Performance-Based Billing from Advisors Gaining Traction 

Advzon, a wealth management technology and investment management service provider for independent financial advisors and RIAs, reports that an increasing number of firms are charging clients performance-based fees, according to the company’s third annual Billing and Fee Study of over 1,200 firms that use the provider for billing. 

“Performance-based billing can be a great way for advisors to boost revenue in bull markets,” Charles Rowlan, SVP at Advyzon and author of the study explained. “On the other side of the equation, investors may embrace a feeling of gamification, where fees shift along with performance. Others may shy away from the complexity. It really depends on the type of clients you work with.” 

In 2023, billing based on an account’s average daily balance rather than its initial or ending balance continued to expand. This strategy, like performance-based billing, may be too labor-intensive for businesses that do not utilize a technology provider, according to Advyzon. 

“Average daily balance remains the fairest way to bill, in my mind, for both advisors and investors,” said Rowlan. “However, most of the advisors we talk to aren’t aware it’s an option, largely because wirehouses and legacy tech providers haven’t made it available.” 

However, Advyzon said a tiered fee structure, based on assets under management and billed quarterly, was the favored method for firms to bill their clients last year. 

Advyzon did identify a pullback in the number of firms that rely on flat fees, declining to 32.9% in 2023 after increasing to 38.6% in 2022 from 25.5% in 2021.   

The flat-fee model is most common among firms with more than $100 million in assets under management, with 38.6% relying on it in 2023, compared to 29% for firms with less than $100 million.