Regardless of the advisor trade’s greater than decades-long shift towards fee-based or fee-only compensation fashions with a watch towards fiduciary requirements, 23% of prosperous buyers nonetheless choose to pay advisors per transaction on a fee foundation, in line with a new report and survey by Cerulli Associates.
Cerulli discovered a mixture of charge preferences in a survey pool of 6,000 U.S.-based buyers, with fee-based main the pack at 36%. That was adopted by 25% who stated they most popular self-directed funding platforms, 23% for commission-based, one-off fees, 13% choose to pay a retainer charge and 1% like an hourly charge.
“On the whole, we’ve got observed that the choice for commission-based fee has fallen over the past decade since we first posed this query, so there’s a sturdy potential for that choice to additional give technique to asset-based charge funds for extra suggested purchasers and those that are pursuing extra monetary recommendation,” Cerulli Analysis Analyst John McKenna Advisors stated by way of e mail.
Nonetheless, McKenna and workforce additionally discovered that just about one-quarter of buyers see the once-dominant mannequin of one-time, commission-based charges as higher for his or her state of affairs.
“These with extra restricted recommendation engagements will seemingly not discover a lot worth in asset-based charges, particularly for one-time or restricted providers for particular merchandise or plans,” he stated. “Commissions will also be common with those that have restricted property however excessive incomes—particularly youthful buyers—who might discover it difficult to seek out an advisor that fees primarily based on property however may need better flexibility when it comes to how they’ll compensate an advisor for explicit providers wanted at a given stage of their life.”
Cerulli surveyed buyers with greater than $250,000 in monetary property and people underneath 45 who earn greater than $125,000 yearly.
In separate analysis Cerulli did this 12 months with monetary advisors, the shift towards asset-based providers is extra evident, and commission-based charge buildings are at a decrease proportion than the 23% among the many investor pool.
In a survey of advisors not among the many principal house owners, 77.6% estimate they’ll supply asset-based charges in 2026, a rise from 72.4% utilizing that charge mannequin in 2024.
That compares to 16.6% of advisors who say they’ll supply commission-based charges in 2026, down from 22.8% who provided them in 2024.
Charges for monetary plans must also rise to 2.5% in 2026 from 1.7% in 2024, and month-to-month or ongoing subscription charges see a slight uptick to 0.6% from 0.3%. Different sorts of prices, equivalent to annual retainer charges (1.7%), hourly charges (0.7%), and differing types (0.4%), will stay flat.
Robert Jeter, monetary advisor and founding father of Again Bay Monetary Planning & Investments in Salisbury, Md., embraced fee-based recommendation after working in a fee setting for 3 years.
“I view fee-based as probably the most clear and aligned approach that we work with purchasers,” he stated, noting that when he began within the enterprise, his wage was primarily based on commissions, and he would discover himself in “uncomfortable spots making gross sales to purchasers.”
Jeter stated the Regulation Finest Curiosity rule, which the Securities and Change Fee began implementing in 2020, ought to preserve a fiduciary normal on monetary recommendation. However in actuality, “the dynamic of creating a sale or meals on the desk doesn’t disappear.”
“For my part, the commission-based dynamic shouldn’t exist within the room within the first place with regards to being a real career and rendering monetary recommendation,” he stated. “All the motive we’ve got two requirements of care is as a result of the battle is so large. Would anybody buy an funding if that battle was actually disclosed? … In my expertise, most individuals would instantly get a second opinion.”
Cerulli discovered that purchasers working with bank-based advisors, wirehouses and a few unbiased dealer/sellers tended to choose one-time, commission-based transactions. Whereas buyers inquisitive about no-fee, self-directed platforms had been present in better percentages with suppliers equivalent to Vanguard, Constancy and Charles Schwab.
These findings match the advisor universe. Eighty-four % of unbiased RIAs estimate they’ll present asset-based free buildings in 2026, which is identical proportion as wirehouses. Nonetheless, commission-based charges are a lot decrease, with simply 3% of unbiased RIAs and 15% of wirehouses planning to supply them.
Even amongst unbiased RIAs, the motion towards fee-only planning or hourly charges was simply 2%, with month-to-month subscriptions at 1%.
Avanti Shetye, a fee-only, advice-only monetary planner and founding father of Wealthwyzr primarily based in Ellicott Metropolis, Md., argued that the widespread use of “fee-based” planning can confuse purchasers because it mixes charges for service with commissions from product gross sales.
She stated commission-based recommendation will not be essentially dangerous if the really useful merchandise are within the shopper’s finest curiosity. Nonetheless, even well-meaning advisors can have a unconscious bias towards recommending merchandise that pay them extra.
“The monetary trade (much like the medical trade) thrives from a scarcity of transparency and conflicts of curiosity,” she stated.
She advocates for fee-only monetary planning, with 100% of compensation from shopper charges, whether or not flat-fee, hourly or AUM-based.
“Payment-only planning minimizes conflicts of curiosity and retains the advisor’s loyalty the place it belongs—with the shopper,” she stated.
Regardless of the charge construction, Cerulli discovered that 64% of surveyed buyers are happy with their advisor relationship. One other 34% are happy however open to a brand new companion, probably rife for poaching, and simply 2% are sad however will keep put anyway.
Advisor Jeter, who provides fee-based, hourly and flat charge (with no funding recommendation) choices, famous that no charge mannequin is ideal. Even a flat charge service, he stated, can incentivize an advisor to restrict time or service to maximise profitability.
“Everybody has conflicts,” he stated. “I imagine some are much more manageable and simply mentioned with a shopper. That stated, monetary planning is about serving to purchasers meet outcomes down the street. The most important a part of that’s the progress of their sources. Not solely that, however as sources develop, so does complexity, selections, targets, and so forth. Payment-based compensation naturally displays and stays acceptable for each events.”
