Have you ever wondered why The Price Is Right Live show has aired for over five decades? The program has fifty seasons of viewer thrills! That beats the record of some of the longest-running scripted American primetime television series, The Simpson and Law & Order. 

Price matters to clients. Be it on The Price is Right or as a wealth advisor, people are eager to uncover fair pricing. For advisors, it is essential to consider this when setting the strategy for scaling your practice. While that doesn’t mean you should rush into lowering your prices or charge less for your services. But you should review your fee structure and make sure it makes sense. 

Take these four considerations into account when determining whether your compensation structure aligns with your service and strategical goals.

1. Know What They’re Comparing You To

Clients do research. They have an unlimited amount of information at hand. You should be aware of what they find in the wealth management industry, as this is the comparison point they will have to evaluate your fees. 

In 2021, the average fee for a wealth advisor’s services for an account of $1 million was 1.02% of assets under management annually. Since these percentages are tiered, they typically drop as the assets managed increase. On the other hand, online advisors have shown that a reasonable fee for pure money management ranges between 0.25% and 0.30% of assets. So if clients are paying closer to 1%, the service should also include investment management and financial planning. 

As most clients find this information before speaking with advisors, you need to be prepared for them to come in with biases. Knowing this will help you effectively address their concerns and objections. Regardless of how you structure your pricing, industry standards can serve as a guardrail to ensure you are not entirely out of line.

2. Find The Right Value-Price Balance

Fees are an essential consideration for clients when choosing an advisor. Therefore, your pricing should reflect the value you provide for your clients. After all, everyone wants to make sure they receive a fair price and enough value to justify it. 

Some may unconsciously perceive the price as equivalent to quality. When you price your services too cheap, it signals that you are unsure of your value or the value just isn’t there. Conversely, overpricing can lead to longer sales cycles and a competitive disadvantage. Either extreme can be alarming for potential clients and put you at a disadvantage compared to other advisors they may be interviewing. You must find the balance between charging too much and charging too little. Clients are not necessarily looking for the lowest cost advisor but rather the most value for their dollar. 

For example, consider the similarities between paying for a wealth advisor and buying a new car. A potential buyer would expect to pay less for a vehicle that only serves the purpose of getting them from point A to point B without any additional comforts or luxuries. But, on the other hand, if the car has a sunroof, heated seats, and all leather interior, the buyer could be willing to pay more because there is an extra value: a more enjoyable commute. 

Make sure to tie your pricing back to your value proposition so that potential clients know that your work is worth every penny. 

3. Fulfill Your Promise

In line with the car purchase example, you cannot just tell a buyer there is a leather interior and then give them a car that is all fabric! That would lead to an unhappy client. As a wealth advisor, one of the most important ways to ensure you’re not overcharging your clients is to deliver your promised value. 

4. Find Strength In Simplicity

The standard way to price services is to determine their cost, add space for a profit margin, and set the price accordingly. In some instances, financial planning fees relate to the “complexity” of a financial plan, which can be confusing. Complexity is inherently a comparison; there is no accepted benchmark for it. By nature, complexity is subjective and leaves room for clients to disagree with your definition. 

A transparent and straightforward fee structure will clarify your client relationships and illustrate that you understand your client’s needs. Regardless of how much you charge, your ability to explain your fees carries just as much, or more, weight. You need to fully understand how your pricing structure works before pitching it to others. While there are many ways to approach the fee conversation, there are three must-haves to include in the explanation:

1. Be proactive

Bring up your fee structure! Do not wait for the client to ask. In this way, you show that you are not afraid to discuss fees, and you are confident they are fair and worth the value you provide. Fees are always going to be the elephant in the room. Sharing them upfront during the first meeting will ensure you and the client are on the same page. If you wait until the client asks, “What will this cost me?” it will probably lead to objections and an unconscious sense of distrust (never a good look). 

2. Be specific

Have a simple and repeatable process for discussing fees. Rather than trying to improvise, you should think through this conversation before a client walks in the door. Ask yourself a critical question: Do you believe you’re worth your fees? Based on your experience, expertise, and offering, the answer should be yes. If the answer is no, then something needs to change. 

3. Be transparent

Do not try to hide costs, like underlying expense ratios. Instead, be upfront about your fees and any other cost incurred by the client and explain the differences. By doing so, you will build trust with your prospect or client. According to a FINRA Investor Education Foundation survey, 17% of investors don’t know what they pay in investment fees. Another 14% don’t even know if they’re paying any fees. 

If someone other than you points out that the client isn’t aware of the all-in cost of working with you, it may lead to your client losing trust in you, especially if the other person educating them is another advisor. 

Financial planning is collaborative, and most parts of the experience involve the client and the advisor. Since fees must be agreed upon and mutually beneficial, these four considerations will help you ensure your pricing structure makes sense. 

Ultimately, if the client doesn’t see the value, they won’t be paying. Use industry standards as guardrails for your pricing to confirm you are within reason. The ability to explain your pricing structure and the value you offer will be critical in determining your success. The best practice amongst our top advisors is to be proactive, specific, and transparent in your fee conversation.