Have you ever raised your fees? If you’re an advisor, probably not.
But why not? Outside of our industry, have you ever encountered or hired another professional who has never raised their fees?
Over the last 10 years, the cost of practically everything in our world—from technology to taxes—has gone up, continuously shrinking advisors’ margins. If you’re like many entrepreneurial financial advisors, over the years you’ve incorporated better, more expensive services and features into your client experience…yet you’ve never raised your fees.
In a world full of uncertainty, independent financial advisors and RIAs offer an incredibly valuable suite of services, care, education, credentials, support, expertise, and guidance to clients.
Despite all this, they’re often too humble, quiet, or unclear about expressing their value. We’d argue that many outstanding advisors actually undercharge for what they do (with the caveat that advisors have a fiduciary responsibility to do what’s in their clients’ best interests; in some cases, raising fees may not be appropriate).
Read on to understand where we’re coming from.
· How did you decide to charge your current client fees?
The trend or mindset that’s long been perpetuated in our industry is that advisors should only charge clients a customary fee of 1% (or lower), especially when they’re first starting out in the business.
But if you’re an RIA who provides comprehensive wealth management or financial planning, plus investment management—for accounts below $1 million, 1% may not make sense.
· When (if ever) have you raised your fees?
Think about everything you’ve worked so diligently to accomplish…all that you’ve experienced and walked through as a professional financial advisor that has brought you to where you are today.
Over the years you’ve gained invaluable life and professional experience. Like most advisors, you’ve probably also made business model changes and/or investments in your business, but haven’t raised your fees to accommodate these costs along the way.
· What are your costs of doing business as an RIA?
How much does it cost you just to turn on your lights and do business with clients every day? In just about every area of an RIA’s business (compliance, technology, E&O insurance, benefits, taxes, etc.), their expenses have gone up.
· What is an appropriate fee structure for an RIA?
As a business owner, your fee structure should feel fair and right to you, while also supporting the longevity of your practice. Only you can decide what best serves you, your clients, and your business.
That said, over the years we’ve supported and consulted with many independent advisors. There are industry benchmarking studies that go into specifics about fee averages. In our experience, we’ve found that for advisors (those who do both financial planning and investment management) their typical fee structure should be no less than 1.25%. (And in most cases, charging over 2% may be considered excessive.)
Clearly, there are some exceptions to this schedule. Most advisors may charge less on accounts that are tied to other relationships, etc. Some advisors may choose to charge a lower fee because they prefer to maintain a lifestyle practice and are already earning a comfortable income. Other advisors’ chosen business model may include serving as the low-cost provider for clients who have <100k to invest.
· So why don’t advisors charge more?
It’s not uncommon for advisors to feel fear and uncertainty around charging (and communicating with clients about) a higher fee.
But the belief that they can’t raise fees is usually in advisors’ minds—not clients’. How many times has a client actually ever pushed back on your fees? If you’re confident and excited as you discuss the value of what’s included in your fee, so are your clients. Most clients are happy to pay for the consistently strong services and experience you offer.Contact Us Today
Look for Part II of this discussion next month:
We’ll be sharing best practices about how to determine and/or communicate a higher fee structure to your prospects and clients.