I used to be a notorious fee discounter. But a few years ago, I dedicated myself to charging a fair price for the incredible value holistic financial planning offers clients. I’d like to help you do the same.
Here’s the deal. Like you, I’m terrified of not just charging more for my services, but charging in general. I’ve spent hours in front of the bathroom mirror practicing fee quotes. Raising prices on existing clients still make me go queasy inside.
“And our fee for being your partner in accomplishing these goals is…”
No one enjoys the fee conversation, and I’m not here to change that. But, I do think it can be less painful, for both you and your clients. More, there’s too much inherent value here (for both you and your clients) to shy away from it. 1 Your clients (current and future), need a financial advisor who offers them incredible, life-changing value. They need you.
Let’s dig in.
Financial Advice is Valued and Valuable
A fee arrangement is simple:
I do work you value at a rate I value.
The first aspect is clear: Consumers by and large value financial advice. It’s the whole reason the industry exists in the first place. We financial advisors are a needed solution to personal finance and retirement concerns.
We also know that demand far outstrips the supply of competent financial advisors. You can certainly go out and run seminars if you want. That’s a great prospecting technique. But you could also sit back, put up a decent website, and let Google, NAPFA, or your employer’s website do all the work.2 Consumers are looking for you. 3
Importantly, the market has by and large set the rate for quality, ongoing financial advice:
Millions of consumers have decided that the fair price of a financial advisor is about 1% of their retirement assets. Who are you, a believer in market efficiency when it comes to your investment recommendations, to disagree?
There are, of course, different fee models now available. Yet monthly retainers, flat fee, project work, and hourly planning service models were never about discounting our value. They were and are about expanding the market for financial planning by offering clients of different backgrounds and financial realities a path to hiring a quality financial advisor. For example, a young couple with high income but a marginal net worth could hire an advisor for a monthly retainer; and receive fantastic financial planning advice in the process.
Updated pricing arrangements were a necessary evolution as advisors and consumers turned away from commission-based pricing. Consumers, with or without investable assets, needed quality financial advice and advisors needed to get paid for their advice.
Hourly offerings, for example, were less about discounting and more about getting paid. And rightfully so!
The other side is more complicated
More and more, I see financial advisors dramatically undercharging for their services. The excuses are legion.
“I’m afraid of the prospect saying ‘no.’
“Am I really worth that much?”
“How much time do I actually put into a financial plan?”
“I want to be affordable to my clients.”
“Well, I just don’t need any more money than that.”
“Most financial advice is a scam. I don’t want to be that ‘type.’”
How many of these have you said to yourself as you debate discounting your fee for a new prospect?
Have any more to add to the list?
When you fall victim to these arguments, you are selling yourself and the impact you have on your clients short.
Multiple studies have confirmed the value of financial advice. I hope to discuss this more in future posts, but remember this whenever you’re in doubt: Vanguard, the king of cutting unnecessary fees for investors, has quantified and affirmed an advisor’s value.
“…[T]he Vanguard Advisor’s Alpha Framework can add about 3% in net returns for your clients…”
And this is really just doing table stakes type of activities for, by and large, retirement planning clients. Things like rebalancing, lowering internal expense ratios, behavioral coaching, spending strategy, and more.
You can do that. I’m certain you already do. More, I suspect you may offer any number of other value additive activities for your clients, both as a group and as their unique, individual circumstances dictate.
So, here’s the deal:
I think you should charge more.
You heard me. I think you should charge more. I’m skeptical that you’re charging enough to justify the value you are offering.
You see, it’s my strong opinion that there are dramatically more financial advisors offering comprehensive advice who don’t charge enough than there are financial advisors who charge sufficiently high fees. (And rare is the firm that charges too much these days).
It’s a generally accepted business practice that you should charge as much as the market will bare. (Does that sound too cutthroat for you? Why?) Yet, there is a common vein of insecurity in financial advisors. We discount regularly when confronted with a negotiating prospect, or simply one who questions why we charge what we charge. (By the way, if you’re too uncomfortable to talk about money that is being paid to you, how the heck do you think you can advise on money, period?)
Remember this, and say it aloud:
When I compromise on my fee, I compromise on my values, my goals, and my value.
Now, say it again.
Your Current and Future Clients are in a Bidding War
How many clients do you think you can serve at a time? For me, I think I can handle about 50 ideal clients. For you that number might be 25 or 125. I hesitate to think anyone can go over 150 clients and still offer a holistic service, no matter how great with names you are (I’m terrible).
But let’s say you are targeting 100 clients for your firm because you like the simple math of 100 clients at a $10,000 average fee, and one million dollars in revenue. Let’s also say you currently have 30 current clients.
Your current and future clients are in a bidding war for your time and services.
Remember this: there is an ongoing auction occurring for your time and advice. Instead of selling yourself short by undercharging, you should create a bidding war. Ideally, you will choose to work with the 100 highest bidders who also have the client characteristics you desire. If you have 30 clients, you have 30 bids on your time and expertise. Do you think these are the highest bids out there?
A Few Practical Thoughts
How might you go about charging more for the incredible value you offer? A few considerations:
If your ongoing fee is below industry average, raise it. Right now.
Charge for the upfront financial plan
Charge a separate financial planning fee.
Review your client list to see who is getting a discount. Raise their fee.
Charge an onboarding fee.
Resolve to never again negotiate your fee with a prospect or client.
If you are a flat fee advisor, compare your fee to what your clients would pay an AUM advisor.
If you are an AUM advisor, consider adding a flat fee option, or a minimum flat fee, when clients have low investable assets or large amounts of financial complexity outside of the accounts you manage.
Why You’re Selling Your Clients Short
An advisor friend of mind just lost one of his biggest clients. Yet that client was by far the biggest demand on her time, spontaneously needing this or that outside the realm of regular meetings and service check-ins. Worse, my friend had made an egregious error from the outset: She had dramatically discounted the client’s AUM fee at the start of the relationship. Two things resulted:
The advisor was resentful any time the client reached out for advice.
The client was unhappy because they felt like they were doing the advisor a favor just by paying them at all.4
The lesson here is simple:
There is no fee low enough for a client who doesn’t value your advice. And they won’t value your advice unless you do first.
So stop discounting.
I think you should charge more. And I think you should start today.
As I always say to prospects, if you run into an advisor of money(!) who can’t discuss the fees you pay for his or her advice, run far, far away.
Please don’t misconstrue this as an excuse not to market or prospect. That demand for financial advisors far outstrips supply is just a fact.
Even the DIY crowd values financial advice; they just don’t want to pay for it. They probably should.
The client ended up moving to another firm that will charge them at least $25,000 more annually.