Are you charging enough? | Wealth management


When you’ve just started a RIA, one of the hardest questions to answer is, “What should I charge?” As we are often asked at Advyzon, I wanted to create a guide to help businesses just starting out with pricing and to help established businesses assess whether they are charging enough.

How much does it cost to run my business?

Much public debate around pricing structures centers on whether to use paid or asset-under-management pricing, which billing frequency to use, the best tier structure, and other technical details. But when trying to figure out prices or re-evaluating whether your current pricing structure is working, start with spending.

This is the same advice you would give to your customers. You know the expenses you need to cover, both professionally and personally, with your business income. Pricing for your services should meet this revenue target. This is the most important number to keep in mind.

Start with time

Think about the time you spend on each client you work with. Evaluate both new and existing customers, and be sure to consider developing their financial plan, annual meetings, quarterly reports and invoicing, and unscheduled calls throughout the year. How many hours do you spend per client?

This should give you an idea of ​​how many clients you can serve per year, both existing and new. (While you are thinking about this, be sure to set aside time to handle any non-client tasks that you are not outsourcing.)

Once you have an idea of ​​how many clients you can handle, as well as your target revenue, you can start figuring out what you need to charge per client to run your business successfully.

Start running the numbers

If you are just starting out, the most important thing is to come up with a pricing plan, period. According to XYPN, 100% of new advisors update their pricing structure after launch. So don’t expect everything to be perfect on your first turn. (It should be noted that the majority of new advisors increased their fees after a year of activity.)

Still, there are some things you can do to improve your chances of success. If you know your target income and how many clients you can take on, the next thing you need to think about is what type of client you are working with.

If you’re starting out with a volume of business, you can experiment with different pricing approaches using your typical customer as a model. Would 1% AUM work? What about a tiered approach, starting with 2% and working your way down to 1%? Or maybe you could stick with 1% and supplement your investment management services with a flat, service-based planning fee.

If you’re starting from scratch and need to build a portfolio of activities, these numbers can help you find your niche. If you know that you have to charge each customer $ X per year for a living, you can determine what type of customer you want to target. It can also help you say no to wrong customers, which is easier than having to fire them later.

Think beyond the amount

It’s not only How many you charge customers, but How? ‘Or’ What you load them. If you are starting a RIA after working at a larger company, you are probably used to a monthly salary. This schedule tends to work well for cash flow, as most expenses are monthly.

If you start your own RIA and bill clients quarterly, it can be difficult to plan a monthly salary. This is especially difficult if your quarterly income fluctuates significantly with the market, as it can be if you charge a percentage of assets under management. (Using the average daily balance instead of a starting or ending balance can help.)

On the other hand, monthly customer billing can seem unusual, especially if you have older customers who are used to the status quo.

You should also consider how you talk about your fees and services. Or, to put it better, how you talk about your worth. If your services seem essential to a customer, the numbers start to matter less. Think about how you will discuss your offerings in a way that resonates with customers, and how you will continue to demonstrate and market that value on an ongoing basis.

Don’t be afraid to adjust

I often speak to advisors who are afraid to change their pricing model because they don’t want to offend clients’ pens. But working for a price that doesn’t seem right or serves you and your business is recipe for disaster.

Instead, consider changing your fees, but plan ahead to do so so that you feel like you’re helping customers instead of bothering them. Start several months by emphasizing your value in a way that sets up your new pricing model. For example, if you want to start calculating your fees using an average daily balance, you can start talking about how you deal with volatility in your practice.

Next, explain the new fees and why you are applying them. People know that companies have to adjust their prices, and transparency often goes a long way. Plus, doing it before the change gives the client time to get used to the idea and to ask questions or voice concerns.

If customers To do have concerns, be sure to listen and take notes. Thinking about reviews can help you in conversations with other clients and can help you better position the way you present your services in the future.

An open mind can in fact be the most important thing when it comes to determining your prices as an advisor. After all, your business is built on income and profit, but it is also built on people.

It’s also important to remember that you don’t have to set your price in isolation. Organizations like XYPN, the National Association of Personal Financial Advisors (NAPFA), and the Financial Planning Association (FPA) are all resources to consider if you need help with pricing. Your custodian may also have ideas.

Andrew Ladwig is Vice President of Business Development at Advyzon.


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