Here’s a New Year’s resolution that may resonate with you: “In 2015, I will commit to emphasizing my role as the business owner of my advisory practice.”
Sound compelling to you? As a business owner, are you content with the amount of revenue your business is earning, when you consider all of the unique and valuable services you offer your clients? Bottom line—are your fees high enough?(Re)consider your fee structure.
- Why did you decide to charge your current fee to clients?
- Is it high enough, considering all of the services and expertise you offer?
Think about everything you’ve accomplished and experienced as a professional financial advisor which has led you to this current moment. As the financial services profession has evolved, in recent years there seems to be a trend or mindset that advisors should only charge clients a customary fee of 1% or lower. When they first get into the business, some advisors charge clients a maximum of 1%.
However, if you’re an RIA who provides comprehensive wealth management or financial planning—in addition to investment management—for accounts below $1 million, a 1% fee probably does not make sense. It simply isn’t high enough to cover your costs of doing business. Not only does the 80/20 rule typically apply (smaller accounts can take up much more of your time, while requiring a whole other set of maintenance, skills, energy, or customization), RIAs are required to hold themselves to a higher fiduciary standard.
It’s important not to let your unique message and service offering become commoditized or inappropriately compared to what another advisor (who may be charging and doing less than you) provides to his or her clients.
- Take the time to document/write down everything you’ve ever done—or can do, as needed—for your clients.
For example, do you design gifting strategies for your clients? Do you review insurance policies for them even if you’re not the one who wrote the business? It’s probably going to be a long list and it might take you awhile. That’s the point. If your list stretches to 30 or 40 items, you may only do 10 of these things for each of your clients individually, but remember that all of these (even potential) benefits are included in the fee you charge.
No one is telling you to raise your fees, but it’s imperative to the longevity of your business that your fee structure feels fair and comfortable to you as a business owner. On the same note, you need to make sure your value is communicated effectively to your clients so they feel empowered with this information…and lucky to have someone as indispensable as you leading their financial team.
- Estimate your costs of doing business.
Prepare a simple, conservative analysis of your business expenses today and after forming your own RIA. To get you started, here’s a starting point with some basic potential costs to consider. How much does it cost you just to turn on your lights and do business with clients every day?
- Basic business overhead
- Office rent or mortgage
- Other costs
- Investment management fee
- Trading—AUM fees paid by you
- Platform fees paid by clients or you
- Commission trading paid by you
- Software or technology fees
- E&O and other insurance cost
- Compliance cost
- Licensing and other fees
Our firm offers assistance to advisors seeking to make their businesses more profitable and efficient through the development and implementation of a customized business plan which involves outsourcing. As you move further into 2015, you may choose to keep your current staff, hire more, or outsource to an experienced virtual team like the one FocusPoint offers. Only you can decide what best serves you, your clients, and your unique business model. No matter what, in 2015 and beyond, if your time is freed up that you’re able to primarily focus on being a business owner and financial planner to your clients, you will be giving your business the highest chances of long-term success.