Affluent investors say fee-based planning is their most preferred form of compensating their advisor, yet many investors still choose commission-based or no-fee services. Accommodating these varying levels of advice demand can create a lucrative pipeline for firms looking to turn self-directed customers into fully advised clients, according to the latest Cerulli Edge—U.S. Retail Investor Edition.

For the past decade, financial firms have shifted their compensation models from largely commission-based to an asset-related fee structure. This has helped improve the standing of financial firms as fiduciaries in the eyes of potential clients, given that their compensation is tied to portfolio performance rather than to selling particular products. Clients have responded well to this shift, with fee-based payments preferred by 36% of affluent investors.

Although fees may be the most preferred form of compensation, some investors still prefer other compensation methods. Cerulli finds that 33% of affluent investors say they compensate their provider via an asset-based fee —just three percentage points lower than the 36% who indicated that they prefer this type of fee; 21% use a no-fee platform, and 20% use a commission-based method of payment—just five and three percentage points lower than the shares who prefer these methods, respectively.

“These differences between preferred compensation and actual compensation speak to the sprawling nature of primary providers in terms of the services they offer and the different types of clients they attract,” says John McKenna, research analyst. “Self-directed platforms and commission-based payments are more likely to attract independent-minded investors who may have a substantial amount of assets with their providers, while more outsource-minded investors may prefer a fee-based financial advice relationship,” he adds.

While fee-based financial planning is becoming commonplace for financial advisors, Cerulli’s research indicates a substantial number of clients are still comfortable with commissions and no-fee platforms. “Although asset-based fee arrangements have created a greater sense of alignment between advisor and client incentives, firms should be careful not to be limited to just one engagement option, lest they leave scores of potential clients unserved,” concludes McKenna.