Social media posts by some fee-only advisors calling out brokerage-affiliated peers for the size and type of their fees are “such a bad place to spend energy,” according to Victor Orozco.
“You're always going to have conflict; no one's conflict-free,” says Orozco, of San Diego-based Bair Financial Planning. He concedes that fee-only advisors “probably” have fewer conflicts of interest. “But,” he adds, “It's not a binary thing, so there should be some grace there.”
Orozco and business partner Marci Bair’s practice embodies a major shift in fee models that’s blurring traditional lines in wealth management between RIAs and independent broker-dealers. Orozco and Bair use flat planning fees and subscriptions often associated with fee-only RIAs, even though they’re affiliated with the nation’s largest IBD, LPL Financial.
As IBDs seek to fend off the competitive threat of RIA platforms and consolidators, they’re retaining a small but burgeoning number of fee-only advisors and increasingly enabling subscriptions, fee-for-service planning or retainers in addition to the typical asset-based fees.
Advisors joing Cambridge Investment Research often ask the firm about alternate fee models, says Colleen Bell, the firm’s chief fiduciary service officer.
“That flexibility is needed going forward,” Bell says. “If you don't provide the option today, you're going to have to provide that option in the future.”
At least 90 Cambridge advisors are fee-only, including 14 who have their own RIAs, according to Bell. Another privately held IBD among the biggest in the sector, Commonwealth Financial Network, launched a specific RIA Services division in 2018. It’s now working with 129 fee-only advisors with $8.4 billion in assets under management, according to Greg Gohr, Commonwealth’s managing principal for wealth management. At least 1,120 Commonwealth advisors — about 60% — are already collecting discrete planning fees.
About half of the advisors with hybrid RIAs affiliated on the broker-dealer side with another giant, Raymond James, set up their RIAs for the sole purpose of accepting consulting and subscription fees, says Scott Curtis, president of the firm’s Private Client Group.
Commonwealth, Cambridge and Raymond James have permitted advisors to offer fee-for-service planning for years, even decades. Cambridge is also
AdvicePay has reached enterprise agreements with 22 firms since its first integration with Cetera about 18 months ago, according to the company. More agreements with firms that have a combined 10,000 advisors are coming in the fourth quarter. Kitces and Moore had originally focused on working with individual RIAs and sole practitioners, Moore says.
“We immediately started getting questions from the IBDs,” he says. “There was this huge need inside of that marketplace we weren't aware of when we first started. They're hitting a wall where they can't scale it.”
Most hourly rates are about $200, and yearly subscriptions usually range between $2,000 and $5,000 per year, according to Moore. Bair and Orozco usually ask for between $199 and $299 per month for their subscription service, depending on complexity and client needs, Orozco says. Non-AUM fees can help advisors “attract a client base you never have before,” he says.
“For us, it's not based on net worth or asset size,” Orozco says. “We have that open conversation of, ‘What do you want out of this relationship?’ and then we figure out what model works best for that.”
Subscriptions often work best for clients who are earlier in their careers and “have significant income but maybe don't have significant investable assets,” according to Curtis. In addition to working with advisors who have limited-purpose RIA entities, Raymond James provides custody and other services to RIAs who use other BDs for their remaining trails and commissions.
“Most of the RIAs who work with us utilize the tools that are available through Raymond James, but they also utilize third-party tools that are outside of Raymond James,” Curtis says. “You run your business the way you choose to, and we have the resources and capabilities here if you choose to utilize them.”
More advisors are expressing interest in using subscription fees this year, according to Cambridge‘s Bell. Her firm was carrying out beta testing of its AdvicePay integration in late October, ahead of launching in the fourth quarter. The firm also enables advisors to bundle their fees into a single expense with outside professionals like tax specialists, personal trainers and nutritionists.
“There are unique ways of thinking about what the client needs to make sure they are really prepared for the future, whether it's finances or their overall health as well,” Bell says. “It's relationship-driven, rather than transactional on the BD side. The relationships are what's important to our advisors and their clients.”
