John O’Connell Published in Advisor Perspectives by VettaFi: The Rise of AUM Fees: Why the Next Market Correction Puts the Model at Risk

John O’Connell authored this article for Advisor Perspectives by Vetta Fi where he explores the history of AUM fees and why the next market correction puts the industry standard AUM model at risk. Understanding where the model came from is the first step toward understanding why it may fail you at exactly the moment you need it most.

The same simplicity and predictability that make AUM fees attractive create a business model problem during market downturns. Because your revenue is tied directly to asset levels, a market decline instantly becomes a revenue decline. There is no lag, no buffer, and no mechanism for offsetting the drop by working harder.

As financial planning, tax strategy, income distribution, and behavioral coaching expand in scope and perceived value, the case for subscription fees, retainers, and project-based engagements grows stronger. The gap between prepared and unprepared firms will be visible. Make sure you’re on the right side of it.