How to Set Competitive Prices for Your Financial Planning Services

Originally published on GuideVine.com.

If you’re like most financial advisors, you work hard for your clients. You provide financial guidance, manage their investments, educate them, and answer their questions. But how do you know the true value you provide? And when you set your fees for financial planning services, how can you find the balance between running a profitable business and keeping your prices competitive?

Setting your pricing model can be overwhelming. Most advisors want to provide more in value than they charge in compensation and few advisors enjoy having the fee conversation with clients. Here’s how to hit the sweet spot when pricing your services to stay competitive and profitable.

Figuring Out What You’re Worth

The first step to setting your pricing model is to figure out the services you offer that your clients most value. Most advisors charge an asset under management fee that covers all of their financial planning services. But some advisors charge a retainer fee, a monthly fee, a fee for a financial plan, or even an annual membership fee.

Before you can decide the best pricing model, it helps to understand what your clients value the most. A quick client survey can help you understand what you offer that is important to your clients and which services they don’t value. Then, you can align the fees you charge with the services your clients value most to improve overall client satisfaction.

For example, one family office serving high-net-worth individuals in Florida changed their pricing structure from an investment management fee to an annual membership fee after speaking with several top clients. The firm was handling everything from managing assets to hiring and firing the housekeepers and booking travel, so to better align their prices with their services, they moved to an annual service fee model. The decision made their business more profitable and provided greater transparency for their clients.

Another young advisor in Irvine, California was working with young professionals who didn’t have a large nest egg to invest. He wanted to create a service so he could help them build a financial plan and still earn money for the time he was spending. He created his “Decision Coaching Program,” an $800 per year program to help clients create a financial plan, manage their own investments, and set financial goals.

Prioritize your services in accordance with the value they provide to your clients, then start considering the appropriate cost for each piece of the puzzle.

Making Your Prices Competitive

When setting your prices, you’ll first need to make sure each service is profitable for your firm. One way to do this is to calculate the average hours of your time it takes to provide each service, then multiply by your hourly rate.

Some services may clearly be profitable for your firm, but others may be too time intensive to make sense. One example is helping clients without a lot of money to invest to budget and pay down debt. Their willingness to pay rarely justifies the time you would need to spend with them to create an actionable plan.

One advisor in Texas found himself offering college planning to his clients as part of his overall financial planning services. But once he realized how many hours he was spending on college planning without generating revenue, he knew he had to monetize the process. He created a college planning program for a one-time fee per child to justify his efforts. His clients were more than happy to pay for the program, which includes financing education, applying for financial aid, and choosing the best college for their budget and goals.

How can you make sure your prices are competitive? According to Kitces.com, the rule of thumb is that most advisors charge 1% assets under management for accounts under $1 million and for larger accounts above $5 million, the going rate is 0.5%. Hourly rates for financial planning services hover around $200 to $300 per hour. Family offices offering concierge services and wealth management may charge $20,000 to $30,000 per year.

Communicating Your Value

The reality is that clients choose to do business with you because they trust you, not because your prices are the lowest. There are plenty of other options for penny pinchers, like robo advisors or doing it themselves. Most of your clients will understand that you get what you pay for when it comes to financial guidance.

The trick is to clearly convey your pricing in a way that’s easy to understand and transparent, then align it with the value your clients care about. It’s important to make sure your clients understand everything they get for the fee they pay including:

  • Asset management

  • Financial planning

  • Annual reviews

  • Education and support

  • Financial planning software

  • Account rebalancing

  • Customer service

  • Client events

Have the conversation with each of your clients once a year to make sure they understand what they’re paying as well as all that’s included in the fee they pay. It’s helpful to explain your fees in the context of industry averages and alternatives. Finally, always bring the conversation back to your relationship with the client and your end goal – helping to pursue their financial success.

Claire Akin