Most boards have had a thorough conversation with their adviser about capability. Fewer have had one about incentive. Not the headline fee, but what that fee structure actually rewards, and whether those rewards align with the board's interests.
Advisory relationships tend to start with a conversation about capability and chemistry, and the fee arrangement is settled as a detail rather than examined as a structural feature of the relationship. Once in place, it rarely gets revisited. The adviser delivers their reports, the board pays the invoices, and the underlying incentive structure operates quietly in the background.
Every business model creates incentives, and those incentives shape behaviour at the margin, regardless of the individual's intentions. A board that understands the incentive structure of its advisory arrangement is better equipped to evaluate the advice it receives, ask the right questions, and assess whether the model still serves the organisation's mission.
This guide maps out the six advisory models operating in New Zealand's institutional market, what each one incentivises, and what boards should expect in terms of fee transparency across each model.
In This Guide
- The Premise
- Six Models, Mapped
- The Fee Transparency Standard
- A Question to Take to Your Next Meeting
The Premise
If we strip away the brand names, the credentials, and the personal relationships, every advisory arrangement in New Zealand's institutional investment market operates on one of six basic business models. Each model earns revenue differently. Each revenue structure incentivises different behaviours. And each set of incentives creates a different relationship between the adviser and your portfolio.
Each model has genuine strengths, and each has structural tensions that boards should understand. The question isn't which model is best in the abstract. It's whether the model you're in creates incentives that align with what your organisation needs.
Six Models, Mapped
The Broker
How they earn fees
Primarily through commissions on buying and selling securities. Revenue is generated by transactions.
What this incentivises
Portfolio activity. A busy portfolio is a more profitable portfolio for the broker. This creates a structural tension between the adviser's revenue and the board's interest in a stable, long-term investment strategy. The board should satisfy itself that turnover is driven by investment rationale, not by the adviser's revenue model.
What it doesn't incentivise
Holding positions for the long term, reducing portfolio complexity, or providing governance infrastructure. These activities don't generate transaction revenue, so they tend to receive less attention even when they would serve the board well.
What to expect on fee transparency
If the firm profits from trading within the portfolio, the board should expect the adviser to provide an expected level of portfolio churn each year, along with the expected costs. The actual transactional activity and associated costs should then be reported quarterly and compared to the expectations set at the outset. If this reporting isn't offered proactively, that's worth asking about.
The governance question to ask
"What are all the sources of revenue your organisation earns from our mandate, including brokerage on transactions within the portfolio? And can you provide us with expected annual churn and transaction costs, so we can monitor actuals against those expectations each quarter?"
If we think about this in terms outside of investment, you wouldn't let your real estate agent decide how often you need to move house. The same logic applies when a broker is the primary driver of your investment strategy: the structure rewards activity, and the board should be confident that the activity serves its interests.
The Consulting Adviser
How they earn fees
A retainer or fixed fee for providing advice. Revenue is earned for the advisory relationship itself, not for any specific action.
What this incentivises
Maintaining the advisory relationship. This generally aligns with providing good advice, because a dissatisfied client will eventually leave. The incentive to retain the relationship also means the adviser is motivated to be responsive, professional, and attentive to the board's needs.
What it doesn't incentivise
Solving problems that sit outside the advisory scope. A consulting adviser recommends what to do; the board is responsible for making it happen. If implementation is complex (transitioning between managers, rebalancing across multiple accounts, coordinating with custodians), that operational burden falls on the board or on staff who may not have specialist expertise. The consulting model also doesn't create a strong incentive to recommend a different model, even if the board has outgrown pure consulting, because doing so could mean reducing or ending the advisory mandate.
What to expect on fee transparency
The consulting retainer is typically straightforward, but it's only one component of the total cost. Boards should expect a complete picture: the advisory fee, the underlying fund management fees within the portfolio, any transaction costs, and custody and administration charges. If the adviser recommends a manager change, the board should understand the transition costs before approving it.
The governance question to ask
"When you make a recommendation, who is responsible for implementing it, and do we have the internal capability to do that effectively?"
The Discretionary Manager
How they earn fees
A percentage of assets under management (AUM). Revenue grows as the portfolio grows and declines if assets are withdrawn.
What this incentivises
Gathering and retaining assets. The manager is motivated to deliver good outcomes, because strong performance attracts and retains capital. This alignment is genuine and valuable. The structural tension is more subtle: the AUM fee model can also incentivise the manager to retain assets even when the board might benefit from a different approach, and to frame recommendations in ways that support the continuation of the mandate.
What it doesn't incentivise
Recommending a reduction in mandate scope, suggesting that another provider might be better suited for part of the portfolio, or providing governance support that falls outside the investment management function. The manager's revenue is tied to keeping and growing the assets, not to the quality of the board's governance process.
What to expect on fee transparency
The management fee is usually visible, but the total cost picture requires more scrutiny. Boards should expect full disclosure of all revenue the manager's firm earns from the mandate: the management fee, any performance fees, transaction costs within the portfolio, and fees on underlying funds. If the manager uses proprietary or affiliated funds within the portfolio, those embedded fees should be disclosed separately.
The governance question to ask
"Can you provide a complete breakdown of all revenue your organisation earns from our mandate, including any embedded fees within underlying funds?"
The Wealth Adviser
How they earn fees
Typically a combination of advisory charges and, in some cases, revenue from recommending affiliated or proprietary products. Fee structures vary widely, and not all wealth advisers earn product-related revenue, but the model is common enough that boards should understand whether it applies to their arrangement.
What this incentivises
When product-related revenue exists, the incentive is to recommend solutions from within the firm's product range, even when external alternatives might be more suitable. A board should know whether the advice is genuinely open-architecture (drawing from the full market) or whether it's channelled, consciously or unconsciously, toward products that generate additional revenue for the adviser.
What it doesn't incentivise
Recommending competitors' products, providing institutional-grade governance support, or delivering reporting designed for board-level oversight rather than individual wealth management. Wealth advisory firms are typically built for private clients, and their reporting, investment process, and service model reflect that origin.
The non-financial dependency to understand
Beyond direct fees, boards should consider the non-financial benefits that flow between a wealth adviser and their preferred fund managers. An adviser who receives strategic asset allocation research, investment commentary, or portfolio construction support from an underlying manager has a dependency that goes beyond the fee arrangement. If the manager is providing the intellectual infrastructure that the adviser relies on to serve its clients, the adviser is structurally unlikely to replace that manager, even if performance deteriorates. The board may believe it has an independent adviser evaluating managers on merit, when in practice the advisory relationship and the manager relationship are interdependent. A useful question: "Does any underlying manager provide your firm with research, strategy, or other support services? And if so, how would that relationship affect your willingness to recommend replacing them?"
What to expect on fee transparency
This is where fee transparency becomes most important, because the potential for layered revenue is greatest. Boards should ask one direct question: "What are all the sources of revenue your organisation earns from our mandate?" This includes the advisory fee, any platform fees, fees on recommended products, distribution margins, and transaction costs. If the answer is complicated, that itself is informative.
The governance question to ask
"Does your firm earn any revenue from the products you recommend to us, beyond your advisory fee? Can you show us that you've considered alternatives from outside your product range? And does any manager in our portfolio provide your firm with research, strategy, or other non-financial support?"
The Single-Provider Adviser
How they earn fees
Typically an advisory or management fee, but the defining characteristic of this model is that the adviser channels all or nearly all of the portfolio into a single external fund manager's products. The adviser operates as an independent firm providing institutional-grade advice, but its investment capability, research, and strategic asset allocation are substantially sourced from that one provider.
What this incentivises
Continuity with the single provider, above all else. The adviser's entire value proposition depends on the relationship with the underlying manager. If that manager underperforms, the adviser faces an impossible choice: recommend replacing the manager (and lose the research, SAA capability, and investment infrastructure that makes the advisory business viable), or retain the manager and hope performance improves. The structural incentive favours retention. The board may believe it has an adviser independently selecting the best managers for its portfolio, when in practice the manager was chosen before the board came into the picture.
What it doesn't incentivise
Genuine manager evaluation, because the adviser cannot credibly fire its only manager without fundamentally undermining its own business. It also doesn't incentivise building independent investment capability, because the model is designed to operate lean by borrowing that capability from the provider. The result is an advisory firm that operates independently but has limited capacity to look beyond its primary provider.
The accountability gap
When performance disappoints, who is responsible? The adviser chose the manager, so accountability sits with the adviser. But the adviser can't replace the manager without replacing its own investment process. The board may find that its adviser responds to underperformance with explanations rather than action, because action would mean dismantling the relationship that the advisory business is built on. A board in this arrangement should ask itself: "If our adviser's preferred manager underperformed for three consecutive years, would our adviser realistically recommend replacing them?"
What to expect on fee transparency
The total cost in a single-provider model can include the advisory fee, the underlying manager's fund management fees, and any performance fees or transaction costs within the manager's funds. Because the adviser and the manager are separate entities, these fees may be presented separately in a way that makes the total cost less visible. Boards should ask for a consolidated view of every cost layer, and should understand whether any fees or revenue flow between the adviser and the manager beyond the published fund fees.
The governance question to ask
"How many different fund managers does our portfolio use? If the answer is substantially one, what is the nature of the relationship between your firm and that manager, and what would happen to our advisory arrangement if we needed to replace them?"
The Outsourced CIO
What it is
An outsourced CIO is the equivalent of having a Chief Investment Officer for your board. The five models above each occupy a fixed position: brokers transact, consulting advisers advise, discretionary managers manage, and so on. An OCIO is different. The function spans the full spectrum of support, from consulting through to full delegation. How much authority the board delegates to the OCIO is a governance decision, not a product choice, just as a board with an internal CIO might give them full authority or might require them to bring every recommendation for approval. The role doesn't change. The governance model does. This means an OCIO can operate at any point on the spectrum. Under a consulting-only arrangement, the OCIO provides independent advice, frameworks, and recommendations; the board decides and implements. Under partial delegation, the board sets strategic direction while the OCIO handles the elements the board chooses to delegate. Under full delegation, the board agrees risk appetite, investment objective, and high-level strategy; the OCIO is accountable for everything else.
How they earn fees
A fee (typically asset-based, fixed, or blended) for providing the investment function at whatever level of delegation the board has chosen.
What this incentivises
Delivering strong outcomes and effective governance, because that's what sustains the relationship. The OCIO's revenue is tied to the ongoing mandate, which means the incentive is to keep the board satisfied with the quality of oversight, reporting, and investment performance over time. In principle, this aligns the provider's interests with the board's: the OCIO retains the mandate when the board feels well-served, and the board is well-served when its portfolio is advancing its mission objectives.
What it doesn't incentivise
The OCIO model has its own structural tension, particularly at the full delegation end of the spectrum. Where the board delegates more operational responsibility, there's an inherent information asymmetry: the OCIO knows more about what's happening in the portfolio than the board does on a day-to-day basis. This makes the governance relationship, the clarity of reporting, and the board's ability to ask effective questions more important, not less. Delegation without oversight isn't good governance. It's abdication.
What to expect on fee transparency
The same standard applies. Boards should expect a complete disclosure of all costs: the OCIO fee, underlying manager fees, transaction costs, custody, and administration. Because the OCIO is accountable for the investment function (regardless of the level of delegation), it should be straightforward for the provider to produce a single, comprehensive fee report covering every layer of cost within the portfolio.
The governance question to ask
"What level of delegation is right for our board, and how will we satisfy ourselves that the functions we've delegated are being managed well?"
The Fee Transparency Standard
Regardless of which model your board uses, the standard for fee transparency should be the same.
When comparing investment management options, or evaluating your current arrangement, the question isn't "what is the investment management fee" or "what is the advice fee." The question is: what are all the sources of revenue your organisation earns from this mandate, including brokerage on transactions within the portfolio?
A complete picture includes advisory or management fees, underlying fund management fees (the fees charged by the managers within your portfolio), transaction costs (brokerage, spreads, settlement costs), custody and administration fees, and any performance fees or carried interest on alternative investments.
If the firm profits from trading within the portfolio, a board should expect the adviser to provide an expected level of portfolio churn each year, along with the expected costs. The actual transactional activity and associated costs should then be reported quarterly and compared to the expectations set at the outset.
Many boards know their advisory fee to the basis point but have only a vague sense of the total cost of their investment programme. If your total cost is materially different from what you expected, that's a governance conversation worth having.
A Question to Take to Your Next Meeting
If you take one thing from this guide, let it be this: at your next investment committee meeting, ask your adviser to explain how their firm earns its fees from your mandate. Not the total amount (though that matters too), but the structure. What generates the revenue? What does that revenue model reward?
If the answer is clear, specific, and comfortable, the relationship is probably healthy, and the incentives are probably well understood by both sides.
If the question creates discomfort or generates a vague response, that's worth paying attention to. A relationship where the incentive structure isn't transparent is a relationship where governance is harder to do well.
Understanding your adviser's business model isn't an act of suspicion. It's an act of governance.
Full Guide
Continue Reading
This is the public preview of our reference guide on advisory business models, incentive structures, and fee transparency.
The full guide includes extended analysis of each advisory model in the New Zealand market, a practical framework for evaluating fee transparency, guidance on assessing whether your current model is still the right fit, and a board-level self-assessment checklist.
Or visit shawandpartners.co.nz/adviser-models
