Advisors Increasingly in Scramble Mode Over Fee Pressure

Can we offer you estate- and tax-planning services on the house?

Financial advisors aren’t immune to the fee compression that’s been spreading across the broader financial services industry. And that’s forcing advisors to offer more services to clients – and to get just a little bit creative. While the higher profile price wars that have cut expense ratios on mutual funds and ETFs ultimately benefit financial advisory clients, increasingly savvy consumers are now applying direct and indirect fee pressure on the advisors charged with putting clients first.

According to research conducted by Cerulli Associates, the popularly quoted 1% advisory fee is becoming more of a myth than a reality as advisors cut fees and increase services to recruit and keep clients in an increasingly competitive field.

“It’s the one-two punch of fee pressure and demand for more services, and competition for wealthier clients is driving down those fees,” said Andrew Blake, Cerulli’s associate director of wealth management. By next year, 83% of financial advisors will be charging less than 1% on assets under advisement for clients with more than $5 million in investable assets, according to the research. 

And, for those clients with more than $10 million, the average fee is expected to be around 66 basis points. Meanwhile, for those clients with portfolios in the $100,000 range, the average fee is holding at around 1.25%, according to Cerulli. Abby Salameh, chief growth officer at RFG Advisory, described advisory fees as a “big topic.”

“We see it all the time,” she said. “Advisors are being asked to deliver more services than ever before, from tax planning to estate planning, mortgage research, car leases, emotional coaching for intergenerational wealth, college-aged children, financial literacy and beyond.”

What’s Fare Is Fair

For financial advisors, the pickle of lower fees and more services is virtually unavoidable against a backdrop of rolling fee wars on the product side. “Advisors are resistant to asking their clients for a fee increase,” Salameh said. “At the same time, there are more investors that will be seeking financial guidance, and the online tools and services available through platforms like Vanguard are incredibly inexpensive.”

Michael Becker, a partner at Toberman Becker Wealth, said the pressure is on advisors to “strike the right balance between competitive fees and robust service offerings.”

“We’ve intentionally structured our 0.75% asset-based fee below the industry average,” he said. “This is possible because independent firms like ours operate with reduced overhead while delivering personalized, high-value services traditionally associated with larger firms.” Becker added that the onus is on clients and prospects to weigh price and value when working with a financial advisor.

“While cost matters, focusing on the total value, including expertise, accessibility, and tailored strategies, is what creates long-term financial success,” he added.

According to Cerulli, asset-based fees continue to dominate advisory fee models, with advisors last year earning an average of 72% of their compensation from them. Cerulli expects that percentage to climb to nearly 78% next year.

Out of Commission

The second-most popular form of advisor compensation, commissions, made up an average of 23% of advisor income last year, but is expected to fall below 17% over the next year. In addition to pressure to lower fees, advisory firms are starting to adopt more creative pricing models that suit various client segments, Cerulli’s Blake said. “We are definitely seeing a rise of non-traditional fees such as annual retainers and fees just for a financial plan,” he explained. 

Cerulli’s research shows such fee models still represent only about 2% of average advisor compensation, but they are trending in a positive direction, and are gaining appeal among fee-conscious investors. While the compensation might not be there yet, 21% of advisors surveyed by Cerulli say they are offering separate financial plans as an option. When asked by Cerulli about fee-model preferences, 36% of individual investors favored asset-based fees, but the second-most preferred fee model among investors was a “no-fee, self-directed platform.”

We’re Falling Fast. Vickie Lewin, chief growth officer at Amplify, said fee compression has been happening for decades, and will continue to evolve. “We’ve gone from brokers charging 8.5% commissions to a basis-point model that continues to come under pressure, especially as flat-fee structures gain traction,” she said. “Portfolio construction has become commoditized, with platforms like Vanguard and Betterment offering ETF strategies at 25 basis points or less, so to justify fees, advisors must shift from investment management alone to deeper financial problem-solving.”

Kyle Ray founded M.S. Financial Planning less than a year ago, and he said the pressure to offer more services for less is compounded by the fact that he typically works with clients who have smaller account balances. “I don’t feel pressured to lower my fees, but I do offer more service at the same price point,” he said. “I offer a flat-fee wealth management service that costs the same as what I pay.”

That Escalated Quickly. It is clearly another stage of the compensation evolution when portfolio management, which used to be the cornerstone of financial planning, starts becoming a loss leader to get clients in the door. Omen Quelvog, founder of Formynder Wealth Management, has a slightly different spin on the fee compression story.

“I see most of the pricing pressure placed on ourselves, as a helping profession, to provide more services for less,” he said. “That said, I believe the perceived price-to-service mismatch in most cases is prospective clients not understanding the true value and scope of financial planning.”

It’s a similar situation for Kevin Feig, founder of Walk You To Wealth. “Fortunately, there are many advisors with various pricing models, ensuring there’s something for everyone,” he said. “I always feel compelled to increase services, but less from a competitive standpoint and more from a personal drive to add more value.”

Are You Fee Next Week? Cerulli’s Blake sees the evolution of comprehensive wealth management services continuing because fee compression will have its limits. Along those same lines, there is the trend toward outsourced asset management, which ironically moves the primary basis for advisory fees effectively outside the advisory firm. “Advisors are facing competition from each other and from low-cost brokerage platforms offering self-directed investing,” Blake said. “Cost continues to be the primary consideration for clients when choosing an advisor.”