The way in which a financial planner is remunerated can have a significant impact on the nature and quality of the advice you receive. While the focus is often on investment returns or tax efficiency, the underlying fee structure is just as important in shaping the client-adviser relationship. Among the various models in the industry, fee-based advice – where clients pay a clearly disclosed fee for ongoing services – offers several advantages that are worth considering. Let’s unpack.
Aligning the adviser’s success with yours
In commission-based models, advisers are paid upfront by product providers when a client invests in a financial product. While this may not be inherently problematic, it can create a perceived or real conflict of interest in that the adviser’s income is linked to the product selected. On the other hand, in a fee-based arrangement – especially where the fee is linked to assets under management (AUM) – the adviser’s remuneration grows only when the client’s portfolio grows. This model naturally aligns with the interests of both parties, with the advisor being incentivised to preserve and grow the client’s capital, avoid unnecessary risk, and make decisions that support the client’s long-term objectives.
Matching fees to the ebb and flow of client needs
A notable strength of a professional fee model is that it accommodates the natural ebb and flow of client engagement over time. During the COVID pandemic years, for example, many advisers saw client interaction ramp up dramatically as markets became volatile and uncertainty grew. Certainly, in our practice, clients needed more regular updates, reassurance and, in some cases, portfolio restructuring. By contrast, in quieter market conditions when investments are performing steadily, client engagement tends to be less frequent.
Having said that, it’s important to note that it’s not only market cycles that drive this variation. Major life events or transitions – such as retirement, divorce, or the sale of a business – can trigger a surge in activity. Take, for example, a client planning to retire and downscale their primary residence will need to engage with their financial advisor for:
- Cashflow modelling to ensure retirement income is sustainable
- Restructuring the client’s estate to optimise tax and liquidity
- Planning multiple retirement scenarios to account for different contingencies
- Investing the proceeds of property sales
- Structuring living annuity drawdowns and discretionary investment withdrawals
- Updating wills and other estate documents
Once this intense period of planning has passed, there may be months where the client requires minimal support and engagement. A fee-based model ensures that the adviser is available during both the high-demand phases and the quieter ones without the need to renegotiate fees each time.
Providing transparency and predictability
One of the key features of a fee-based model is its transparency, as the cost is usually expressed as a clear percentage of assets under management or a fixed Rand amount, with no hidden commissions, rebates, or third-party incentives. This makes it easier for clients to understand what they’re paying, compare costs between advisers, and assess the value they are receiving. Transparent fees also build trust, as clients can be confident that recommendations are based on merit rather than on which product offers the adviser the highest commission.
Encouraging a long-term partnership
Financial planning done right is an ongoing process, not a once-off transaction – this is because life events, economic conditions, and legislative changes all have the potential to affect your financial plan over time. With this in mind, an ongoing fee arrangement ensures that you remain engaged with your adviser, meeting regularly to review progress and adjusting your plan where necessary. This continuity helps maintain momentum, allows for proactive problem-solving, and builds a deeper understanding between client and adviser.
Rewarding disciplined investing
Fees in an AUM-based model are tied to the value of the client’s portfolio, which means that both client and adviser benefit from disciplined, long-term investing. This creates a shared incentive to avoid reactionary or knee-jerk decisions, such as selling during market downturns, that could harm portfolio growth. Clients are encouraged to contribute regularly to their investments, knowing that the adviser’s role is to help them remain on track through market ebbs and flows. Over time, this shared focus on steady growth can contribute significantly to long-term wealth creation.
Supporting holistic advice
An often-overlooked benefit of ongoing professional fees is that they typically cover more than just investment management. An experienced adviser with a full-suite practice will include retirement planning, estate planning, risk protection, and tax efficiency strategies in the service offering. This model allows clients to approach their adviser for guidance on a wide range of financial matters without worrying about triggering additional hourly charges. This flexibility allows advisers to respond quickly to questions about major financial decisions or life transitions, from selling a property to structuring an inheritance, without having to renegotiate terms.
Avoiding some of the pitfalls of other models
Other fee models have notable drawbacks worth mentioning. For instance, hourly billing can discourage clients from seeking advice when they need it most, whereas fixed annual retainers may not accurately reflect the complexity of a client’s financial situation. Commission-based arrangements can be entirely appropriate in some cases – such as for certain insurance products – but where investments and long-term planning are concerned, many clients prefer the objectivity and transparency of a professional fee.
Preserving independence
When an adviser’s income is derived solely from the client, it reduces the likelihood of product bias. In our opinion, independence is not simply a marketing claim – it’s a safeguard for the client. A fee-based arrangement ensures that the adviser’s loyalty is to the client rather than to a product provider, and that all recommendations are made with the client’s best interests in mind.
As mentioned at the outset, the fee structure that you agree to with your adviser is likely to shape the relationship, influence the advice you receive, and affect the transparency of the financial planning process. We believe that fee-based advice, particularly when linked to assets under management, offers a combination of alignment, fairness, and transparency that many investors find appealing.
Ultimately, the right model is the one that fosters trust, supports a long-term partnership, and allows you to access the full breadth of your adviser’s expertise. For many investors, paying a professional fee for advice is not an additional cost – it is an investment in ensuring that their financial plan is managed with care, objectivity, and their best interests at heart.
Have an amazing day!
Sue
