In fee-only financial planning, the assets under management compensation model is predominant.

The model is easy to explain and to implement. But interest in retainer compensation has been increasing.

The Alliance of Comprehensive Planners, with origins going back to 1995, teaches an annual retainer compensation model. More recently, XY Planning Network began to promote a monthly retainer.

When advisers talk about a retainer, in general they mean “a fixed fee, determined at the outset of the engagement that does not change during a fixed term. It does not typically increase or decrease during the period of the engagement,” according to The Financial Planners’ Retainer: A Reflection of Real Value, a white paper I wrote this year with Jacob Kuebler, a CFP and the owner and senior adviser at Bluestem Financial Advisors in Champaign, Illinois.

How does retainer compensation compare with the predominant AUM model?

Here are a few examples.

1. Comprehensive planning. AUM focuses the adviser’s and client’s attention on one subject: investments. Clients may then think that investing is the only subject on which the adviser is an expert or the only one for which they should be paid.

But the client may derive greater benefit from guidance on cash flow, coaching, human capital, insurance and taxes. Retainer compensation can be based on income, tax planning complexity and other factors that relate to the value delivered to the client, as well as on client assets.

2. Broader client markets. Many advisers have investment minimums because clients with smaller portfolios can’t profitably be served. But what about a young engineer, lawyer or physician for whom cash flow planning or coaching on salary negotiation can be an invaluable start toward a strong financial foundation?

A retainer can allow advisers to profitably serve such clients.

3. Fewer conflicts of interest. If an AUM adviser tells a client, in response to the classic question, not to pay off a mortgage, the client may wonder if that adviser is just trying to safeguard his or her own income. This suspicion may arise even when the adviser’s guidance truly is in the client’s best interest.

Retainer compensation can be structured so that none of the adviser’s compensation changes based on whether the client follows the adviser’s advice, eliminating the uncertainty in the client’s mind.

No one compensation model is right for every RIA practice. Still, there are circumstances in which a retainer compensation model, while not as familiar as the AUM model, provides specific advantages not just to the practitioner but to the client as well.

This story is part of a 30-day series on smart strategies for RIAs.