Financial advisors are under mounting pressure to deliver more value while preserving profitability. Fee compression has become a defining trend in the wealth management industry. At the same time, clients are demanding more services at the same price, a phenomenon often referred to as “value expansion.”
The challenge in 2025 and beyond is clear: How do practices continue to grow while margins are under strain?
What is fee compression for financial advisors?
Fee compression refers to the downward pressure on advisory fees resulting from competition, the rise of low-cost digital solutions, and increasing client expectations.
If you search online for “understanding fee compression in wealth management,” you’ll find as many articles arguing that fee compression doesn’t exist as warning that it’s on the rise. Regardless of where you stand, preparing your practice to manage either outcome is essential.
Here, we focus on the scenario where fee compression is increasing and explore its implications for advisors.
Have margins changed?
While average advisory fees may appear relatively stable on paper, the real story is the demand for expanded services (such as tax planning, estate coordination, and holistic wealth management) without a corresponding increase in compensation. In short, advisors are being asked to do more for the same fee. Research shows that fees haven’t fallen dramatically in percentage terms, but margins continue to tighten.
- Nearly 44% of advisors derived 90% or more of their revenue from advisory fees in 2024, a share expected to rise to 54% by 2026.1
- Advisors’ compensation is increasingly tied to asset-based fees, rising from 72% in 2024 to 78% by 2026.2
- Conversely, commission-based revenue is expected to decline from 22.8% in 2024 to 16.6% by 2026.3
This shift reflects a broader realignment within the industry. Clients—particularly high-net-worth (HNW) households—expect comprehensive financial planning, tax strategies, and concierge-level service, all bundled into the same cost structure. Unless firms adapt, the result is thinner margins.
Fee trends across client segments
Fee schedules are increasingly segmented by wealth level:
- HNW discounts: by 2026, 83% of advisors expect to charge less than 1% for clients with $5 million or more in AUM.4
- Ultra-high-net-worth clients: fees are projected to average 66 basis points (0.66%) for portfolios above $10 million.5
- Mass affluent clients: portfolios around $100,000 typically face fees closer to 125 basis points (1.25%).6
Further, 86% of advisors use AUM fees as their primary pricing model, up from 82% just a few years ago. Importantly, those fees are rarely “just” for investment management. On average, 41% of the AUM fee covers financial planning and other advisory services.7
Proactively manage profitability
Yes, advisors should be concerned about fee compression. But concern should lead to strategy, not fear. Fee compression could be a long-term threat to profitability. But advisory practices that proactively adjust their value proposition can turn this challenge into an opportunity to protect margins, deepen client loyalty, and diversify revenue streams.
Four strategies to manage profitability
- Expand and monetize your services
Consider offering comprehensive planning that encompasses tax, estate, insurance, and long-term care needs, while also implementing tiered service levels based on assets under management or client complexity. In addition, exploring alternative fee models—such as flat fees, subscriptions, or hourly billing—can help reach clients who don’t fit neatly into a traditional AUM structure. - Increase operational efficiency
Protect margins by leveraging technology and AI to automate core functions, such as rebalancing, billing, and reporting. Standardizing workflows for onboarding, planning, and service delivery further streamlines operations, while AI-powered insights can free capacity to focus on high-value clients. Managed account platforms can also improve efficiency by centralizing investment management, reducing manual oversight, and scaling personalized portfolios without adding significant back-office burden. - Refine client relationships
Strengthen your value by acting as a behavioral coach, helping clients stay grounded during periods of volatility. Clear reporting, tied directly to client goals, reinforces your impact; while building multigenerational ties enables you to retain relationships and preserve assets through effective wealth transfer. Personalized solutions, such as direct indexing, allow you to connect investments to client priorities, whether through tax-loss harvesting or values-based screens, thereby deepening trust and creating stickier, more enduring relationships. - Target a niche market
By developing specialized expertise in a specific demographic, profession, or life stage, you position yourself as a go-to expert. This targeted focus not only differentiates you from generalist competitors but also drives referrals and increases your visibility within your niche.
Fee compression doesn’t have to be scary
Fee compression is real, but it doesn’t have to erode profitability. Advisors who adapt by embracing technology, diversifying services, refining client engagement, and differentiating through specialization will be positioned not only to survive but to thrive.
In the years ahead, the most successful firms will be those that see this as an opportunity to reimagine how we deliver value and build stronger, more resilient businesses in the process.
Visit https://resources.envestnet.com/ to access more resources to help you improve your practice.
