It can also work well when the adviser does not manage assets but performs other elements of the engagement, such as monitoring and reporting. The adviser does not have unpaid receivables because the fees typically are regularly deducted electronically from the client's asset account and deposited in the adviser's account. Critics argue that the objectivity of an adviser whose fee is based on managed assets can be compromised. This method can encourage the adviser to gather assets even when alternative strategies such as debt reduction, annual gifting programs, or charitable giving strategies may be more appropriate for the client. The adviser can deduct advisory fees from the client's investment account and avoid custody if certain requirements are met.
Billings are typically on a quarterly basis and can be done in advance or arrears.
The material in this article was adapted from PPC's How to Transition Your Practice to Financial Advisory Services . Practitioners Publishing Company. All rights reserved.