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.”

Oligino said advisors adhere to their pricing structure because they are not assessing it on a regular basis. “The typical thing we hear is that they do fear client attrition, even though our research shows that’s not happening. It’s a bit of a myth,” she said.

Another reason advisors don't change is that a 1% asset-based fee is easy to communicate, she said.

“Change is difficult. A lot of people resist it and if they are comfortable enough, they will just kind of continue on their way,” Oligino said.

An advisor might consider having an asset-based pricing model with a minimum fee to ensure adequate compensation when there's a market downturn, she said. “It’s just there to protect on the downside in times when revenue generation might be more challenging,” she said.

Advisos need to know their cost for serving each client when considering a fee change, she said. Advisors, for example, could bucket their clients into categories depending on how complex their demands are, and figure out the average costs and profit margin for clients in each group, she said.

Each group should be expected to generate a certain amount of revenue in order to recoup cost and remain a profitable company, she said.

“If there is one group of clients that you are losing money on, that would probably be the first group [where] you may need to look at implementing a price change," Oligino said, adding that another option is to just change fees for new clients.

Oligino said advisors should give their clients advanced notice of any fee changes. “You may need to give people time and you are going to need time to get those communications out and make sure everybody is on board,” she said.

“You have to be able to say ‘this is fair because we are delivering this value to you in these ways and we hope that you acknowledge and feel that it’s a fair value as well and the compensation for the service we are delivering,” she added.

She stressed that everyone at the firm has to be given talking points about the change and be disciplined about it “because if ... people start granting fee waivers all over the place, you are not going realize the benefits that you had projected in doing this."