Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.
It’s easy to criticize the financial advice industry from the outside. It’s harder when you’ve spent years building within it, learning what works, and eventually realizing what doesn’t. I spent over a decade supporting independent advisory firms, many of which were fiduciary and excellent. Most charge their clients using the same model: a percentage of assets under management (AUM).
Because of this, for years, accumulating AUM felt like progress was being made. Compared to commissions and opaque sales incentives, it was a better option. It aligned the advisor and client on paper; the model scaled; it rewarded retention; and it compensated advisors well. But as planning work continued to take center stage with informed consumers, and as technology made implementation less labor intensive, I began to question whether the compensation model many of us were trained in still fits the work we now do.
Here’s what I’ve come to believe: AUM-based compensation was a necessary evolution. But it isn’t the endpoint. If our profession is serious about being a profession, not an asset-gathering enterprise, we must continue to evolve. That means taking a hard look at how we get paid.
Tying Fee to Service
Critics often go straight to the math: A $3 million client paying 1% annually is paying $30,000 per year. Over 10 years, that’s $300,000. The implication is that this is inherently too much.
But that’s not always fair. If the client receives ongoing tax planning, estate coordination, risk management, and behavioral coaching that protects generational wealth, then the value may well exceed the fee. High-quality advice is worth paying for.
So no, the problem with AUM isn’t just the dollar amount. It’s the fact that the fee is tied to a metric that doesn’t account for the complexity of planning required. Portfolio size is not a proxy for need, yet we continue to bill as if it were.
Misalignment in Disguise
Most advisors I know are well-intentioned, and many are brilliant. Nearly all want to do right by their clients. However, incentives matter, even for good people (especially for those who are good).
When your compensation rises with asset growth, it changes how you perceive planning recommendations:
- Recommending a client make a significant charitable gift means recommending a fee cut.
- A client buying a mountain home with portfolio funds is a revenue hit.
- Clients with outside accounts become less attractive to manage.
Even if you disclose this and provide the right advice, the friction is still there. Flat-fee models don’t remove every conflict, but they reduce this glaring one.
