Advisors: Put Your Money Where Your Value Is

Over the last few weeks, I have had more than a few discussions with advisors about the fees they charge. I’m not sure if it is because I Percentagerecently wrote a blog post about fees (See: Fees and Thank you), they are feeling pressure as the markets hit all-time highs, or that it is that time of year to do some planning for 2014 — but for some reason, fees are the topic du jour.

Each conversation starts with the advisor asking about fees as a way to benchmark themselves versus other advisors. I think they are checking to see if they are in line with the average that we see. Personally, I applaud advisors who take the time to do due diligence on their businesses. It shows they are being proactive and looking at the competition. Unfortunately, the advisors that I speak to (usually) only want to have a discussion about what they receive in their business, not what they spend on their business.

Perception vs. reality

Whenever I discuss pricing, I ask these questions about the advisor’s firm:

• Are you planning or investment focused?

• If planning, is it comprehensive or “back of the envelope”?

• Do you work with Gen X, boomers, or seniors?

• Do you have a defined service model or is it “whenever the client needs something”?

I ask these questions (as well as review their websites and any social media profiles) to get a feel for the firm and what the advisor brings to the table. It never ceases to amaze me that what an advisor says about his/her business can often directly conflict with what I see and especially how they charge their clients. More importantly, when we really dig down into their business, we see how revenue allocations often clash with what’s important to their clients.

Are you spending where there’s value?

Next time you look at your business’ expense statement, try to qualify your major expenses by different categories such as planning, client service, investments, client communications, and compliance. For most firms, the biggest single expense will be salaries, so try to take a percentage of each person’s wages and weight them by job function or activities. Do the same with technology license fees. Your goal is to try to figure out just how much you spend on areas of your business and compare the figures to what your clients truly value. Take a look at the results:

• Are you spending more on things the client doesn’t value (such as spending on investment-related technology and personnel when your clients value the planning that you do)?

• Are you spending time focusing on managing areas that take away from your bottom line?

• Are you making investments in your business that will set it up for future growth, or a future expense that will detract from your brand in the marketplace?

Once you figure out what your client values and streamline your expenses to fit that value, your fees will arguably fall in line. Rather than charging 1% because “that is what everyone else charges,” you will know what it costs you to provide a service and you can create an appropriate markup from there.

So let me ask: Do you know why you charge what you charge? And are you getting your money’s worth?

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John Anderson

John Anderson

John Anderson is the creator and lead author of Practically Speaking blog and Managing Director of Practice Management Solutions for the SEI Advisor Network.

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