RIAs shift to flat fees as planning outgrows AUM pricing

On June 11 at an American Institute of CPAs conference in New York, David Blain, founder and CEO of BlueSky Wealth Advisors, and Andy Panko, founder of Tenon Financial, recommended registered investment advisors consider flat-fee pricing instead of charging a percentage of assets under management.

Blain described the AUM model as a legacy of a time when portfolio management dominated advisory work. He used two client scenarios to show the mismatch between fees and work: a single client with a large investment account and no ongoing planning needs, and a married couple with little investable assets but complex planning requirements. In both situations, he said, percentage-based fees would not reflect the actual time and expertise provided.

Panko presented three flat-fee approaches: time-based billing that charges by the hour, scope-based pricing that sets a fixed fee for a defined project, and capacity-based tiers that price by complexity and the demands on an advisor’s time. He argued that complexity determines how much time and skill a case requires, and should drive pricing. “Complexity is ultimately what maps out your time, your resources, the level of skill and expertise needed — that’s what you’re delivering,” he said.

The speakers outlined trade-offs for each model. Hourly billing links fees to time spent and offers flexibility, but it can discourage clients from contacting advisors and create tension when junior staff complete parts of the work. Flat fees and retainers provide predictable recurring revenue and clearer pricing for clients, and they can accommodate younger clients who earn a lot but have limited investable assets.

Panko reported growth in flat-fee adoption, estimating roughly 50 firms now use flat fees compared with about five when he started his firm in 2019. He also adjusts his flat fees each year for inflation using the Consumer Price Index for All Urban Consumers to maintain revenue value.

Blain recommended defining tiered scopes for flat-fee models. “A flat fee with well-defined scope tiers can perform as well or better,” he said. Both advisers warned that no fee model is free of conflicts. Panko commented, “No fee model’s unbiased. No fee model’s unconflicted,” and urged firms to apply their chosen method consistently across clients.

On practical matters, the advisers advised firms to pick pricing based on where they deliver most value: continue using AUM if portfolio management is the primary service, or adopt flat fees if financial planning, tax planning and advisory work dominate. Panko said he narrows his target market to simplify pricing and operations, serving near-retirees and retirees with moderate complexity and sometimes turning away prospects who do not fit that profile.

Both speakers encouraged firms to define service scopes, assess client fit and set internal processes before changing pricing structures. They said firms seeking more predictable revenue and pricing transparency should consider flat or retainer-based fees, while practices focused mainly on portfolio management may remain suited to AUM pricing.