don’t want to be nickeled and dimed, or they worry that people won’t want to pay the fees if those fees are in boldface. They offer the analogy of the add-on fees airlines introduced for baggage and extra legroom, which many consumers resent. What’s different in our industry is that the advice fee is the bulk of what clients are paying, and my conviction is they will want to know what those costs are and have more control over how they use and pay for our services.

Deliver Wealth Management A New Way

We’ve seen robos move up the spectrum to offer more advice, as Betterment has done. Over time, as consumers take more pricing power, I think we will see the evolution of the hybrid advisor, in the space between digital and human advice, who will come to dominate our industry as established firms, including RIAs, move in this direction. Smart advisors will have figured out how to be competitive, scale their businesses and adapt to what people really value and are willing to pay for.

Here’s What You Can Do

In the future, it will make sense for you to segment your clients and introduce digital solutions for both efficiency and a more modern client experience. To grow, we all need to stop raising account thresholds and find ways to profitably serve smaller and younger investors. The promises of efficiency gains from custodians, other platforms and fintech players have proved empty, and that’s a huge problem.

For example, you can’t succeed in direct marketing when you turn away almost all the leads as too small! Many of the firms I talk with are shedding small accounts or have given up on serving millennials, the next generation of their client base, because they can’t afford it. While the profitability concerns are significant, the decisions are shortsighted.

In 2018, I hope to see some firms publish new fee schedules that are lower overall, and which include options for à la carte services. When 64% of firms are discounting, real prices have already changed. I would also like to hear how advisors are lowering account minimums and aggressively going after younger investors. Cutting prices and cutting costs at the same time while investing in marketing would be a bold strategy.

When we finally stop talking about discounting and accept that we have in fact been repriced by consumers, I think it will help the industry get more serious about what needs to be done for our long-term health.