The movement towards fee-based compensation isn't losing steam anytime soon – in fact, it's only set to gain momentum.
That's according to a new report from Cerulli Associates, which projects more than three-quarters of financial advisors will operate under a fee-based compensation model by 2026.
The latest edition of the "Cerulli Edge – Americas Asset and Wealth Management" report finds that 77.6 percent of the industry will be fee-based within two years, up from 72.4 percent in 2024.
One major driver behind the shift is the continuing decline in commission-based revenues, which currently account for 23 percent of the average advisor’s revenue. Advisors expect their reliance on commissions will only decrease, Cerulli said, as more firms move toward asset-based fees.
Despite the dominance of asset-based pricing, advisors are also increasingly offering alternative fee structures to appeal to a broader range of clients.
“While asset-based fees are on the rise, they are not suitable in every situation,” Andrew Blake, associate director at Cerulli, said in a statement. “Alternative fee structures, such as annual or hourly fees, can provide greater flexibility in client service and a competitive advantage for firms in the fee-based business model.”
One in five advisors, or 21 percent, report charging for financial plans and deriving some revenue from those fees, making it the most common nontraditional pricing approach. The prevalence of financial planning fees varies significantly across channels, with just 3 percent of wirehouse advisors charging for plans compared to 38 percent in the insurance broker/dealer channel and 35 percent in the independent broker/dealer space.
The independent RIA channel was an outlier in the trend of increasing asset-based fees. According to Cerulli, independent RIAs are expected to dial down their reliance on AUM-based fees while ramping up their use of financial planning and retainer-based pricing models by 2026.
More broadly, 87 percent of advisors report getting at least half their revenue from fee-based accounts, a number that's expected to rise to 97 percent by 2026.
Advisors are also fine-tuning their fee structures to resonate with different client segments. For example, 16 percent of advisors whose core market consists of clients with less than $100,000 in investable assets charge ongoing monthly subscription fees. Meanwhile, advisors working with wealthier clients are more likely to charge annual fees or financial planning fees.
Cerulli's research has found just one-third (33 percent) of investors with less than $100,000 of investable assets are willing to pay for advice. That tendency rises among higher-net-worth clientele, reaching 75 percent for investors with more than $5 million of investable assets.
The report highlights the importance of transparency in advisor compensation, noting that one-quarter of investors are uncertain about how they are charged for financial advice. To maintain client trust, Blake emphasized the need for clarifying discussions that address the fee issue head-on.
“Advisors must be clear and concise about pricing structure and options to engage with this clientele, who may need clarification on what an advisory relationship entails,” he said. “Open and candid discussions about the cost of services will build trust and strengthen relationships between clients and advisors while attracting prospective clients willing to pay for advice.”
Being candid about costs may also be effective in the war to win unadvised investors' business. In another study, Cerulli found nearly half of investors without advisors are held back by the lack of clarity on advisor compensation, compared to just 11 percent of advised investors expressing concerns on cost transparency.
As financial planning becomes a core service offering for more advisors, Cerulli also suggested that firms reflect on how they charge for services beyond investment management. With the rise of fee-based models and increasing demand for transparency, firms may need to balance competitive pricing with sustainable revenue models.
While the average advisory fee remains tied to assets under management, the report also points to the hard reality of fee compression, especially for advisors to high-net-worth clients. Advisory fees range from 125 basis points for clients with $100,000 in investable assets to 67 basis points for those with $10 million, Cerulli noted, pointing to a trend of advisors offering lowering fees to stay competitive and help ensure loyalty as their clients' wealth rises.
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