From the February 2013 issue of Investment Advisor • Subscribe!

How to Grab Fee Revenue You Didn’t Know You Had

Advisors get so caught up in building and running their businesses as a whole that any one piece is often overlooked. But what happens if that one piece is the key to building and running said business? It happened to John Jenkins, president and CEO of Asset Preservation Strategies, and in particular the way in which he applied and managed his fee schedule with clients. Once the San Diego-based Jenkins realized how much (and how long) it had been neglected, he undertook a comprehensive review—with the help of Genworth—to make sure it made sense for his clients and his business. The results were nothing short of stunning. If “working smarter not harder” is something to which you aspire, Jenkins’ story will surely resonate.

When did you realize you had to completely revamp your fee schedule?

The consulting and coaching has been occurring now for two years with Genworth Practice Management. It asked us to look at every aspect of our business; the whole nine yards. When we got into this particular subject, I quickly realized we had clients being charged any number of different rates on assets under management. So I knew that we would have a mess on our hands.

Did Genworth come to you with some kind of template to help?

They came out with several templates. It started with an analysis of client segmentation, which most advisors do. They break it down by either revenue, or assets under management or some combination of the two. We did it by a revenue breakdown. What we found was that we had people we had put in one category who were paying more than enough in terms of combined total revenue [and] should have been in the higher category, while others should have been in lower categories.

How did you go about explaining it to clients?

After the analysis, we tested two or three different fee levels with some existing client accounts. In other words, at a certain dollar breakpoint, what would it look like if we charged a buck and a quarter? What would it look like if we charged a buck forty-five, etc.? We had a conversation with our whole team about whether or not it was reasonable and fair. We then wrote the client letter.

What kind of tangible results have you had besides knowing what each client costs you? What has the effect on revenue been?

When we did the fee analysis, it said we have the potential to increase annual revenue by as much as $207,000 dollars by raising our fees. We realized as we went through our book that we had assets under management for which we were charging absolutely nothing; it was just in brokerage accounts that had accumulated over time and as we were busy doing everything else.

We were providing reporting services on those accounts, monitoring them, sending out tax reports to accountants. We were providing everything that we provide on a fee account, but we weren’t charging [for those services]. So we converted all of those into fee-based accounts and captured about $10 million by doing so. By just using the industry standard 1%, that’s a hundred grand in new revenue.

How did clients react?

We got absolutely no pushback. In the letter I sent out, I talked about the firm. We had a new hire that we introduced at that time. I explained that our analysis showed we had quite a number of accounts where we were charging nothing. In 29 years, I have never once sent a letter to my clients saying we were raising fees. This time I said, “Don’t you think it’s about time?” I did get some people who chuckled over that. I did a telephone conference with a client who moved to New Hampshire. She got the forms, and her comment was, “You deserve every penny.” That was nice to hear.  

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