Are advisors charging what they're worth? If anything, many are undercharging. The 1% fee that once bought investment management now has to stretch across planning, tax, and a growing stack of services.
The 1% fee keeps buying more
Look at the advisor business model and they are doing five more services just to come close to justifying that 1%. Back in the 2000s, advisors could charge 1% for investment management alone.
Then financial planning got bundled in at the same 1% fee. Now tax planning is part of the package too. Clients are getting more and more services for the same headline rate, which is why many advisors are arguably undercharging.
The rise of flat-fee firms
If you are shopping around different advisory firms, now is the time. New firms are popping up charging something like 2,500 dollars for a full year, including financial planning, advisor access, and a complete written plan.
It raises the obvious question: how many clients can one advisor realistically serve at that price? The economics only work at high volume.
The real question is retention
Per the Kitces research, the sweet spot might be 150 to 250 clients per advisor, which is a ton. At that load, the advisor probably cannot meet with you as often as you would like, especially with more complex finances.
That makes retention the number to watch. If clients do not feel they are meeting with their advisor enough, how long do those low-cost, high-volume businesses actually last? Time will tell.
Frequently asked questions
- Are financial advisors charging what they're worth?
- Many are arguably undercharging. The same 1% fee that once covered investment management now has to cover financial planning, tax planning, and a growing list of services.
- What does the 1% advisory fee cover today?
- Where it once bought investment management alone, the 1% now typically bundles financial planning and increasingly tax planning, so clients get far more for the same rate.
- Are flat-fee advisory firms worth it?
- Some firms now offer a full year of planning and advisor access for a flat fee like 2,500 dollars. The trade-off is volume: one advisor can only serve so many clients well at that price.
- How many clients can one advisor handle?
- Research suggests a sweet spot of roughly 150 to 250 clients per advisor. Beyond that, meeting frequency and retention tend to suffer, especially for clients with complex needs.