Fee-based and fee-only advisory practices are growing in popularity, especially among newly independent advisors. In fact, the number of firms with fee-only models reached 2,663 in 2021, an increase of 20% from 2019. That growth reflects a preference highlighted by high-net-worth investors, many of whom cite fee transparency as a critical factor when it comes to choosing an advisor.
To find out more about the advantages of fee-based and fee-only advisory models, we sat down with Douglas Boneparth, president of Bone Fide Wealth and one of Investopedia’s Top 100 Advisors of 2021. Below, Boneparth shares his insights on how these types of models can benefit advisors and their clients.
A Clear Value Proposition
While commission-based models were once the norm, the landscape is increasingly shifting. Boneparth, who has explored both fee-based and fee-only models, recommends weighing your options carefully before making a decision.
Previously a fee-based advisor who incorporated insurance into his practice, Boneparth decided to switch to a fee-only model when he determined it was the best option for his clients and for future growth. Yet the decision required serious consideration. “What weighed on me more [than revenue concerns] was: Am I going to be dropping a layer of service that I could be providing my clients? As much as it wasn’t a revenue generator, it was a value proposition generator to know that we could handle insurance needs for our clients without them having to go to a third-party agency,” says Boneparth. “I had to say goodbye to that because I thought the value of being fee-only was far greater.”
By shifting to a fee-only model, Boneparth has been able to focus on growing the financial planning and investment management aspects of his practice as well as devoting more time to marketing efforts that are helping him scale his business.
A Consistent Fee Structure
Another advantage of fee-based and fee-only practices is their fee structure. While commission-based practices may have considerable revenue fluctuation, fee-based and fee-only practices can benefit from more predictable income.
With set fees generally ranging from $1,000 to $5,000 or more per year, these practices reduce or eliminate the need for commission-based incentives and allow advisors to potentially spend more time on holistic financial planning.
Charging fees based on assets under management is another option for feed-based and fee-only advisors. “Our firm charges 1% generally on the assets that we’re managing for clients,” says Boneparth. “When you get to $500,000 in investable assets with our firm, you’re going to receive the financial planning piece each and every year without paying a separate flat annual financial planning fee. I simply feel that the value of working with a financial planner is through the financial planning relationship.”
The Bottom Line
While being a fee-based or fee-only advisor shouldn’t be the key differentiating factor you offer your clients, it’s certainly a piece of the puzzle. For Boneparth and other advisors like him, it can offer new opportunities to scale their business and build long-term client relationships. “Objectivity and transparency win the day when it comes to securing long-term relationships,” emphasizes Boneparth. Combined with a tactical marketing strategy, this approach can pave the way to long-term success.