There are still plenty of advisers and firms that are looking to increase their fees.
Despite what you read in the industry press, that includes firms still looking to move up to 1% of assets under management. It also includes firms moving away from asset-based fees, but needing to charge pretty significant flat fees to replace them.
Why Does This Become An Issue?
This issue hits you between the eyes when you start digging into your profitability numbers (which I discussed in my blog, Financial Planning By Numbers).
If you’re a genuine Financial Planning firm providing a comprehensive range of advisory services, it costs significant money to deliver that service.
The costs of your inputs are rising constantly:
- Increased regulation
- Better quality staff
- Investment in technology
- Training time and cost
- Professional indemnity
- Capital adequacy
The list could go on and on.
Financial Planning done well is a premium service and you need to be charging a premium price.
Let me state this for the record: In all my years of consulting, no one I’ve worked with has lost the clients they’re looking to keep when they’ve increased their fees. That can give you some confidence.
However, any nerves you have (which are perfectly normal, by the way), are just a sign to get your own head and story straight, before charging off to tell your clients their fees are going up.
How Do You Do It?
Here are a few ideas for you to consider:
Be open to the fact that all you might need to say is, “I’m putting my fees up. It’ll take effect from x/x/20xx. We’ve held off as long as we could, but we can’t do that any longer. I need you to sign this piece of paper.”
Most clients will say “Ok” and you’re done.
You could add more back story about you being cheaper than most other good financial planning firms and how you’ve tried to hold off. But remember, the more you talk and explain, the more you sound like you’re feeling guilty about it, or have something sleazy behind the move.
Short and sweet will get the job done professionally.
I would suggest increasing fees, face-to-face, one client at a time at their next review meeting, rather than writing to everyone in bulk.
That will mean it takes a full 12 months to increase all the clients you want to increase, but it allows the conversation and the follow-through work in the back office to happen in an orderly fashion.
The only exceptions to point 2. would be clients who you don’t really see face-to-face because they are too small. I would write to these clients in bulk.
In your letter you can explain the rationale and ask them to sign a fee increase. You would also explain that if they choose not to sign, you would need to cease acting as their adviser. You can find the words to say that politely but firmly.
For some advisers the timing of a fee increase occurs as they move the client to a cheaper investment proposition, and that helps sweeten the move.
If portfolio investment costs reduce by 0.5% pa, and your advice fee increases by 0.25% pa, clients are usually happy with that outcome.
But don’t delay conversations waiting for such a move. And don’t feel bad if there is no change in the client’s investment costs or service package. A simple fee increase on its own is fine.
I ran a workshop recently for the Personal Finance Society and had two of my clients on a panel discussion. One of them told a story about his business increasing their fee from 0.75% pa to 1% pa, AND stopping the half-yearly reviews they were doing at the same time. So they increased prices and reduced the number of reviews per year to one.
No clients left them. In fact most clients said, “Thank goodness we only need to see you once per year now.” They were actually happy about the reduced number of meetings per year.
If there are some clients that you think will be difficult to move to your new pricing, leave them till last. Move the easy clients now.
If you can get all the easy ones done, this will increase your ongoing fee income. As that rises, I can assure you, some of the larger clients don’t seem so large any more. Losing one over a fee increase (which is still unlikely) doesn’t seem quite so scary when the rest of your revenue is up significantly.
If you never increased your top 5 or 10 clients (because you feel they are already paying you enough), but you moved everyone else up to your new level, I bet your revenue still looks a lot better than it does now.
So do that.
The Bottom Line
You need to be getting more efficient at delivering your service as well. You can’t just continue raising prices indefinitely.
If you’re not yet charging a premium price for your premium service, then I’d be taking that as a first step. The extra revenue will allow you to ‘invest’ in whatever it is you need to make the business more efficient (people, process, technology, external support).
As an accountant said to me years ago, “If you doubled your prices, would half your clients leave?”
If you haven’t done it already, is it time to increase your prices?
Let me know how you go.
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