Which leads us to the next factor on the list: considering the value being provided to clients. This is certainly the most difficult thing to articulate and measure. In fact, your fees can contradict the message about your value. Take advisors who claim, "We are not in the business of delivering investment returns but delivering financial peace of mind." What does it say if those same advisors charge a percentage of assets under management, just like those who are in the business of delivering investment returns? At best, they are confusing their clients.

Granted, financial peace of mind is not as easy to measure and articulate, but it makes more sense to me as a consumer of financial advice if advisors say, "My job is to provide you with advice to help you achieve your life objectives," and then charge me based on either the advice they give me or their success in helping me achieve my life objectives. If they say, "My job is to manage your assets," then I would expect them to charge me an AUM fee. If they are both providing me with advice and managing my assets, I would expect to pay them for both of those services. If the two services are bundled together into one fee, I would like to understand the basis for both. Not so I can comparison shop, but because the fee I am charged tells me something about the nature of our relationship-it tells me what I am paying them to do.

Though we did not ask the question in our 2008 study, in our 2006 study (Moss Adams 2006 Financial Performance Study of Financial Advisory Firms, sponsored by JPMorgan and SEI Advisor Network) we found that 57% of firms charged separately for a financial plan, with planning fees ranging from $1,500 to $5,000 (though anecdotally I know several firms that charge five times that-or more-to take clients through the financial planning process).     Again, the question of what is included in the plans delivered for those fees will lead to different answers across the board.

In our 2006 advisor study, we did see indications that some advisors are considering switching their charging methods: More advisors said they planned to use fees based on AUM (49%), planned to use retainer/relationship fees (39%) or planned to use hourly/project fees (27%). Meanwhile, fewer advisors anticipated using commissions (29%), while 12% said they planned to move away from hourly/project fees. (See Figure 3.)

When it comes to aligning your fees with the value you deliver, the best thing you can do is ask yourself, "What is it I am delivering to clients? Do my fees align with it? If I say, 'This is what I do' and 'This is how I charge,' do the two make sense together, or am I charging one way for doing something else entirely?" Bringing these things into balance is just half the battle. The other half is properly articulating your value proposition to your clients. Educate them and make clear why they are better off as a client of your firm.


For the most part, the third factor in your pricing is an accounting exercise, and I would say this exercise gives you the minimum floor you can charge clients to break even. This is not a way to assess your value; it is just a way to assess your costs, which should in turn define the minimum pricing level. For most advisors, examining the economics of their client relationships and making conscious decisions (instead of unconscious ones) about working with clients who are not profitable is a necessary and positive step for the business.

To assess the cost of serving clients, you need to assess and allocate costs in three categories:
1. Fixed overhead costs, which are equal across all clients or segments
2. Variable overhead costs, which differ by client or segment
3. Time costs, which vary by client (or to simplify, vary by client segment-A's, B's and C's, for example)

To begin with, identify your fixed costs-support staff salaries and overhead expenses that are about the same for every client (paper clips, reception, rent-unless you really want to dice it finely). Then allocate these fixed costs by taking total overhead and support salaries and dividing it by the number of clients to determine your cost per client. Think of profit as a cost in this exercise and build in your required profit margin.

Fixed Overhead + Support Salaries = $500,000
Number of Clients = 250
Fixed Cost Per Client = $500,000/250 = $2,000
Desired Operating Profit Margin = 25%
Required Fee to Cover Fixed Costs = $2,000 รท (1 - 0.25) = $2,666

Next, identify your variable overhead costs, which are not the same for every client. For example, perhaps you do an event for "A clients" and a newsletter targeted at "B clients."
Investment in Event for A Clients = $5,000
Number of A Clients = 25
Investment in Newsletter for B Clients = $10,725
Number of B Clients = 165
Required Fee to Cover Variable Overhead for A Clients = $5,000/25 = $200
Required Fee to Cover Variable Overhead for B Clients = $10,725/165 = $65
Required Fee to Cover Variable Overhead for C Clients = $0