Mark P . Hurley

Clients might want a different deal . So why does the AUM model remain entrenched ?

UBSCRIPTION FINANCIAL PLANNING HAS RECEIVED A FAIR amount of attention recently , and for good reason . It provides a large , underserved segment of the population with access to sophisticated financial advice .

This compensation model is also now widely used as a tool for building potential future client pipelines . Instead of waiting until prospects have accumulated a sufficient level of wealth , advisors offer prospects financial planning for a onetime fee and an ongoing quarterly fixed fee . Wealth managers use these services to build relationships with younger individuals in the hope that they ultimately bloom into full-service , higher paying clients over time .

That said , like every other new thing that comes along in this profession , the subscription planning model has been a wee bit overhyped . A handful of prognosticators have even gone so far as to suggest that it will ultimately replace the fee-for-AUM model that currently dominates the industry .

These individuals correctly point out that AUM-based fees have almost no correlation with the value provided by wealth managers . Moreover , as

the financial markets generated spectacular returns from 2012 to 2021 , by one estimate about half of all industry participants devolved effectively into investment-only wealth managers . And absent another similar raging decade-long bull market , clients are most certainly going to start wondering why they are paying 0.75 % to 1 % of their assets each year for what these critics would argue is solely asset allocation advice .

That said , for two reasons there is zero chance that the industry is going to shift away from the AUM-fee compensation model anytime soon . First , the true value provided by wealth managers is not financial advice . Rather , it is helping cli-

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