Financial advisors could be shortchanging themselves by not employing a variety of pricing structures for the services they provide, according to Vanessa Oligino, TD Ameritrade Institutional director of business performance solutions.
Oligino, who is responsible for helping to drive growth and efficiency for registered investment advisors, said advisors should be looking at their pricing structure on a regular basis to ensure that it is still aligned with their business strategy and their future plans.
“They should be looking at all aspects of their business on a regular basis and saying, ‘OK, do I have the right people in place, do I have the right technology in place, where can we become more efficient and is our pricing strategy aligned with our business strategy and where we are a headed,’” Oligino said in an interview with Financial Advisor.
TD Ameritrade has created a guide that addresses pricing structures and considerations for suitability. The guide offers sample pricing structures and a list of pricing questions designed to help advisors rereassess their pricing structure.
It poses questions such as “Has your advice offer to clients evolved or grown with the maturity of your firm? And has your pricing structure changed in step with your advice offer?”
The above questions, Oligino explained, speak to an advisor, who for example, originally offered five core services to clients and now she offers 10 with the same prices.
“Maybe the firm added more talent to deliver those services and implemented technology. If that is the case, you should look at your profitability and ask yourself if these [client] relationships” are still profitable for our firm? And if not, you may need to increase the price because of all you have done since you began these relationships, she said.
The bottom line, Oligino said, is if you are adding value in different ways, you might need to take a look at pricing structure.
Oligino further explained that if an advisor is charging an asset-based fee to a client who, for example, is going through a divorce, and the advisor is spending time with the attorney and gathering documentation to help with this life event, that is work they are not getting compensated for. “That is really above and beyond the core offering. So, if you are doing custom work like that, you might think of implementing some sort of project fee or a flat fee,” she said.
As for what’s fair compensation for that type of work, Oligino said there really isn’t one best pricing model for advisors. “One of the things we suggest is to think about your core competency, where you add value the most,” she said, explaining that if your focus is financial planning your fee structure probably shouldn't be built around asset-based fees. “That’s deemphasizing the value of the financial planning and that’s actually your core competency.”