Financial advisors need to consider breaking away from the traditional asset-based fee to better serve clients, according to one business consultant.
Some advisors are already coming up with innovative fee models that give clients more flexibility and choices in how they pay for services, said Matthew Jackson, director in the global banking division at Simon-Kucher & Partners, a consulting firm based in New York City.
“Having a diversity of fees means you can serve diverse clients,” Jackson said, adding that pricing incorrectly is “a good way to go out of business.”
Simon-Kucher has released a report on eight pricing models designed for different types of clients that have been developed by advisor firms. These are value-based pricing models that start from the clients’ needs rather than from the firm’s costs or what others are charging.
“Find your segment of clients. Find the value you want to provide, and have the courage to charge accordingly,” Jackson said.
These are some of the fee models cited by the report:
• Elston Financial, based in Queensland, Australia, has designed a modular AUM-based pricing structure where clients can pay for a stripped-down or full-service plan with the price varying according to the level of service. Using this fee model means that negotiations on price are automatically a conversation about value, the report said.
• Beth Jones, president of Third Eye Associates in New York and Washington, D.C., has a fee structure based on a combination of a percentage of AUM, an up-front charge and an hourly fee or retainer. She said this variety enables clients to see the value they are receiving, as well as tailor what they receive and pay.
• Life Planning Partners in Jacksonville, Fla., charges an annual fixed dollar amount based on the complexity of a client’s plan, rather than its size. The firm considers factors that directly affect the advisor’s workload, such as asset fragmentation.
• Bill Simonet, managing principal of Simonet Financial in Kyle, Texas, came up with a fee structure based on a menu. Clients can choose different bundles of services for different fees. He said the structure encourages clients to learn about the different services he provides and its value.