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Many people of average means need a financial planner, but they struggle to find one that’s affordable and accessible.
However, that’s changing, according to Michael Kitces, president of Kitces.com, who recently shared his insights at Schwab Impact 2024.
Although the assets under management (AUM) fee model still dominates the industry, Kitces highlighted the emergence of alternative payment models for financial advice, such as monthly subscription plans, retainer fees, income-based pricing, and flat-fee structures.
“The adviser landscape is trying to broaden the fee models that we have to serve a wider range of consumers,” Kitces said on the Decoding Retirement podcast (see video above or listen below). “There's actually a lot of consumers out there that want to find other models and other ways to engage and have struggled historically. And now that's starting to open up.”
This wasn't always the case. Historically, many individuals had difficulty meeting the minimum asset thresholds required by financial advisers, often set at around $1 million.
For those who did qualify, the standard AUM fee — typically about 1% — proved to be an effective arrangement. This fee covered both investment management and financial planning services.
According to Kitces, paying an AUM fee is a logical choice for individuals with sizable portfolios who prefer to delegate the responsibility of managing their investments. He noted that those with a large nest egg often look for an "effective steward," since they may not have a second chance to rebuild their wealth if something goes wrong.
Paying an AUM fee “actually works very well in that domain,” said Kitces, who noted that at least 90% of advisers still rely on some variation of the AUM fee model.
A woman walks by the headquarters of Davy, Ireland's largest stockbroker, wealth manager, asset manager, and financial adviser, on March 8, 2021, in Dublin, Ireland. (Artur Widak/NurPhoto via Getty Images) ·NurPhoto via Getty Images
But Kitces said there are others who don’t need to have their portfolio managed; they can do it perfectly fine on their own.
They may have other needs, however, such as questions about their plan, when to claim Social Security, when and how to do Roth IRA conversions, and the best way to generate tax-efficient income. In those cases, paying an AUM fee doesn’t make sense, Kitces said.
That's where other fee structures can help. Monthly subscription plans offer ongoing financial advice for a recurring monthly fee, making services more accessible and encouraging regular client engagement. Retainer fees are fixed, typically annual or quarterly payments for ongoing access to financial advisory services.
Other pricing models include income-based pricing, which calculates fees as a percentage of the client's income, making services accessible to a wider range of earners. And flat-fee structures charge a fixed amount for a set of financial advisory services.
Advice-only advisers on the rise
Kitces has observed another trend among advisers: They are adopting alternative fee models that no longer prioritize investment management as a core service — or even offer it at all.
“A growing segment, known as advice-only advisers, explicitly states that they do not and will not manage client portfolios,” Kitces said. “It's like, 'I'm literally categorically unable to manage your portfolio. I am only here to give you advice.'”
In addition, Kitces noted that some employers are now offering workers access to services similar to prepaid legal plans, only tailored for financial advice. These providers are offering, for a truly modest fee across all of the firm's employees, the services of a full-time certified financial planner on staff who is available for 30- or 60-minute sessions to address real-time financial advice questions that employees may need help with.
“It's not a big broad scope of engagement,” he said. Much like prepaid legal services, the cost of advice is significantly reduced because the plan acts as a shared pool or insurance-like fund, where those who don’t use the service help offset the costs for those who do.
Kitces also said some financial planning firms are beginning to experiment with offerings under the label of “financial wellness” benefits.
"I'm excited to see that growing," Kitces said. "To me, it really expands advice into a broad swath of consumers that, candidly, I don't think our industry has served very well historically."
"We have people who want to give advice, but we couldn't figure out how to match those together in a way that firms can scale and sustain," he continued. "And some of these new emerging financial wellness models, I think, start to open that door."
