ADRIAN HOPE-BAILIE: Flat-fee financial advice is fairer to both advisers and investors

The financial advice industry is built on trust. Clients rely on advisers and planners to help them navigate complex financial decisions, plan for the future and build wealth. Yet the pricing structures that dominate the industry can create misaligned incentives that undermine this trust. Commissions and percentage-based pricing put advisers in a difficult position. Their livelihood is tied to the sale of financial products, which can be at odds with their clients’ needs. 

This isn’t about blaming advisers. As US investment guru Charlie Munger once said: “Show me the incentives, and I’ll show you the outcome.” Most advisers genuinely strive to act in their clients’ best interests while also building their careers in an industry that has historically incentivised sales over service delivery. However, a growing movement towards flat-fee and subscription-based pricing is eliminating perverse incentives and creating benefits for both advisers and clients. 

Flat-fees: the natural evolution of services in the digital age 

Flat-fee pricing isn’t just a financial services trend; it’s part of a broader shift across industries, especially where services are being optimised and augmented as they move to digital service channels. Take real estate for example. The traditional commission model, where agents earn a percentage of a property’s sale price, is increasingly giving way to flat-fee models, as illustrated by the fixed-price options offered by online marketplace Private Property. Flat-fee services offer greater transparency, reduce conflicts of interest and create a more equitable experience for clients. 

Subscription-based models have revolutionised everything from entertainment to shaving supplies, making service fees and expenses more predictable for consumers. While subscription-fatigue is certainly starting to kick in for some consumers, a good financial planner understands the value of service fees (including their own fee) being predictable and clearly accounted for in their client’s expense budget, and not hidden among investment transactions. 

In financial services, the transition to flat fees reflects this same evolution towards paying for the service you receive directly and transparently. According to recent research, subscription-based fees accounted for 19% of US adviser income in 2024, up from just 3.3% in 2020 — a staggering 475% increase — signalling a growing demand for pricing models that prioritise objectivity, fairness and simplicity. An early adopter of this trend in SA is Doshguide, which connect clients with flat-fee advisers using a pricing structure that reflects the complexity, not the size, of the client’s portfolio.

The business case for flat fees 

For clients, flat-fee financial services means accessing unbiased advice, and the cost of this advice reflects the value of the work performed. For practitioners it means focusing on the client’s needs, unaffected by how the choice of products, or structure of the client’s plan or portfolio, might affect their own finances. Put simply, flat fees ensure that everyone’s interests are aligned. 

In contrast, commission-based compensation can be complicated, making it difficult for clients to fully understand how much their adviser is earning from the products and services they sell. With flat fees, clients don’t have to do any calculations to understand the true cost. They can easily compare the total cost of financial services across different providers and then choose whoever they believe charges a fair price. While the initial cost of percentage-based fees for advice seems more attractive for investors because that 1% fee has a significant effect on the size of the investment as it compounds over time. 

Young clients, or those with smaller portfolios, receive less attention than those with larger portfolios because their financial advisers receive less income from them. Advisers might claim otherwise, but they are not charities and their high-net-worth clients certainly don’t want to be subsidising anybody else. 

Ethical advisers charging percentage-based fees often turn away clients with smaller portfolios as their investments won’t generate enough income to cover the adviser’s services. But for an adviser early in their career it’s hard to turn away potential business while you try to build your book. Newcomers to the industry know they have to endure many years of selling insurance until they earn their way into a position where they can run a sustainable practice funded by investment fees. This means that ambitious young advisers often enthusiastically over-insure their clients to generate some cash flow. Clearly, the current system prejudices both young investors and young advisers. A flat-fee model is more equitable for both sides. 

Meeting the needs of modern investors 

The growing popularity of flat-fee models reflects shifting investor demographics. Younger, more informed investors are demanding greater transparency and flexibility. They’re unafraid to explore alternatives if they feel underserved, putting pressure on the industry to adapt. For advisers this is an opportunity to align their business practices with the values of this new generation of clients. This also gives newcomers to the industry an opportunity to truly embrace their vocation — serving their customers and building a respected and in-demand practice rather than building a passive income stream from their customers’ portfolios. 

Ultimately, the move towards flat-fee financial advice isn’t just about pricing — it’s about redefining the adviser-client relationship to focus on trust and value. By removing conflicts of interest and emphasising value over volume, advisers can reclaim their role as trusted partners in their clients’ financial journeys. It’s a win-win for everyone involved. 

• Hope-Bailie is founder of Fynbos Money.