Advisors could also consider a “value-based” pricing method, where they would attempt to put a dollar cost on the qualitative and quantitative value they create for their clients and charge for that. In many cases, cost-plus-profit and value-based methods would result in fees higher than RIAs are charging today, said DePardo.
Advisors might also consider using an alternative fee structure, such as a flat or tiered advice fee, especially if they are cultivating younger millennial and Generation X clients to create a lasting business, DePardo said.
“This is appropriate for anyone delivering services beyond investment management,” said DePardo. “For example, if you’re doing ad hoc work for a client. Some advisors do a lot of work up front to help get clients into the right strategy before they invest any assets. This pricing compensates well for that type of work.”
A flat fee could be paired with an asset-based fee, she said, by using a flat or tiered fee structure to charge a client for the initial work, and then later moving the client to an asset-based fee once they have sufficient assets to cover the cost of the advisor’s services and their desired profit margin.
Advisors with an aging client base could also consider implementing a minimum fee, especially as their clients retire and begin drawing down their assets. Minimum fees could also help buffer RIAs from declines in revenue caused by flat markets, said DePardo.
“It’s all about your service offering and align the services that you’re delivering with a pricing model,” she said.