Financial Advisors Offer More Billing Options Than Ever, but Asset-Based Fees Remain King
Financial advisors today are offering various billing methods, providing flexibility to cater to different clients' needs. However, the traditional asset-based fees still dominate the industry. This means advisors typically charge a percentage of the clients' total investment assets annually for managing their money.
Cody Lachner's Approach to Financial Advising
Cody Lachner launched Next Adventure Financial, an advisory firm based in Lafayette, Indiana, about a year ago. His goal was to attract younger clients who might not have significant assets but still require sound financial advice.
To achieve this, Lachner introduced a subscription fee model ranging from $100 to $300 monthly. This fee covers continuous financial planning and advice. For instance, it's like having a Netflix subscription but for financial tips and guidance.
Asset-Based Fees Still Popular
Despite offering monthly subscription fees to some, Lachner hasn't abandoned the traditional asset-based fee (AUM) model. He still charges certain clients an annual fee based on a percentage of their assets under his management. This means if he manages $100,000 of a client's money, and his fee is 1%, the annual charge would be $1,000.
Currently, Lachner serves around 50 households, indicating a diverse clientele benefiting from both subscription and asset-based fee structures.
Explanation of Key Terminology
Asset-Based Fees (AUM)
- Definition: A fee calculated as a percentage of the total assets being managed by the financial advisor.
- Example: If the advisor manages $200,000 and charges 1%, the fee would be $2,000 yearly.
Subscription Fee Model
- Definition: A regular, often monthly, fee for continued advisory services, similar to Netflix or Spotify subscriptions.
- Example: Paying $200 every month to get regular financial advice and planning services.
Final Thoughts
The shift towards varied billing methods highlights the industry's adaptability. Financial advisors like Cody Lachner are experimenting with models like subscription fees to serve clients without substantial assets, all while retaining the asset-based fee (AUM) approach for others. This flexibility ensures financial planning is accessible to a wider audience, from young professionals to established investors.
