How to set financial planning fees to grow a sustainable advice firm

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  • July 5, 2017

Do you dread the “What does this cost?” discussion with new prospects?  Have you ever given in to the pressure to discount your fee because you received pushback or resistance?  Have you rationalized a lower fee because “you need the money”? Setting financial planning fees that demonstrate the value you provide your desired clients is one of the most important inputs to grow a sustainable advice firm.

Asking for the value of what your service is worth for the client can overwhelm even the most experienced advisor.  Yet, if you want to achieve new levels of growth, devaluing your service is not the strategy for expansion. When you undercharge, you may feel it is an act of charity or a loss leader; however, you set yourself up for mental stress and internal arguments. You create resentment that can harm the client relationship and hinder your development of a fulfilling and viable practice over the long term.

What’s an advisor who wants to charge a subscription, a retainer, an hourly or project rate for planning and advice supposed to do?  Regrettably there is no pricing panacea. However, you can change your attitude and approach toward fees.  Here’s how:

Price for your High Value Hyper Target.

In an earlier Linkedin article I wrote, “if you’re serious about increasing the revenue in your financial advisory practice, decreasing the effort you invest, and discovering higher fulfillment overall, you need to attract better-suited people to your practice.” You must identify your high value hyper target, the one who appreciates the value of your service at the fee you want to earn.

This (your high value hyper target) is the person for whom you set your pricing.

If you find there is a market segment you keep attracting where you feel you have to justify your pricing above and beyond the norm, then you need to take a closer look at why. Are you failing to get front of the right people?  It may be time to make some adjustments to the people you take on as a client.

Create a no-negotiation policy.

Negotiations or confrontational environments can make many independent financial planners anxious. To avoid this situation create a no-negotiation blanket pricing policy that you can reference. Policies demonstrate process and procedure. Knowing a policy applies to all puts prospects at ease.  Outline your fees and let the person choose. You will reduce your stress and present with more confidence while prospects feel relieved that they did not have to haggle.

Do away with proposals. 

If you decide fees based on “scope of work,” then you open yourself up to nickel-and-diming from the prospective client, and you increase your workload along with your anxiety level. You are also more likely to lose the prospect’s engagement while he or she waits for your reply. Use a pricing method that allows you to present the fee in advance (through your web site and/or welcome packet) or during the initial session.

  • Offer package deals. Bundle up your services into two or three packages. You may find it mutually beneficial to offer a lower-priced package with your base-line services in addition to a mid-tier and a high-end, all-inclusive alternative. Prospects can self-select what fits for them. (Note: your higher priced package(s) should be a better value).
  • Follow a formula: The way you formulate your fee should be straightforward and easy to do on the spot. Use clear input criteria that you collect ahead of time or at the initial consultation and calculate in front of the person. You will give them 100% confidence that you have a method and the fee is not arbitrary.  Forget estimating the number of hours. While you may use your time as a measure to calculate the fee, translate that amount in to what it means for the client.

Beware of the free plan.

A trickier situation occurs when you are confident that an individual prospect could bring a large portfolio where you will earn your fee from AUM. You want to provide a complimentary plan upfront to showcase your approach and woo the person.

How can you keep from losing your shirt and offering too many of these free sessions that do not convert?  

In an environment where portfolio management fees face more downward pressure and positioning your advice and relationship as a differentiator to robo-options is essential, you want to be careful about where you assign the value of your compensation.  Charging for your plan emphasizes planning as a priority.

If you still want this flexibility, decide in advance what criteria warrants a “waived fee.” Measure the individual against your framework so you are in an empowered position and not a reactive one.

Factor in Pro Bono work. 

“I just want to help people,” is often the sentiment of independent advisors. The best way for you to be able to help more people is to build and sustain a viable business that charges fees that match the value provided.  Not everyone who needs help can afford that price.

Rather than deep discount your fees and succumb to devaluing your service, factor pro bono work into your pricing policy:

“I leave room in my practice to take on [x] pro bono clients per year,” or “[X]% of my practice is dedicated to pro bono work.”

With the criteria set, you keep your sustainability as a business in check and give yourself a framework to assist people in need. As you improve the profitability of your practice, you create the flexibility to widen this slice of the pie if you want.

Seek rejection.   

Whether you are worried you are charging too high of a fee or that you are leaving money on the table, you can use the following rule of thumb for a reality check on your planning fees:

If 25% of prospective clients decline because of fees, the price is right.

You want a fee that is high enough that people feel the value of your service and will step up to commit to implementing your advice. As I told Forbes journalist Emma Johnson back in 2010, and I still find this true today:

“That rate of rejection (1 out of 4) tells me I am pushing the line on the price point.”

Remember, you offer immense value to the clients you serve. Be sure to give yourself a break and strategically decide your pricing in advance of consultations. This way you can relax, be yourself, and probably welcome many more clients because you focus on their needs and not your imminent fee negotiation.

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