With the costs of insurance, technology and personnel rising; many financial advisors would like to raise their fees. But in today’s market, even the thought of raising your fees could “put a knot in advisors’ stomachs,” said Ginny Hudgens, president of Back Office Adviser LLC, a consulting firm based in Baton Rouge, LA.
Financial advisors are like any business professional which charges a fee for a service. Hopefully, these fees aren’t numbers which have been randomly picked out of the air. The value of your service should be reflected in your price. It is okay, even expected, for financial advisors to periodically raise their fees without experiencing huge fallout.
That being said; advisors would be well-advised to think about how they implement their fee increases. It requires a little bit of thought and perhaps a bit of testing of the waters. Raising fees doesn’t necessarily mean an across-the-board increase on all clients either. A more thoughtful, systematic approach may be required.
“Consider whether an across-the-board hike is necessary. Before raising your prices, advisors should take a good look at their business and client base,” suggested Diane MacPhee, a business coach with DMAC Consulting Services of Manahawkin, NJ.
One case for the occasional bump in fees is simply to reflect current economic times. The cost of living almost always increases every year, as does inflation, and prices for all goods and services rise steadily as time goes on. It will likely be no great shock for clients when fees are raised. This, of course, depends on a few things. A few years ago, with the market in tatters, this may have been a risky proposition. Many of those fears of an uncertain economic future have subsided.
Financial advisors who are considering raising their fees should feel their quality of service they provide is high, and their clients have benefited from it. This needs to be more than a feeling. Advisors need to be able to prove it.
A good first rule of thumb when deciding to raise fees on a particular client is based on the amount of your time and attention the client requires. When an advisor feels that he/she is spending too much time on one client which is prohibiting him/her from acquiring new business, then it’s definitely time to make changes. Everyone likes a good deal, and the client may know they’re getting a great one. This, however, doesn’t mean they’ll balk when they are asked to pay more for your services.
The thought of raising fees can be an intimidating one. Many financial advisors are fearful that if they raise their rates, their customers will go elsewhere. This is a common concern for every business person, regardless of the industry. The small restaurant owner, who is taking a hit because the price of fish has gone up, is fearful that raising menu prices will cost him customers. It might cost the restaurant one or two patrons, but the restaurant still needs to make a profit. In the long run, if the quality of the food stays high, then new customers will come. It’s no different for financial advisors, but it’s still a daunting proposition for many.
Sometimes financial advisors must also increase the services they provide with their fee increase. There’s always room for improvement and clients need to see an increase in service which goes along with an increase in fees. Many times, a simple conversation with clients will give advisors the opportunity to explain the value of their service. This will make raising fees much easier. Some clients will complain that’s to be expected. But if clients are presented with results and the concept of how much they do benefit from the service they receive, they’ll have a harder case to make against it.
“Raising fees requires advisers to give clients something more than the client got before,” MacPhee said. “You need to deliver noticeably better service.”
The best advice is to listen to your clients and pay attention to what they say. Communication is the key to any good relationship. Keep those channels open and find some common ground, but just be sure to get paid what you are worth.
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