More advisors are charging fixed and hourly fees today than they were a decade ago, reflecting a shift in demand for services beyond portfolio management.

The percentage of advisors including fixed fees in their compensation arrangement increased 3.9 percentage points between 2012 and 2021, according to the Investment Adviser Association.

Industry sources say that, particularly in times of market turbulence, diversifying revenue streams and services can help advisors better weather swings in client assets.

“The calls come in when the values go down,” said Kim Hayes, director of corporate relations for the Certified Financial Planner Board of Standards. And if an advisor’s practice relies heavily on asset-based fees, it could mean working more and getting paid less.

Geof Brown, CEO at the National Association of Personal Financial Advisors, a professional association of fee-only financial advisors based in Chicago, said introducing new fee models can help an advisor’s practice be more resilient in such environments.

“[W]hen you see the market go up and down that way, it's definitely going to cause you to step back and say, ‘OK, what's going to be in the best interest of my business?’” he said. “Having a consistent revenue stream like you would under a fee-for-service model definitely helps.”

And adding fee flexibility does not require major changes to the services advisors already provide, said the CFP Board’s Hayes. “Many times, advisors are providing planning and advice services outside of just the portfolio management piece, so it's good that the firms are reacting to that.”

Using fixed fees in combination with asset-based charges allows advisors to focus more on the client, said Brown.

“Commission-based compensation is really based on a sales relationship, and if you're not able to make the sales that you need then it's going to impact your bottom line.”

Working under a fee-for-service model also reduces the regulatory burden from the Securities and Exchange Commission, the Financial Industry Regulatory Authority, and individual states, Brown added.

Asset-based compensation remains the most common form of compensation for financial advisors. Just 4.5% of advisors eschew this model.

Clients like the flexibility, too, says IAA CEO Karen Barr.

“It’s helpful to clients to have a wide range of compensation arrangements that they can have with their investment advisor,” she said. “The primary compensation arrangement based on assets under management combines between clients' and advisors' interests.”

Advisors to private funds make up the bulk of those charging performance fees: More than 85% of private fund advisors received performance-based compensation in 2021.

Demand for advisory services has shifted as the millennial generation matures financially and the baby boomers age into retirement.

Hayes said this demand extends outside of the return on a portfolio. Combining asset-based and fixed fees can make it clear to the client which services they’re receiving outside of traditional portfolio management.

“Financial planning and the advice that it generates is cyclical, it's ongoing. I truly believe that consumers recognize the value of it when they're paying fees that mirror that process,” she said.

“However the advisor can adapt their fees around that, they’ll be successful.”