Weekend Reading For Financial Planners (March 22–23)

Three-Fourths Of Advisors To Be Fee-Based By 2026: Cerulli

(Lilly Riddle | Citywire RIA)

In the 20th century, commission-based compensation models dominated the financial advice landscape. However, amidst a shift in the advice industry towards comprehensive financial planning (and away from pure investment management), as well as a growing recognition of the scalability that comes with high-retention recurring fee models, among other factors (e.g., a more relationship-centric model, reduced incentives to churn clients, etc.), advisors and firms have shifted away from commissions and towards fee-centric models over time.

According to a report from research and consulting firm Cerulli Associates, asset-based fees currently represent 72.4% of advisor compensation, while commission-based revenues have declined to 23% of an average advisor's revenue. Cerulli expects this trend to continue, with more than three-quarters of the wealth management industry expected to operate on a fee-based model by 2026.

The report noted that the shift towards fee-based services is driven primarily by a transition among wirehouses and broker-dealers to asset-based fees, while asset-based fees are expected to become a smaller part of RIA revenues by 2026 due to accelerating adoption of fixed financial planning fees and retainer fee models in this channel. Also, the report highlighted that 21% of advisors overall are now charging clients a direct fee for a financial plan (though this was much less common among wirehouse advisors, only 3% of whom reported using this approach).

The Cerulli report reflects similar findings from recently released Kitces Research on Advisor Productivity, which found (based on a survey population consisting of 73% RIA-based advisors) that asset-based fees remain the dominant approach, used by 92% of advisory teams, with 42% using hourly or project fees, 37% offering retainer or subscription fees, and 34% receiving commissions. Notably, though, while many firms offered more than one charging method, asset-based fees were identified as the primary revenue source for 86% of advisor teams, followed by retainer or subscription fees (9%), hourly or project fees (3%) and commissions (2%), perhaps reflecting the attractiveness of the scalability of AUM fee model.

Ultimately, the key point is that the AUM model of charging fees on client assets remains very much on the rise, and that the brokerage industry is still pivoting away from commissions and into fee-based accounts (faster than RIAs are pivoting away from AUM fees to alternative fee-for-service models). More generally, though, it's important to recognize that this means charging clients fees for financial advice, instead of commissions, is no longer the sole province of RIAs, with large wirehouses and broker-dealers adopting this approach and soon will generate less than one-fourth of their revenues from commissions as well. Which could make it more challenging for firms that have long-charged fees to differentiate themselves from commission-based brokers, though plenty of opportunities to do so remain, whether by offering alternate fee models to serve a wider range of clients (e.g., retainer models to attract clients with significant income but relatively low investment balances) or by providing a specialized value proposition for serving the firm's target client that larger firms might find difficult to match!

While Inter-Channel Advisor Moves Make Headlines, Intra-Channel Transitions Dominate: Diamond Consultants

(Lilly Riddle | Citywire RIA)

Given the potential loss of client assets that can come with advisor departures (as well as the costs of attracting and training new advisors to replace them), advisor retention is a key metric for financial advisory firms. Which suggests that identifying trends in why and how advisors are moving between firms (or between industry channels) can help firms consider how they might keep their advisor cadre for the long haul.

According to a study by advisor recruiting and consulting firm Diamond Consultants, 9,615 advisors with at least three years of experience changed firms in 2024 (down slightly from 9,674 in 2023 but up from 9,006 in 2022), representing overall industry churn among this group of approximately 6%. Notably, while news headlines often focus on inter-channel moves (e.g., a wirehouse team transitioning to an independent broker-dealer), the report found that intra-channel moves (i.e., an advisor moving from one wirehouse to another) are much more common. Nonetheless, among the channels studied, independent broker-dealers saw the largest net headcount gain (689 advisors, up from 563 in 2023 and 673 in 2022) while regional broker-dealers also saw a net gain (136 advisors, up from 41 in 2023 and 25 in 2022). These gains came at a cost to wirehouses (with a net loss of 605 advisors, up from net losses of 348 advisors in 2023 and 504 in 2022) and boutique broker-dealers (which saw a net loss of 220 advisors, compared to losses of 256 advisors in 2023 and 194 advisors in 2022).

In sum, while some advisors are looking for greener pastures in alternative channels, most moves remain intra-channel, perhaps reflecting in part a desire to remain on familiar ground instead of charting unknown waters (e.g., moving from a W-2 compensation model at a wirehouse to a 1099 model with an independent broker-dealer). Which suggests that the greatest risk to advisor retention is not necessarily the allure of an alternative model, but rather better opportunities within the firm's channel?

FINRA Fines Fell 35% In 2024, But Investor Restitution Rose: Report

(Tracey Longo | Financial Advisor)

Financial advisors are required to comply with a host of regulations, which can vary depending on their industry channel (e.g., RIA versus broker-dealer) and the regulatory authority to which they are subject (e.g., state versus Federal). While regulations themselves can provide consumers with a certain level of confidence that they are not being harmed by their advisor, enforcement actions can demonstrate the seriousness of the regulator by penalizing firms and advisors that have engaged in misconduct and providing restitution to their victims.

According to a report from the law firm Eversheds Sutherland, the number of disciplinary cases at broker-dealer self-regulatory agency FINRA rose to 552 actions in 2024, increasing by 22% from 453 in 2023 and reversing an eight-year decline. In addition, restitution payments to investors rose dramatically to $23 million (up from $7.5 million in 2023), including orders for seven firms to pay "supersized" restitution of $1 million or more. At the same time, fines reported by FINRA decreased to $59 million from $89 million in the prior year (though notably, 2023's total was buoyed by a single $24 million fine against one firm). As measured by fines assessed, top enforcement issues from the regulator included trade reporting, spoofing (which the law firm describes as involving the use of "non-bona fide orders to create a false appearance of market activity on one side of the market to induce other market participants to execute against bona fide orders entered on the opposite side of the market in the same security or a correlated product"), options trading, and technical issues.

In the end, this report suggests an active approach by FINRA (including on cases related to Regulation Best Interest [Reg BI]), with an increased number of large fines and restitution orders. Further, the increased interest in providing restitution payments could also be reflected going forward at the Securities and Exchange Commission, as some observers have suggested new leadership at the regulator might focus on substantive investor harm rather than technical enforcement of regulations.

What We've Learned From 150 Years Of Stock Market Crashes

(Emelia Fredlick | Morningstar)

While many investors recognize that there is a theoretical risk-reward tradeoff when it comes to investing, actually experiencing risk can be quite painful, particularly when it comes to deep and extended bear markets. Nonetheless, market history shows that investors who have been able to endure these periods (perhaps with the support of a financial advisor?) have been well compensated.

Looking at historical returns data, $1 (in 1870 dollars) invested in a hypothetical U.S. stock market index in 1871 would have grown to $30,711 by the end of February 2025, demonstrating the long-term growth potential of investments in the U.S. stock market. Of course, the ride along the way would have been extremely bumpy, including the 79% market drop experienced during the Great Depression, the 54% loss (on a month-end basis) of the "Lost Decade" of the 2000s, and the 51.9% decline that began in 1973. Notably, though, the 'pain' experienced by investors is often not just a matter of the depth of a market decline, but its duration as well. For instance, during the "Lost Decade", stocks not only saw a severe decline, but also an extended one as well, not returning to their previous highs for almost 13 years. Which was likely more painful than the "COVID Crash", where stocks saw a 19.6% decline but recovered in just four months.  The most recent bear market that started in December 2021 likely fell in the middle in terms of pain, with a 28.5% peak-to-trough decline that took more than two years to recover from.

Ultimately, the key point is that while the concept that volatility is the 'price of admission' when investing in assets that are expected to experience long-term growth might be understood by many clients, actually living through market declines can be challenging (given that, in the moment, it's unclear how much further the market can drop and how long the bear market will last). Which provides opportunities for advisors not only to keep their clients focused on the long-term, but, before the next crash, to ensure their clients' portfolios are structured in a way that reflects both their risk capacity and tolerance!

How Not To Invest

(Nick Maggiulli | Of Dollars And Data)

Many investors seek ideas for how they should invest, whether it's picking the 'right' stocks or trying to identify the next 'hot' trend. Nonetheless, investment success is not just a matter of the actions an investor does take, but also of the actions they don't take, as certain decisions (whether selling out of stocks at the bottom of a bear market or falling victim to a Ponzi scheme) can cause severe losses that are hard to recover from, even if the investor otherwise makes the 'right' decisions elsewhere in their portfolio.

With this in mind, Maggiulli considers the investment missteps he's made himself in recent years. For instance, in 2021 he invested in three private companies that he heard about through his personal network, with these deals being pitched to him as "exclusive" opportunities not offered to the general public. Unfortunately for him, two of the companies have since take down rounds (i.e., raised cash at a lower valuation than when he invested) and one of them has less than nine months of cash runway before it goes under (though fortunately for him, he 'only' invested 5% of his total net worth at the time in these companies). Another (smaller) mistake involved trying to predict future tax policy, selling investments (and being subject to tax on the capital gains) in the expectation that tax rates would increase in the near future. A final mistake involved not following through on a required action to make an investment (in his case, not finishing the setup to invest in I-Bonds when their rates were up during the recent inflation spike). Luckily for him, none of these investing slipups caused severe harm to his overall net worth, but demonstrate how even an individual who is well-versed in investing can still make mistakes from time to time.

In the end, financial advisors can provide value not only in choosing an appropriate asset allocation for their clients, but also in helping them avoid potential mistakes, whether in evaluating 'exclusive' investment opportunities, trying to front-run policy changes, or, at a more basic level, not following through on portfolio allocation decisions (on this latter item, a shoutout to all of the advisory firm portfolio administrators out there!).

The Risks Of Making Political Bets With Investments

(Jason Zweig | The Wall Street Journal)

These days, it's almost impossible to avoid the onslaught of political news. Given the omnipresence of politics (and the fact that many investors will identify strongly with one of the major political parties), it can be tempting to apply this political expertise towards one's investment decisions.

However, Zweig argues that mixing politics and investing is not necessarily a profitable endeavor. For instance, an individual might choose to invest in stocks that seem to be aligned with the interests of the presidential administration at the time. However, the president's policies likely have already been priced in (which can sometimes be reflected in initial periods of euphoria in certain sectors that eventually come back down to Earth). In addition to individual stocks, a growing number of thematic funds offer the opportunity to invest in ways that seemingly align with one's political values (or reflect one's predictions of which areas of the market are likely to outperform under the current president). Nevertheless, not only can these funds be subject to the sometimes-unexpected nature of markets (in terms of what companies outperform in different political environments) but also might not, in reality, reflect the investor's preferences (as the funds might use different criteria than the investor might assume).

In sum, while political views are at the core of many clients' identities (and they might be tempted to apply their political acumen to the investment process), financial advisors have the opportunity to support clients by helping them think through potential politically motivated portfolio changes (as the client might just want an opportunity to express their feelings about the issue at hand) and the potential consequences for their financial goals of doing so.

The ABC Model: How Advisors Can Help Manage Client Stress

(Danielle Labotka | Morningstar)

Clients are bound to experience stressors over the course of a multi-year (or multi-decade) engagement with their financial advisor. And while these stressors are unavoidable, advisors can offer value by helping clients worth through these stressors and hopefully lead them to a positive outcome.

According to sociologist Michael Rosino's work on the "ABC-X model of stress", an outcome (X) is based on the stressor at hand (A), the resources people have to navigate the challenge (B), and the perceptions people have of the stressor (C). Notably, financial advisors can play a valuable role in both the B and C factors, serving as a resource to help them navigate an issue (e.g., the financial ramifications of a job loss) as well as influence the client's perceptions of a stressor (e.g., putting a market decline into perspective). Further, advisors could use examples of when they successfully applied this model with prospects as a type of case study. For example, they might share an anecdote about a common stressor that clients face, how they've served as a resource to help them navigate it (e.g., by compiling different options and assessing the benefits and drawbacks of each), how they informed their client's perceptions of the event (e.g., seeing a market downturn as an opportunity for tax-loss harvesting), and how they were ultimately able to create a better outcome for the client.

Ultimately, the key point is that advisors can support their clients not only in helping them envision their ideal future and setting relevant goals, but also by helping them navigate the inevitable ups and downs that will come their way by serving as a trusted resource and sounding board.

There Is Always A Reason To Panic

(Daniel Yerger | MY Wealth Planners)

Thinking back to 2024 (and especially in prior years), it might be hard to recall all of the potential 'threats' to the market that arose throughout the year (which turned out to be a strong one for equity performance). Nevertheless, at the time many of these headlines might have spooked clients (perhaps those still on edge after the COVID crash and the 2022 bear market).

In this environment (and perhaps more so today amidst a market correction) clients might be tempted to sell off some or all of their stocks to prevent anticipated future losses. Which gives advisors the opportunity to offer value by helping the client to refocus on the longer-term planning process and the goals in mind. In this way, advisors are able to offer clients investment 'outperformance' not by exceeding market returns (which can be very difficult), but rather by ensuring that their clients actually achieve them (by not exiting the market before the market rebounds). Further, advisors can provide both psychological and financial value to clients by helping them explore opportunities available during a market downturn, whether it's tax-loss harvesting, portfolio rebalancing, 'discounted' Roth conversions, or making additional contributions to investment accounts when stocks are 'on sale'.

In the end, while prospective clients don't typically approach an advisor because they think they need help managing their investment behavior, in reality (and whether they realize it or not), helping clients 'stay the course' on the financial plan and asset allocation designed in tandem with their advisor (and taking advantage of opportunities available in a downturn!) are key ways that advisors can support their clients (which the clients might only realize after the dust has settled and their portfolios remain intact!).

Distinguishing Financial Stress From Anxiety And Client Communication Strategies To Help

(Meghaan Lurtz | Nerd's Eye View)

In today's digital-age culture where nearly all sources of news and media are instantly accessible and information overload is a normal state of being, it is not surprising that stress and anxiety are very commonly experienced. And in fact, stress and anxiety about specific financial problems are what most often drive people to seek the help of an advisor in the first place! Which, in turn, means that advisors should have some strategies in their toolbelts to effectively help clients (prospective or otherwise) who might be stressed and anxious.

Accordingly, the first step is understanding that, while the terms "stress" and "anxiety" are often used interchangeably, the reality is that they are two very different things, indeed, and require different approaches. While stress is the result of external stimuli perceived to pose some level of threat (with a corresponding response to the threat that may involve uncertainty about one's own ability to deal with the issue at hand), anxiety results from internal forces arising from unhealthy attitudes towards a particular idea or concept. Thus, while stress can be eliminated when the external stimuli are removed, the same is not necessarily true for anxiety. While an external stimulus might serve to trigger anxiety, removing it may have no effect on the anxiety since it is the internalized idea that causes the anxiety (versus the actual external trigger).

A survey by the FINRA Foundation examined specific differences between individuals reporting financial stress and financial anxiety and found that 44% of all respondents reported experiencing financial stress. Interestingly, though, financial anxiety is consistently higher than financial stress across a variety of demographic groups, roughly 10 percent higher. This might be justified by the very definitions of stress and anxiety, whereas stress can be addressed by removing the stimuli acting as the stressor, anxiety will linger as psychological damage even in the absence of whatever stressor might be the initial root of the anxiety.

Given that the underlying causes of stress and anxiety are distinct, they could call for different communication styles to deal with each condition. For instance, advisors who have clients experiencing stress can most effectively help them by reframing the stressful issue positively (such as by reminding how they've successfully overcome similar challenges in the past), focusing on the problem (discussing the specific problem and plan of attack), and making to-do lists for the client. On the other hand, clients with anxiety may be overwhelmed by these strategies. Accordingly, advisors can use a different set of techniques, such as providing a safe place to have conversations about money issues, offering guidance as a teacher and supporter, and recognizing and acknowledging growth and progress.

Ultimately, the key point is that while stress and anxiety affect many individuals, financial advisors can best help their clients by having mechanisms in place to help them identify any stress and anxiety they may be experiencing and tailor their communication approach with the client accordingly. Additionally, it can also be valuable for advisors to be aware of and manage their own levels of stress and anxiety, both for their own wellbeing and to avoid the risk of unintentionally transferring their own emotions onto the client.

The Salt Shaker Theory: Three Principles Of Effective Management

(Business For Unicorns)

While many financial advisory firm owners started out as skilled advisors themselves, they can sometimes find themselves challenged to manage a growing team (as management skills aren't necessarily part of the curriculum to become a successful advisor!). For instance, while a firm founder might want things done in a certain way (e.g., client service or plan preparation), these expectations need to be communicated (and enforced) effectively to their staff in order to ensure a consistent product for their clients.

In his book "Setting The Table", restauranteur Danny Meyer discusses an idea dubbed the "Salt Shaker Theory" (which he himself learned from fellow restaurant owner Pat Cetta), which can help leaders create service consistency while showing respect to their employees. The idea is that founders will inevitably see a (metaphorical, at least outside of the restaurant world) salt shaker out of place throughout the day. In the financial planning world, this might mean an advisor showing up a couple minutes late to a client meeting or a client service associate sending an email to a client that's not up to the firm's stylistic standards. When this occurs, founders (and other managers) are faced with a dilemma: if they leave the "salt shaker" askew, the firm's client service and overall brand might suffer; but if they are seen as micromanagers, their employees might become frustrated and perhaps leave the firm.

To thread this needle, Meyer calls for an approach called "Constant Gentle Pressure". "Constant" refers to the need for founders and managers to be vigilant when it comes to identifying "salt shakers" that are out of place, less the firm's overall standards slip. At the same time, being "Gentle" can allow the manager to maintain a positive relationship with the employee, for instance by focusing on the behavior (e.g., "I've noticed you're often a couple minutes late to meetings") rather than the meaning that a manager might ascribe to it (e.g., "Being late shows that you don't respect the firm or its clients"). Finally, while demonstrating empathy with employees can be a valuable practice, applying "Pressure" can ensure that employees are held accountable and understand the standards that are expected of them. Notably, there are different levels of pressure that can be applied based on the matter at hand. For example, failing to respond to a client email within a certain time period might call for a brief correction, while a regular habit of rude behavior towards fellow employees and clients might call for stricter disciplinary action (or termination).

In the end, given that some advisors end up as "accidental business owners", considering the standards they want to set and then putting them into practice (perhaps with Meyer's "Constant Gentle Pressure" approach) can increase the chances that they will continue to be able to offer high-quality service to clients, even as the founder's day-to-day role with clients diminishes, and be seen by employees as an attractive place to work.

Best Practices For Leaders Operating In A Remote Environment

(Ron Ashkenas | Harvard Business Review)

While some financial advisory firms operated remotely beforehand, the onset of the pandemic sent most teams into operating in a virtual environment, with many firms remaining remote or adopting hybrid policies since then. While much of the discussion about the relative merits of remote work centers around employees (e.g., whether they are more productive in the office or when working from home), operating in a virtual environment can call for different leadership approaches as well.

For firms, one of the key upsides of operating remotely is the ability to recruit both employees and managers from around the country (rather than being limited to candidates who can commute to the office). At the same time, managing in a remote environment can come with challenges, particularly with regard to the potential lack of 'face time' that can occur when organic encounters in a physical office aren't possible. Nonetheless, with conscious effort, managers can create a culture of open communication with their staff even while operating remotely. To start, remote managers can seek out ways to make their leadership 'visible', which can include regular virtual meetings (both team and 1:1) as well as opportunities to interact with the team in person (e.g., holding regular retreats). Further, given that the proverbial 'water cooler' chat isn't possible in a virtual environment, leaving time available for more impromptu, or informal, discussions with team members (through video calls) can offer additional opportunities for engagement and mentorship (and give a manager additional time to listen to the ideas and needs of their employees).

Ultimately, the key point is that while face-to-face interaction is nearly impossible to avoid when working in an office, the remote environment requires a more proactive approach to create the connections and feedback mechanisms that come more naturally when working in the same physical space. Which can allow firms to reap the hiring and flexibility benefits of remote work while maintaining a strong company culture!

How To Get Better At Delegating

(Rebecca Knight | Harvard Business Review)

Managers sometimes have a hard time letting go of certain tasks, often because they want to ensure that it's done in a certain way. However, over time, the number of tasks, combined with management responsibilities, can become overwhelming and leave the manager exhausted (perhaps reducing the overall quality of their work).

With this in mind, finding opportunities to delegate tasks not only can allow a leader to free up room on their schedule, but also empower the next generation of leaders in the firm. To start, a manager could think about the 'low hanging fruit', or tasks that are simple, require minimal effort, and can be completed quickly (which might be easier to 'give up' than more thought-intensive responsibilities). Next, a manager can identify the right people to assign the task to, which might be an employee who might build their skillset by completing it. Further, while it can be valuable for the manager to keep tabs on the delegated task (to ensure it's projected to be completed on time), trying to micromanage it every step of the way can be counterproductive, both in terms of the assignee's confidence as well as for the manager's ability to free up time. Finally, because a task is unlikely to be completed perfectly on the first try, seeking (and expecting) progress is a more achievable goal, which can build momentum for delegating additional tasks in the future (as opposed to pulling a task back whenever a mistake is made).

In sum, while delegation can be difficult for many leaders, being willing and able to do so not only can save them time (that could be applied to higher-value tasks) but also demonstrate trust in their employees, whose development could ultimately create a virtuous cycle of being able to take on additional (and more advanced) responsibilities over time as they gain skills and confidence.

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We hope you enjoyed the reading! Please leave a comment below to share your thoughts, or make a suggestion of any articles you think we should highlight in a future column!

In the meantime, if you're interested in more news and information regarding advisor technology, we'd highly recommend checking out Craig Iskowitz's "Wealth Management Today" blog.