Do You Know Your True Value? How advisory revenue models evolve to better capture the true value and impact firms deliver to clients

As Mark Tibergien points out, financial advisors operate in a unique industry where "advisors are often paid for the value the client brings to the relationship, rather than the value the advisor brings to the client." He likens this to doctors charging patients by the pound. In an industry where fees on assets under management (AUM) drive recurring revenue for wealth managers, it may seem as though the larger the client's investable assets, the higher the advisor’s fee—regardless of the actual value or impact he or she provides. This is a particularly important observation when considering the value chain.

For years now, AUM has essentially been our industry’s only accurate scorecard. It’s how firms measure themselves against their competitors, and the yardstick advisors use when comparing themselves to their peers. But in truth, AUM is merely one factor (and a relatively inaccurate one) for measuring success. If we want to reflect the true value advisors provide, we need to explore revenue models that better capture that value.

A Gradual Shift Towards New Revenue Models

As advisors, we often overlook other drivers of revenue and profitability—such as the number of clients served per advisor, the profitability of clients to time spent, the capacity of each advisor, and the value advisors deliver through relationship building.

Bob Veres at Inside Information recently published his 2024 Fees in Motion report, offering valuable insights into the state of the advisory profession. It’s important to note that Veres’ audience primarily consists of fee-only advisors, representing only a small portion of our industry. Most top advisors across all channels are primarily fee-only, and I don’t see that changing in our lifetime.

But advisors are clearly becoming savvier, as witnessed by the following three key adaptions, which are becoming increasingly prevalent:

1. Adding additional services and finding new ways to add value and make an impact while increasing fees for these additional services. This can happen in various ways, including increasing basis points on assets, charging project fees, separate advisory fees, or a combination of both.

2. Communicating more effectively with clients and outlining the services, deliverables, and advice provided in writing.

3. Engaging in a rich dialogue with clients at least once a year, asking this powerful question: “What do you believe we have achieved together this year or in the many years we’ve worked together?”

Often, clients don’t immediately think of what their advisor or advisory firm has delivered. However, when you ask about ‘achievements,’ it’s a powerful word that forces reflection. Document this. Keep a running year-over-year list of the many things you’ve achieved together. These could include:

• Hosting and facilitating one or more family meetings about wealth transfer
• Devising solutions to reduce their taxes or coordinating with their estate attorney
• Having extensive conversations about their family’s philanthropic goals and ‘giving strategy’

Keep in mind that managing or overseeing the management of your client’s investable assets and building a financial plan are merely table stakes in today’s advisory marketplace.

Key Takeaways From Veres’ Research

The future of advisory compensation is becoming increasingly multifaceted, according to the survey:

• 30% of firms now generate a portion of their revenue from hourly fees for core planning work

• More than 35% of firms generate revenue from flat quarterly or hourly project fees for add-on services

• 20% of firms use monthly subscription fees to capture consistent, ongoing value

Smaller firms especially embrace these alternatives to AUM-based compensation models. More than one-third (34%) of firms with annual revenues under $1 million serve some clients via hourly fees, compared to only 10% of firms with revenues over $10 million.

It’s interesting to note that larger firms, for the most part, put their eggs in the AUM basket. Why? Because AUM fees provide predictability and reward them for market appreciation. But what happens when the client begins to question whether the fee reflects the value they’re receiving?

This brings to mind the famous 1970s Mercedes-Benz quote: “In the absence of value, fees are always a question.” It highlights the notion that clients are far less likely to question the cost of a product or service when they perceive its intrinsic value. If the value isn't clear or justified, however, the fees or price will likely become a point of contention.

Unrealized Revenue Opportunities

More than half (55%) of advisors surveyed do NOT charge for initial financial plans when onboarding clients. Larger firms are even less likely to charge an initial planning fee, often seeing it as a ‘loss leader’ to solidify the relationship. However, for firms that charge upfront, fees range from $2,000 to $7,000, depending on the complexity of the client’s needs.

Other professional services firms, such as law firms and large consultancies, routinely charge additional fees for extra work outside the initial engagement scope. When a financial advisory firm client experiences life-changing events that require more profound, more comprehensive planning, advisory firms should be compensated for their time, expertise, and advice. In fact, consider the significant value the client receives during these times and align a fair and reasonable fee for service that reflects the advisor’s value.

However, some advisors discount their fees, particularly the basis points on assets, which signals to the client that the value being provided is “less than.” Often, this discounting happens because the overall value and impact of an advisory firm’s work are not well communicated. This might have made sense in the old structure, where fees were tied solely to AUM and managing money. But in today’s evolving model, the most influential advisors deliver far more than investment management. If you’re discounting fees, it may mean that other aspects of the value you provide—such as strategic planning, estate management, or family legacy planning facilitation—are either not being communicated clearly or are not valued by the client. This could indicate that you’re either attracting the wrong clients or have not effectively framed your services beyond investment management.

If you don’t charge an initial planning fee, consider starting small. Begin charging new clients with complex needs for the comprehensive planning you provide. This could boost your profitability and strengthen client relationships by highlighting the value of your expertise. It also sets the stage for future project work, allowing clients to understand that specialized services warrant additional compensation.

Itemizing Your Value

We’re still in the early stages of this shift. However, the only way to prepare for the future of advisory compensation is by understanding the internal costs associated with delivering your services.

What’s the actual value of the lead advisor’s time in your firm? When asked this, advisors’ estimates varied wildly, from $100/hr to $1,000/hr, with a median value of $400/hour. This uncertainty signals a missed opportunity: if you don’t know the value of your time (and expertise), how can you charge appropriately?

Only a small subset of firms currently track the time their teams spend on different tasks to determine the cost of servicing or onboarding clients. Yet, without this data, you risk underpricing the value you bring to your relationships.

Actionable Next Steps

Start by tracking the time your firm spends on various client services. Quantifying these hours will provide valuable insights into the true cost of delivering your services and help you better align your fee structures. But don't stop there—also track your firm's tangible and intangible impact on the lives of your clients. This can include measurable outcomes such as:

• Reducing estate taxes through careful planning
• Executing tax-loss harvesting strategies
• Renegotiating lower mortgage rates
• Advising clients during contract negotiations to secure better compensation

Equally important are the less tangible but highly impactful moments—like facilitating family meetings to discuss legacy planning or giving clients the peace of mind that comes from feeling financially secure. These contributions may look different for each client, but they all represent your true value in their lives. By tracking both measurable and immeasurable outcomes, you’ll be able to demonstrate your value more effectively and justify your fees accordingly.

The Future of Fee Structures

The tide is turning. While 75% of firms using non-AUM models do so to serve younger clients or those who don’t meet AUM minimums, a growing percentage (35%) are shifting due to preferences expressed by their wealthiest clients. More affluent clients now request flat monthly or quarterly fee structures, and advisory firms would be wise to pay attention.

Fee structures will continue to evolve, and the best way to prepare is to begin analyzing and quantifying the hours you spend on various client tasks. This will allow you to budget your time more accurately and better manage profitability and capacity.

Additionally, consider expanding services beyond investment management and general financial planning. Know your value by engaging in a dialogue with clients about what they want and need. Remember, build the business your clients want, not the one you want to build. By doing so, you’ll be able to grow your firm profitably.

The Time to Act Is Now

The advisory profession is at a turning point. It’s clear that the industry is evolving. The question is, will your firm grow with it? Are you prepared to adapt your firm’s fee structure to reflect the true value you provide, or will you continue to rely on AUM alone?

Start by reviewing your current fee structure, understanding the value you bring, and finding new ways to capture that value. The sooner you begin, the more prepared your firm will be for the future of advisory compensation.

After reading this article, consider discussing these coaching questions with your leadership team, your next-generation team members, and your client advisory board:

1. How can we better communicate the total value we provide to clients, beyond just managing assets, to ensure our fees reflect our true impact on their lives?
2. In light of our industry's evolving revenue models, what steps should we take in the next 3-5 years to diversify our fee structures and ensure sustainable growth?
3. What opportunities do we see to integrate more personalized services, such as family legacy planning or philanthropic advising, into our offerings, and how can we effectively charge for these services?
4. How might we enhance client engagement through more consistent communication about achievements and outcomes, ensuring they recognize the breadth of value we deliver?
5. Considering our AUM-based fees, how can we measure and demonstrate the return on investment clients receive from our advice, particularly in areas like tax savings, financial security, or long-term planning?

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