What's Your Advice Worth

Also, critically analyze how many clients would have to “run screaming from the building” in the event of a fee increase. In one situation, Bogan helped two reluctant advisors to raise their fees. “They were very nervous about it — nervous underscored, exclamation point. And they literally had clients say to them: ‘I wondered when this was coming.’ They didn’t lose a client,” she said.

Advisors also need to clearly communicate why they are raising fees — and attach it to the additional value the client is receiving as a result.

“Being able to articulate your value is critical whether you’re defending your current fee level, or explaining it to a new client, or explaining why you’re increasing your fees,” says consultant Matthew McGinness, president of Best Practice Research. As an example, explain how you’ve reinvested in your firm through new hires and services. New offerings like business coaching and behavioral profiling come with embedded costs. Or maybe a new business model has forced changes. “Connect it back with how that impacts the client’s fees,” he says. “You’ve got to be able to explain value along with pricing.”

Before rolling out any pricing change, Garcia suggests creating a small focus group of clients with whom you have a special connection. The objective: valuable feedback on how to communicate and implement your pricing strategy. In one situation recently, a client of 18 years told his advisor that the pricing change — in this case a hike in the AUM fee — made sense but that it would be easier to accept if implemented over a period of four quarters. The advisor complied.

Garcia says it typically takes six months or so of pre-planning to get it right when it comes to raising fees. As for commissions, experts say they don’t play a major role in the compensation conversation because they are dictated by the product manufacturer. “Even in the wirehouse world, these commission-based businesses are mostly variable annuities and some alternative investments like REITs,” observes Palaveev. “On the commission side, advisors don’t control the commission.”

When it comes to improving operational efficiencies, Palaveev says advisors should ask themselves: What’s my client service process? Is it well-defined, optimal and efficient? What tasks do I need to customize and what do I need to standardize? Do I have the right people executing? Are we scrutinizing waste when it comes to wasting time, resources and delivery? And, he adds, make clients a part of the process by asking: Is this valuable to you? “A lot of firms are providing services clients don’t necessarily care about,” according to Palaveev.

Outsourcing ongoing operations — such as reporting, rebalancing, compliance, even marketing — can also be a game changer, according to Mark Matson, founder of Matson Money, a Cincinnati-based coaching and advisory firm whose 500-plus advisors manage over $2.3 billion.

Twenty years ago, the average fee for assets under management was 1.5 percent; it’s 1 percent today. On top of that, expenses have gone up. Fifteen years ago, advisors were taking home 75 percent of their pay, according to Matson. Today, even at $100 million in AUM, it’s close to 25 percent.

Outsourcing, he says, can pull that number back up to 75 percent.

Post-recession, Gallant says that more advisors are set on reinventing themselves by offering even more advice.

“Clients are coming out with greater needs, not fewer needs. Before they go too far down the path, advisors need to make sure they get compensated for what they do. While confidence is coming back, there’s still this reluctance to give yourself a pay raise,” he adds. “As advisors add or reaffirm services, they need to do the math. If you don’t want to charge more right now, when will you charge? Just don’t set the bar too low.”

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One Team’s Tale

Up until the turn-of-the-century tech wreck hit, Ballou Plum Wealth Advisors principal Lynn Ballou thought she and partner Marilyn Plum had the perfect practice.

“We were so busy doing transactions for clients we were slowly but surely getting away from our core belief: investing from the point of view of a CFP,” says Ballou, whose LPL affiliate in Lafayette, Calif. has $170 million in assets under management. “We realized we were spread too thin. We weren’t doing our best work. We weren’t saying yes to the right business and worse, we weren’t saying no to the wrong business.”

In 2003, the two partners hired Stephanie Bogan, who heads Quantuvis Consulting, to help them reengineer their business model and restructure their fee schedule.

The short story: They found another home for clients who weren’t the right fit, reducing that number from 400 to 170 — a number they hope to whittle to as few as 50. As for their fee schedule, Ballou says they adopted it “crying, whining, kicking and screaming” but they had no choice because they were barely breaking even. No wonder, she adds, when they were spending up to 100 hours on a financial plan and not charging for it.

Today, they have a sliding scale — charging, for example, $5,000 for a plan for clients with a net worth of $1 million to $2.5 million. “You have to think about affordability,” Ballou says. They also raised their AUM fee — but loyal and long-term clients got the opportunity to ease into the new fee schedule.

“The right clients were thrilled. They were actually relieved. I think they felt we lacked clarity in how they were paying us,” notes Ballou. “Marilyn and I probably would have parted ways if we hadn’t done this. A lot of our frustration was with each other. When you don’t know why you’re screwing up it’s easy to look at your partner and say: ‘It’s you.’ We’re crummy businesspeople. We’re good financial advisors. And as we continue to rebrand and rethink, we’re stunned at how much better our lives have become.”