By next year, more than three-quarters of the wealth management industry ( 77.6% ) is expected to operate on a fee-based model, representing an increase of more than five percentage points from 2024, according to a new report.

This shift towards fee-based services is driven primarily by a transition from commissions to asset-based fees among wirehouse and broker/dealer channels, research and consulting firm Cerulli Associates says in the latest edition of Cerulli Edge, the Americas asset and wealth management edition.

For financial advisers, asset-based fees remain the most popular fee structure, representing 72.4% of their compensation. In sharp contrast, commission-based revenues have declined to just 23% of an average adviser’s revenue, and advisers expect this to decline further over the next few years.

 Although many clients prefer fee-based pricing, advisers offer alternative fee structures to appeal to a wide range of clients across all ranges of investable assets. 

“While asset-based fees are on the rise, they are not suitable in every situation,” says Andrew Blake, associate director at Cerulli. “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.” 

Alternative fee structures and the option for clients to receive various planning services in one location can distinguish advisers and appeal to investors.

More than one in five advisers ( 21% ) report charging for financial plans and receiving a portion of their revenue from the associated fees, making this the most common non-traditional fee arrangement. Only 3% of wirehouse advisers report receiving revenue from fees for financial plans, but this figure rises to 38% in the insurance broker/dealer channel and 35% in the independent broker/dealer channel. 

As the demand for comprehensive financial planning grows, Cerulli recommends adviser practices dedicate time to determine how they want to charge clients for the various services they offer beyond investment management. 

“A divide exists between practices that include financial planning in their advisory fees and those that charge separate fees,” says Blake. “Advisers 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.

“Open and candid discussions about the cost of services will build trust and strengthen relationships between clients and advisers while attracting prospective clients willing to pay for advice,” he adds.