Retainer Fees for Financial Advisors: The Pros and Cons

Choosing a fee structure is one of the most important decisions for your business. Clients want to pay fees that reflect the level and quality of services they receive, while you want to feel fairly compensated for your effort and expertise. A retainer fee model can satisfy both parties and potentially help you attract new clients to your business. Here’s a closer look at how retainer fees for financial advisors work.

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Traditional Advisory Fee Models

You’re probably most familiar with the assets under management (AUM) fee structure, in which you calculate fees as a percentage of the assets you manage. A typical financial advisor fee is 1% of AUM, though some advisors may charge a discounted rate as AUM increases.

The AUM fee model is straightforward and widely adopted. New clients might even expect you to follow this pricing structure. There are some potential flaws, however.

Basing fees on AUM may concentrate your revenue in a handful of your highest-net-worth clients. And in an increasingly competitive advisor landscape, you may feel more pressure to justify the fees you charge to attract and retain clients.

Alternatives to the AUM model include:

Hourly fees
Commissions
Subscription-based fees
Fixed or a la carte fees for individual services

Each of these fee structures has advantages and disadvantages.

Hourly fees, for example, are transparent and relatively easy for clients to understand. You could run into issues, however, if you underestimate your billing hours and it results in a larger bill for the client.

Charging flat fees for individual services is also straightforward, but it’s not always conducive to nurturing lasting relationships. A client who comes to you with a specific need may have little incentive to engage in ongoing financial planning services once their need is met and your fee is paid.

These types of drawbacks can make a retainer feel model more appealing to advisors who are looking for consistent, stable revenues.

How Do Retainer Fees for Financial Advisors Work?

A financial advisor reviews how retainer fees work and revises their fee structure.

A retainer fee model means that pricing is based on fixed fees, which may be charged monthly, quarterly or annually. Similar to an attorney’s retainer fee, this fee structure establishes a working relationship with a client who can then call on you for advice as needed.

Retainer fees can cover a wide range of financial planning services, from investment advice to portfolio management to estate planning. What you offer may be tailored to each client you work with.

How much do advisors charge for retainer fees? It depends on the practice. At the lower end, advisors may charge an annual retainer ranging from $2,000 to $2,500 per client. At the higher end, it’s not unusual for advisors to charge $10,000 or more.

Benefits of Retainer Fees for Financial Advisors

The retainer model offers several benefits for advisors who are looking for a unique way to approach fees:

Retainer income is predictable, as you can bill clients monthly, quarterly or annually.
Clients may also prefer the predictability this gives them, since the fee remains the same.
A retainer model allows you to tailor your services to the needs of individual clients, without tying performance outcomes to your fees.
Unlike commission-based fee structures, a retainer model can eliminate conflicts of interest and ensure that your clients are getting advice that aligns with their needs and goals.
Simple pricing may also help improve retention rates among clients who value transparency and want reassurance that you’re in their corner when they need you.

Is the retainer fee model perfect? No, but that’s true of any pricing structure.

For instance, you may find yourself having to justify the retainer fees you charge to new or existing clients. Or you may have clients who question the value they’re getting in exchange for the fee they’re paying. Those are both important considerations if you’re thinking of transitioning to a retainer fee structure.

Regulatory Rules for Advisory Retainer Fees

Before implementing a retainer fee model, it’s important to familiarize yourself with the regulatory guidelines governing them.

The SEC requires registered investment advisors who charge retainer fees to submit an audited balance sheet with Part 2 of Form ADV when:

They receive a prepayment of fees equaling $1,200 or more, AND
The fee is received for services more than six months in advance

This rule exists to protect consumers against the possibility of paying advance fees only to have their advisory firm go out of business before services are rendered.

States can impose restrictions on retainer fees for financial advisors. Utah, for instance, prohibits nonrefundable retainer fees for advisors. Any fees you charge your clients must be reasonable, following the law.

Reviewing federal and state regulatory guidelines can ensure that you’re compliant with the rules before offering a retainer fee structure to your clients.

Tips for Charging Retainer Fees

If you’re considering including retainer fees in your pricing structure, proper planning can facilitate a smooth implementation. Here are a few tips for adding retainer fees to your pricing:

Determine what fee range is reasonable and appropriate to charge your clients, based on their AUM and the services you typically provide.
Decide how you’ll bill for the fee and what compliance reporting requirements might be triggered, depending on the billing frequency.
Review your book of business to assess which clients may benefit the most (or least) from a retainer fee structure.
Be prepared to communicate the value a retainer model can offer to clients.
Set clear expectations with each client about what they can expect from you going forward.

Frequently Asked Questions (FAQs)

Do Financial Advisors Charge Retainer Fees?

More advisors are moving toward a retainer fee model. Advisors who charge retainer fees versus following an AUM or commission structure get the benefit of reliable income. Their clients, meanwhile, have the reassurance of knowing their advisor is waiting in the wings to help when needed.

Do Retainer Fees Save Advisory Clients Money?

Charging a retainer fee could yield savings for clients if the fee is appropriate to the assets they have under management with their advisor and the level of services the advisor provides. With an AUM model, there’s always a possibility that clients may overpay for services simply because they have more wealth to manage.

Can Any Advisor Charge a Retainer Fee?

Retainer fees for financial advisors are subject to federal and state regulations. Before moving towards a retainer model, it’s important to consider what compliance requirements you’re expected to meet and what the laws in your state allow you to charge. Also, think about your overall business model and goals, and how changing up your fees could help – or hinder – your growth.

Bottom Line

A financial advisor explaining how a retainer fee structure works to their client.

If you’re used to the AUM fee structure or earning fees from commissions, moving to a retainer model can take some getting used to. Over time, however, you may find that this approach to fees benefits both you and your clients.

Tips for Growing Your Advisory Business

Successful advisors recognize the importance of establishing brand recognition and having an online presence. Social media, email and digital ads are some of the ways you might market your business on the web. If you’re looking for a less time-intensive solution, you may consider partnering with an advisor marketing platform. SmartAsset AMP (Advisor Marketing Platform) is a holistic marketing service financial advisors can use for client lead generation and automated marketing. Sign up for a free demo to explore how SmartAsset AMP can help you expand your practice’s marketing operation. Get started today.
How often should financial advisors increase their fees? It’s an important question to ask if you’re focused on growth. It’s helpful to review your fee schedule every two to three years to evaluate whether your pricing allows you to remain competitive while also generating profits.