Cetera Financial Group to offer fee-for-service business model

The network's advisers will be able to offer one-time services or ongoing subscription-style fees

Mar 4, 2019 @ 2:55 pm

By Ryan W. Neal

Cetera Financial Group is embracing the fee-for-service business model.

The network of six independent broker-dealers is adding AdvicePay, a payment processing tool launched by XY Planning Network founders Alan Moore and Michael Kitces, to its technology platform for Cetera advisers to collect fees not tied to commissions or assets under management.

AdvicePay lets advisers set their own prices for services like financial planning and accept payments via credit card, debit card or Automated Clearing House (ACH) transfers without requiring a brokerage account. Advisers can collect one-time payments and ongoing, subscription-style fees.

Cetera's business consulting group will also offer training to firms looking to add fee-based services to their practice. The idea is to help advisers expand their offering beyond investment management and grow client bases by lowering the cost of entry, said Cetera president Adam Antoniades.

"The whole issue with the advice game is we've bundled planning and advice into the investment management process," Mr. Antoniades said. "This is our chance to create a path for advisers who want to monetize that aspect of the engagement with clients."

Cetera will begin supporting fee-for-service with a small pilot group of advisers to collect feedback and make adjustments before offering it to all the roughly 8,000 advisers in Cetera's network. How advisers set and implement fee-based services is up to them, Mr. Antoniades said, and Cetera will not require advisers to offer it.

Cetera already supports a variety of business models for broker-dealers and registered investment advisers. Adding support for the fee-for-service model is part of Cetera's focus on what it calls an "advice-centric experience."

While advisers accustomed to making a living by collecting commissions or charging ann AUM may balk at the idea of collecting Netflix-style subscriptions, Mr. Antoniades believes charging for advice and financial planning will be increasingly necessary for advisers to withstand ongoing fee compression.

(More: Financial planning could help advisers retain client assets through a bear market)

"Advisers are going to have to figure out ways to engage with more clients and to institute different pricing models," he said.

Charging fees for individual services doesn't have to replace commissions or AUM fees, Mr. Antoniades said. It can simply be an additional model to reach more clients, especially young investors, he explained.

(More: Want to attract millennial investors? Time to rethink AUM pricing)

Mr. Kitces of the XY Planning Network has been a proponent of the fee-for-service model for years, and said Cetera's adoption is the biggest indicator yet of a broader trend across the industry.

"Forward-looking broker-dealers are realizing that the whole industry is shifting away from product distribution and shifting to providing actual [financial] advice," Mr. Kitces said. "That's frankly a huge challenge for B-Ds. Legally, the reason a B-D exists is to facilitate product distribution."

This same challenge is driving change at other firms. For example, Commonwealth announced plans for an RIA division, and Wells Fargo is partnering with TradePMR to launch an RIA model.

But Cetera is the first large broker-dealer to "break ranks" and embrace the fee-for-service model, Mr. Kitces said.

The AUM model isn't going anywhere, but it limits the number of investors an adviser can work with, he added. Only a fraction of U.S. households have enough investible assets to make the AUM model worthwhile, and most of the assets are in 401(k) accounts an adviser doesn't manage. Then you have people who would rather manage their own finances than delegate it to an adviser.

The opportunity with introducing a fee-for-service model is not to compete for clients who can be served by the AUM model, but to make the adviser relevant to clients who can't or don't want to be.

"From an industry perspective, this is why I'm so bullish on fee-for-service," Mr. Kitces said.

According to Mr. Antoniades, hundreds of Cetera advisers already charge for advice or financial planning, but are stuck using manual systems and collecting checks. Partnering with AdvicePay will help digitize and automate that, as well as encourage other advisers to offer financial planning services.

Some advisers will never make the transition, he said, but firms that can't support advisers who do will find themselves left behind.

"Our job is to create a platform that is capable of facilitating that transition for advisers who want to make that journey," Mr. Antoniades said. "We want to be ahead of the curve."


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