Difference Between “Reoccurring” Revenue And “Fee-Based” Revenue?

"Fee-based" revenue is often "reoccurring" revenue, but "reoccurring" revenue is not necessarily "fee-based" revenue.
Confused yet?
Often incorrectly used interchangeably, these two phrases can mean entirely different things.
Depending on the profile of your practice, it's a difference that could determine whether your practice is a fit for the RIA model….or not!
In this episode of the Transition To RIA question & answer series I explain how these two variables differ, and what it could mean for your practice.
I'm Brad Wales with Transition To RIA (TransitionToRIA.com). This is episode #108 of my question and answer series where I answer RIA related questions I get from advisors just like you.
What I do: At Transition To RIA I help financial advisors understand everything there is to know about WHY and HOW to transition their practice to the Registered Investment Advisor (RIA) model.
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🔹 Transcription of video:
What is the difference between “reoccurring” revenue and “fee-based” revenue? That is today's question on the Transition To RIA question & answer series. It is episode #108.
Hi, I'm Brad Wales with Transition To RIA, where I help you understand everything there is to know about why and how to transition your practice to the RIA model.
If you're not already there, head to TransitionToRIA.com where you’ll find all the resources I make available from this entire series in video format, podcast format. I have articles, I have whitepapers. All kinds of things to help you better understand the RIA model.
Again, TransitionToRIA.com.
On today's episode, we're going to talk about what is the difference between reoccurring revenues and fee-based revenues.
You might think it's not that big of a deal, but I wanted to make a quick episode here to clarify because there could be a difference between the two, and it's worth understanding to make sure you understand how it might apply to your practice.
As a reminder, you've heard me say on a lot of episodes, you do not have to be 100% fee only with your practice to potentially transition it to the RIA model. In fact, I don't know what the exact percentage is, but a big part of the RIA community is not 100% fee only and they accommodate commission assets.
There are several different ways to go about doing it. I've done separate episodes on that as well. But the point is, you don't have to be 100% fee only to move into the RIA. It is part of the conversation to understand, what does your practice look like now? Is there a non fee-based part of the practice and how might we be able to solve for those pieces?
When talking to advisors, early in the first conversation, I usually say, tell me about your practice. Roughly how large is your practice in assets, and then roughly what's the breakdown percentage-wise between fee-based assets and commission assets.
Sometimes I'll have an advisor respond and say something perhaps like, “I'm 95% fee-based.” And so by default, that certainly fits the profile to be considering the RIA model. Now, there are other variables involved before you conclude that it is a good fit for your practice, but certainly 95% is within the realm of where it makes sense to be exploring the model.
Anything above 60%, 70% fee-based, it’s worth having the conversation about the RIA model. So, 95% is obviously in that bucket.
But sometimes when I hear a response like that, it’s not clear if it’s really 95% fee-based revenues, or 95% reoccurring revenues. That’s what I’m going to cover on today’s episode, explaining where that could be two different numbers.
What is traditionally thought of as fee-based revenues are your traditional advisory revenue. In most cases this could be where you're charging an AUM fee on your assets, the typical 1% fee. Or it could be flat fees, subscription fees, retainer fees, etc. These are considered fee based revenue where you are providing advice, providing service, providing value, in return for a fee. Your compensation is not contingent on a transaction occurring where you receive a commission.
These sorts of fee-based revenues require that you are under an RIA to be able to provide those services to the investing public. Con't....
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