How Financial Advisors Should Charge Wealthy Clients

For a firm built on money, pricing can be an Achilles’ heel for the financial services industry, especially when serving high-net-worth and ultra-high-net-worth clients.

Wealthy clients are increasingly demanding a clear connection between the value they receive from your firm and the advisory fee they’re paying. Likewise, as financial firm services continue to expand with the push to holistic planning, it becomes more challenging to ensure your fees align with the services you offer.

Creating an effective and optimal pricing strategy that helps your firm retain and attract your ideal client is critical to operating a successful firm, Jill Matesic, a strategist with Schwab Advisor Family Office, told attendees at the Schwab IMPACT 2020 conference.

“You can do and say all you want, but what you charge and how you charge it is one of the biggest messages you will send to your clients and prospects,” said Tom Livergood, founder and CEO of The Family Wealth Alliance and founder of a spinoff organization called Bespoke: The Private Family Advocate, at IMPACT 2020.

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How to Set Your Fee for Wealthy Clients

If you’re trying to strengthen the financial health of your business, pricing and the discounts you give to clients are one of the most powerful levers you can pull, says David Lincoln, a partner at WISE, a research and advisory services firm that uses data analytics to provide wealth managers customized insight about their business performance.

When setting your fee, Lincoln says to first and foremost, to price above market. As uncomfortable as it may be to price above-average, his research has shown it’s the best way to improve your revenue yield.

This means that if your fee schedules haven’t been reviewed in several years, they’re likely due for an update. Firms with fee schedules that are three to five years old are in danger of drifting from the market aggregate, he says.

It’s also not just about pricing: Don’t forget to consider the discounts you offer. “If you look at your client books, how often do you review discounts you’ve given out to existing clients?” he asks. Firms that have a process for reviewing discounts regularly and if they should be reapplied have a better revenue yield, he says.

Another way to improve your revenue yield is by minimizing human discretion in setting fees. The more you can institutionalize these practices, such as when to give discounts, and take them out of human hands, the better, he says.

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Use the Whole Pricing Field

Independent firms have more flexibility in how they charge their fees, but they often don’t take advantage of this, Livergood says. He refers to how most firms charge as using only half the field instead of the whole field.

Part of using the whole field is using a mix of an asset-based fee and a retainer fee. Adding a retainer-based component into your fee structure reduces the volatility that can come when fees are based solely on performance.

The best-in-class wealth management firms Livergood has seen use a “menu type” approach. They start by getting to know the clients’ priorities for the year ahead, then select the fee that reflects those priorities. As the clients’ needs or priorities change, they can then revisit their fee to make it more applicable to the clients’ current situation.

In this way, everyone on the team, both on the advisor side and the client side, knows what to expect, Livergood says. The client knows how and what they’ll be charged for the services they receive, and the firm knows what revenue will be coming in for the year ahead and how success will be defined.

How to Modify Your Fee

This best-in-class approach may be easy to implement for new clients, but how do you transition existing clients to a retainer-based fee if you don’t already have one? The key is communication. according to Livergood.

How you communicate the fees you charge is crucial. “People want to understand the fees they’re being charged,” Livergood says. They want to see the connection between the services they’re receiving and the fee they’re paying.

Explain to your clients that you’ve decided to realign your business model to better serve them and part of that is modifying how you charge your fees, Livergood says. You can explain that the clients’ overall fee won’t change for the year; the only difference is that it will now be split between a known factor (the retainer) and an asset-based factor.

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The firms Livergood has spoken with over the years have confirmed that having these types of transparent, honest conversations with clients that focus on aligning the fee with the needs of the client are best.

When explaining your pricing schedule to clients, focus on the value you provide, Lincoln says. “Explain what you do in ways that are clear and compelling to your clients and prospective clients.”

Pricing for the wealthy client is about transparency, alignment, value and setting a competitive rate, he says. Get all those things right, and you’ll be better able to attract and retain your ideal clients.

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