VIRTUES AND CHALLENGES OF FEE-BASED
From the client’s perspective, asset-based fees largely remove concern about potential conflicts of interest in the advisor’s recommendations.
From the advisor’s prospective, asset-based compensation can promote stronger client relationships and from a business standpoint more reliable revenue streams. The advisor can spend more time with clients, knowing that compensation does not depend on whether or not a transaction occurs.
There are challenges for advisors shifting to fee-based compensation. For example, some clients may perceive paying fees regardless of whether transactions occur as “money for nothing.”
However, this views the advisor’s value proposition through only one portion of the cost-benefit lens — his or her ability to outperform the market.