Five ways to boost your bottom line
Charging a fee to investors based on the assets that they hold was a paradigm shift back in the days when most clients worked with commission-based brokers. The beauty of charging a predictable fee is that clients have a complete understanding of how much they are paying and the assurance that advisers have no incentive to recommend one product over another.
But advisers who start out as pure investment managers frequently find that as they become more successful, their businesses “evolve” and become full-fledged wealth management firms, said Eliza De Pardo, a principal and the director of consulting at FA Insight.
“Some services cannot be adequately compensated for under a pure asset-based-pricing structure unless you understand the cost,” she said.
Some examples include tax and estate planning, as well as cash flow management, Ms. De Pardo said.
Advisers may want to charge separate fees for time-intensive extra services but don't know how to implement a dual structure.
The first step is to understand what each client costs in terms of an adviser's time, Ms. De Pardo said.
For clients who need a variety of individualized services, “there is a likelihood you won't be profitable for those individual clients under an asset-based fee,” she said.
Although the vast majority of advisory firms use asset-based pricing, many should consider incorporating other pricing methods, such as hourly fees based on time and resources involved, or perhaps a flat or variable fee according to the level of advice needed, Ms. De Pardo said.
In a study published last month by FA Insight with Pershing Advisory Solutions LLC, the firms said that a good option could be combining an asset-based fee with a flat fee, according to the level of financial planning advice delivered.