Articles About Kitces & Carl Podcast

How much to charge for financial advice is rarely a decision made lightly. A firm's pricing strategy often reflects both the local market (or niche-related) norms – such as the nearly-ubiquitous 1%. Others may align with broader industry trends, like transitioning to fee-only structures to buffer against market volatility. Still others may choose a hybrid model, combining AUM fees with additional charges for other services like tax planning. Regardless of the pricing structure that firms choose, Kitces research on "How Financial Planners Actually Do Financial Planning" finds that there is a gap in "fee confidence" – while some advisors charge at or beyond "market price", others consistently underprice themselves. This fee confidence gap has large ramifications in the long term, as firms with higher revenues can reinvest in growth – with hiring, marketing, and process improvements – that enhance their value proposition and attracts more prospective clients.

In this episode of Kitces and Carl, Michael Kitces and client communication expert Carl Richards discuss why this fee confidence gap exists, exploring the psychological, competitive, and practical factors that often drive advisors to underprice their services. They also suggest how advisors with unsustainably low fees can shift their mindset, embrace their value, and realign their pricing to reflect both the tangible and intangible value they actually provide to clients.

Developing fee confidence may pose a real challenge, especially for advisors in the early stages of their careers or struggling to 'keep the lights on'. Pricing the impact of financial planning can be challenging, because many of its benefits – like peace of mind – are intangible, compelling in value but difficult to match with an exact price. For newer or less confident advisors, underpricing can seem like a necessary compromise to compete with more established firms. For example, an advisor may think, "The standard advisor charges a 1% AUM fee. But since I'm not as experienced as the average advisor, I'll charge 0.8%", even when they know that this underpricing decision could severely impact business development in the long term!

To develop fee confidence, it may help to begin with gathering external evidence. Researching what peers are charging is a logical first step, but what may be even more effective is reviewing feedback from clients and others who have worked closely with the firm. Have clients described the advice as "life-changing"? Are they raving about the advice and guidance they've received? These affirmations can reinforce the advisor's value, serving as powerful reminders that help the advisor gain the confidence to charge more. Saving such feedback in a "stoke file" – a catch-all collection of notes, comments, and positive feedback – can provide a helpful confidence boost when doubts arise.

Ultimately, though, fee confidence begins internally. And while external feedback can help, an advisor's true confidence comes from recognizing their unique strengths and understanding how they uniquely help their clients. By internalizing this value, advisors can confidently charge what they're truly worth, paving the way for success in the long run!

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As the financial advice industry began shifting from a sales-based model to a more sustainable asset management approach, advisors found their roles shifting along with it. With revenue rooted in more predictable, recurring income, many advisors were able to step off the relentless 'treadmill' of constant sales, allowing them to invest in growth by hiring staff and delegating tasks. Effective delegation, in turn, created a positive cycle, freeing advisors from lower-value activities so they could work on building and scaling their firms. "Delegate and let go" became a common mantra, with advisors encouraged to focus only on the highest-value tasks. Yet, even for advisors who understand the value of delegation, actually letting go is often easier said than done.

In the 151st episode of Kitces & Carl, Michael Kitces and client communication expert Carl Richards discuss the psychological challenges advisors often face when it comes to delegating tasks and the strategies that can make delegation more effective.

Despite the potential upsides of delegation, advisors typically face 3 psychological hurdles to overcome in order to delegate effectively. First, it can be hard to imagine that doing all of an advisor's least favorite tasks would be someone else's dream job (after all, if doing those tasks were so enjoyable, then advisors wouldn't be trying to delegate them in the first place!). Second, people generally enjoy working with those similar to themselves, which can make it tempting to hire a 'mini-me' with similar strengths and inclinations. However, doing so can unintentionally reinforce the advisor's reluctance to delegate disliked tasks. Finally, even if an advisor dislikes a particular task, they may still be the fastest (and most skilled) at completing it, creating an argument for the advisor to continue doing it. Together, these elements create a compelling case for not delegating at all. In reality, though, holding onto these less-favored, non-growth-related tasks can limit a firm's long-term capacity to scale.

The first 2 barriers can be addressed by hiring an 'opposite', rather than a 'mini-me'. For example, while it might seem natural to hire someone similar, bringing in someone who has complementary strengths – such as an operations-focused person who thrives on detailed follow-through – ensures that tasks the advisor may find draining are handled by someone who enjoys them. The third barrier – that no one else can complete a task as well or as quickly as the advisor – may hold true and can be challenging to overcome. Yet, advisors may still benefit from delegating the work, as once a task is offloaded, an advisor's time is freed up for more productive work – or even for taking additional time off! A highly leveraged advisor has more flexibility in shaping their day-to-day business operations.

Ultimately, advisors aiming to delegate effectively can benefit from focusing on a new hire's ideal strengths and aptitudes. Hiring and working with an 'opposite' can feel counterintuitive at first – a checklist-oriented person, for example, may 'just' complete their assigned tasks without exploring beyond the to-do list, which could feel foreign to an ideas-driven advisor. However, this dynamic can also be incredibly freeing. After all, someone who enjoys a particular set of tasks is more likely to take ownership and improve that process – and, by extension, contribute to the firm's long-term success!

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For many years, the traditional career track for financial advisors has been an 'eat what you kill' model – where advisors must independently find, convert, and manage their own clients. As such, it isn't uncommon for an advisor's first few years to be characterized by long hours, high rejection rates, and low pay. For many, this can be a stressfully prolonged period that typically eases only as advisors build their client base and establish themselves in the industry. However, the scarcity-driven habits that helped them survive their stressful early years may not serve them effectively in their current state. In fact, these habits may even inhibit their growth, making it harder for them to scale their firm in alignment with their long-term vision.

In the 150th episode of Kitces & Carl, Michael Kitces and client communication expert Carl Richards explore how advisors can acknowledge the psychological habits formed during prolonged high-stress periods and intentionally move beyond them to continue to achieve sustained growth.

When stress arises, especially in the early years, many advisors often do whatever it takes to pull through and build their business. But a scarcity-driven mindset can linger, long after the immediate pressures have faded. This mindset might manifest in subtle ways – like the reluctance to raise client minimums out of fear that new clients won't come, even when capacity is maxed out. At this point, the narrative of survival can keep advisors tethered to past habits, even when logistically, an advisor may be well past that point and their current reality calls for a different approach.

To shift from survival mode to a mindset geared for growth, a first step might be to take stock of the firm's logistical reality: cash flow, client load, and overall business capacity. This can help advisors move from reactive habits to proactive strategies. A helpful question that advisors can ask themselves is, "What would it take to feel secure in this scenario?" Sometimes, a few targeted risk-hedging steps can provide a sense of security. In other circumstances, it may be more helpful to acknowledge the gut-level response to stressful situations – the same survival instinct that got the advisor 'here'. However, getting 'there' – to the next stage of growth – requires noticing, acknowledging, and then rewiring those instinctive responses.

Importantly, it's not just about making technical adjustments; it's more about a shift in mindset. It's the ability to internalize success and recognize that the survival instincts, once crucial, might now be holding back progress. Letting go of those old habits means freeing up mental and emotional space to envision new possibilities for the firm's future.

Ultimately, the key point is that survival strategies, while essential in the early stages of an advisor's journey, may not align with the realities of a growing and thriving firm. Sometimes, internalizing that an advisor has 'made it' is not always easy, but it's a milestone worth celebrating. Embracing this recognition allows advisors to ask the more exciting question, "What comes next?" This shift isn't just about growing a business – it's about building a vision that truly aligns with long-term goals, creating the freedom to innovate and adapt with clarity and purpose!

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Launching an advisory firm can be a daunting endeavor, requiring advisors to take on significant financial and responsibility with no guarantees of success. Given these challenges, advisors may consider bringing on a business partner to share both the costs and the burden of decision-making. By pairing with a partner in the firm's early days, advisors can benefit from their business partner not just by having someone to split costs and risks with, but also to consult with as a sounding board and strategic partner across the highs and lows of launching a business. While this can be an appealing option, it's important to recognize that not all partnerships are created equal, and a business partner may not always be the best solution for challenges advisors are trying to solve.

In the 149th episode of Kitces & Carl, Michael Kitces and client communication expert Carl Richards discuss the common fears that advisors often face when considering a business partner, explore alternative solutions to address these concerns, and explain when joining forces with another advisor may be a good idea.

For advisors contemplating a partnership, the key question is often, "What are you solving for?" For example, if an advisor's main concern is the high upfront operational costs, they may want to explore fractional solutions to lower the prices of issues. Advisors have more options than ever before to address these costs independently. Some of these solutions include fractional compliance, administrative, and even office space, which can all significantly reduce expenses and manage up-front costs without the need for a business partner.

Another common issue is the sense of loneliness and isolation that comes with 'hanging one's own shingle' and launching a solo firm. In this case, advisors may benefit from joining "launch groups" through organizations like XYPN or even their broker/dealer, where they can find resources, solutions, and camaraderie to build community without splitting equity or the need to make business decisions together with a partner. Other options – such as mindfulness practices or study groups – can also help advisors manage the emotional toll of running a business on their own.

However, there are times when a business partner is essential to successfully launching a business, especially when both parties share the same vision and excitement for building the firm. When their vision and excitement align, a partnership can be a powerful force for working together to build a thriving business in the long-term!

Ultimately, the key point is that while there will be some issues that can be solved with a business partner, not all necessarily should be. Whether an advisor seeks a business partner or finds support through peer groups and fractional services, finding like-minded people who are "in it together" can make all the difference in managing the stress of launching and running a successful firm!

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"Building in public" is a common piece of advice for tackling new challenges – whether launching content, starting a business, or setting personal or professional goals – as public commitment fosters accountability and motivation, tapping into the human desire to avoid embarrassment. While this approach can be effective, it ultimately poses its own difficulties;  for example, when stakes are public, advisors may feel pressured to endlessly perfect their offerings and over-commit their time and resources before knowing what really works. Alternatively, they may avoid public commitment altogether to sidestep this pressure.

In the 148th episode of Kitces and Carl, Michael Kitces and Carl Richards discuss how advisors looking to try something new can overcome mental roadblocks and take action… without feeling the pressure to publicly announce their plans first.

As a starting point, it may be helpful to remember that, for better or worse… few people pay attention to someone's early public efforts. For example, firm owners often spend an immense amount of time on marketing before referrals or prospects begin to flow in. Most new offerings don't come with a built-in audience. The reality is that, more often than not, recognition for one's 'new' offering tends to come long after the offering was launched, which is why we often hear the phrase about taking 10 years to become an overnight success. On the one hand, it may feel defeating ("What's the point if no one cares?"); on the other, it can feel liberating ("I can build anything I want, and few will notice if I fail.").

The benefit of this slow recognition is that it gives advisors time to refine their product… as long as they start. The desire to create a polished product that matches what clients want is important (and a part of how an advisor has gotten so far) but can also inhibit advisors from getting started in the first place. From that end, it may be helpful for advisors who struggle to start to create a "Version 0" – a version built with release in mind, but not a commitment to a finalized, perfected end product. For example, an advisor creating new video content may record "Version 0" videos, where rather than focusing on perfecting sound, light, and other design elements, they ‘just' turn on their camera and follow a brief script. After recording, they may find that Version 0 is actually good enough to release! And once "Version 0" is out, observing who shows up and engages can inform the advisor about what their audience truly cares about.

The key point is that if advisors can ‘just' begin by iterating new offerings, the process of releasing them gives the advisor space to refine what truly resonates with clients – ultimately leading to a great, relevant product!

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Given the general trend of advisory firms charging on some percentage of assets under management, market growth can also be a strong indicator of advisory firm growth. For firms with revenue tied to portfolio performance, the additional income that can accompany a healthy market outlook allows firms to dedicate more resources to marketing and other processes to help grow the firm. However, while this business model has worked well with the strong markets that have dominated the last 15 years, there is also an inherent risk that comes with inevitable market corrections, bear market years, and recessions, which poses the question: How can advisors structure their firms to protect against market corrections?

In the 147th episode of Kitces & Carl, Michael Kitces and client communication expert Carl Richards discuss how advisors (especially those who joined the industry after the last correction) can protect their business against the market volatility risk inherent to a business model that uses AUM fees.

As a starting point, a firm's profit margin is usually the first line of protection against a bad market. The average established firm has a profit margin of 20–30% after employee, technology, and operational expenses during 'good' market years. During bear market years (or quarters), any AUM-correlated profit margin will have a corresponding drop, and that profit margin may then drop to 0%. However, unless the profit margin drops below 0%, an advisory firm will likely be able to remain operational as is, without being forced to make difficult decisions to shrink the business. While maintaining a 0% profit margin for a quarter or few may not be pleasant, the advisory firm that is aware of this 'feast-and-famine' cycle and is prepared for it can situate itself to pull through bear markets with minimal business adjustments.

To better visualize how a recession would impact a firm's long-term growth, advisory firm owners may want to model how their business would be affected by several quarters of 'bad markets' and consider how they would need to answer these questions: How would payroll get impacted? What expenses would need to be adjusted? How would several quarters of bad markets impact the firm owner's ability to pay themselves and maintain their lifestyle? These considerations can help advisors better understand their options and the adjustments that would need to be made in the short- and long-term.

Importantly, it's essential to be mindful of the emotional toll along with the logistical side of bracing for a recession. In a bad market, advisors are constantly required to absorb client uncertainty and fear – often while they are equally unsure of what will happen. And, for advisors who are also firm owners, the toll grows as employees are also emotionally stretched to absorb the chaos of an uncertain market – and even more so if owners need to let an employee go to keep the business afloat. Emotional preparation usually poses a different challenge than reviewing a business plan. However, much as how a firm needs a certain level of profit margin to ensure that it will have the resources it needs during tough times, so too can advisors ensure they have the resources they need to maintain their own emotional wellbeing. Even basic self-care practices like maintaining a healthy diet, getting enough sleep, and exercising can provide a crucial barrier against the emotional and physical strain of stress.

Ultimately, the key point is that market corrections, slow years, bear markets, and recessions are inherent risks for firms with revenue models that rely on assets under management. However, advisors who are mindful of the effects of these trends can proactively make small adjustments before an emergency strikes – better protecting their clients and their firms in the long run!

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A cornerstone service that many financial advisors provide is education. While strategic advice is crucial, advisors also face the challenge of presenting the strategies to clients in context, explaining different financial planning concepts, and showing clients how to implement these strategies (as well as pointing out any long-term consequences). While curious, proactive clients who are ready to learn may be the ideal, this can become complicated when clients bring 'good' advice they've heard from unreliable sources that doesn’t apply to their individual circumstance – or, worse, the advice itself is rooted in misinformation. This puts advisors in a challenging situation to re-educate or redirect the client without becoming combative or condescending.

In our 146th episode of Kitces & Carl, Michael Kitces and client communication expert Carl Richards discuss the "overconfidence gap" that can be created by clients bringing misinformed strategies and suggestions from various sources to their advisors, and how advisors can navigate the conversation to get clients back on track (without also offending them).

One potential dynamic of these conversations might involve the advisor's bruised feelings from knowing the client had been searching for financial planning answers somewhere else rather than coming to the advisor and asking their questions directly. A natural first reaction might be to prove why the client's source is 'wrong' and how the advisor's advice is 'right' – but in doing so, advisors run the risk of alienating their client who may interpret the response as a suggestion that they were ignorant or gullible in believing obvious misinformation. Instead, leading the conversation by thanking the client for bringing the idea to the meeting can be a more helpful approach, and then asking for context around the problem the client wants to solve with the advice they were given by the outside source. This strategy encourages the client to open up about their intent, problems, and even insecurities, giving the advisor an opportunity to better understand the client and solve more problems for them – ultimately building more trust!

While such one-off discussions with 1 or 2 clients in meetings can be fruitful, multiple clients who bring up the same questions can signal an opportunity to address the misinformation for a broader group of clients head-on. For example, if an advisor has clients who are small business owners, and several of its clients consistently have questions about the same tax savings strategy (or consistently come to the wrong conclusion about where it applies, thanks to either what they find on the Internet or hear by word of mouth), many of the advisor's clients may benefit from educational resources created by the advisor themselves, perhaps in a written, video, or audio format; this not only allows the advisor to craft the sort of response they want to send, but also reduces the need to answer the question more than once. Alternatively, advisors can hold educational events to address common questions and give clients an opportunity to voice their specific questions or concerns.

Ultimately, the key point is that when clients bring forward ideas rooted in misinformation, advisors have an opportunity to solve a problem in a way that can further enhance trust in the relationship by providing high-quality resources that help clients with their specific needs. And while there may be some upfront work required to coordinate such resources (or events) for clients, doing so may end up helping the advisor save time by allowing them to answer the same questions that crop up more efficiently, thoroughly, and proactively – not just for the client sitting in front of them, but for several clients with the same questions throughout the firm!

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As advisory firm websites have become crucial to the prospecting pipeline, displaying fees can present a delicate challenge for advisors. On the one hand, displaying fees can help a client determine whether an advisor will fit into their budget and may build trust when an advisor demonstrates transparency by explaining how their fee applies to their value proposition; on the other hand, even with a clear explanation, prospects may find it difficult to understand exactly how the value of an advicer aligns with their fees. The unique dynamic of presenting fees to clients can be heightened when an advisor offers life planning, which may involve multiple meetings to truly understand the prospect's situation before the advisor even presents the fee for an in-depth plan. Due to the in-depth nature of this sort of planning, fees may be quite high – so spending several meetings on a prospect who balks at that amount is 'expensive', yet presenting that same fee too early may cause clients to balk because they don't see the fee in context.

In our 145th episode of Kitces and Carl, Michael Kitces and client communication expert Carl Richards discuss how advisors can navigate the lines of presenting fees early in the process to ensure that prospects can afford their plan while still explaining their value and unique planning strategy to engage prospects who fit their specific target client persona.

As a starting point, providing a fee minimum on their website lets advisors communicate the lowest amount that would still be economically viable for them (and explaining that the fee may change based on complexity). This lets advisors give prospects a contextual starting point, which can minimize the risk of 'sticker shock' when a fee is presented and ensures that the prospect can (likely) at least afford the advisor's minimum fee.

Another key to sell life planning effectively is to target prospects who are more likely to seek this type of comprehensive planning in the first place. Advisors can help prospects who may not even recognize life planning as a solution to their financial problem by framing its value in terms of the 'emotional job' being done – for example, advisors might describe how they help dentists plan for retirement by encouraging them to find purpose beyond their practice and helping them to "unchain themselves from their chair".

Ultimately, the key point is that while engaging prospects with more holistic financial advice strategies – and their potentially higher fees – can pose a challenge, there are several steps that can provide context for potential clients and communicate the problems being solved. At the same time, advisors may find ways to narrow their niche further to make it even more likely that the clients who engage with them in the first place are the ones who seek the specific financial advice they offer!

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Over the past few decades, financial advisors have explored new ways to structure, build, and grow successful businesses alongside a growing acceptance that "successful business" can be defined in many different ways. Nevertheless, while firm owners have a variety of options available for structuring and building their businesses, the reality is that they can only prioritize a limited number of goals at one time, which then begs the question – how can firm owners navigate the options of work/life balance, margins, and firm growth to set and build their businesses to fit their goals?

In our 144th episode of Kitces & Carl, Michael Kitces and client communication expert Carl Richards discuss how advisors can navigate the "calculus" between growth, time, and margins to define success on their own terms, then build a firm to fit their vision.

While "success" for an advisory firm can mean several different things, certain commonalities continue to crop up as firms develop: namely, that not all types of growth are possible at once. In the quest to develop and individualize their businesses, advisory firm owners eventually reach a crossroads where they must choose amongst the continual fast growth of the firm, high margins, and the amount of time an advisor puts into the business. And while some firms strive to have all 3 of these features, the reality often comes down to "choosing 2" (e.g., an advisor can have high margins and high growth, but it's extremely difficult to do so while also working a low number of hours).

This "choose 2" dynamic lends itself  to 3 kinds of advisory firm owners: enterprise firm owners, who maintain high margins and high growth, but put in longer hours to maintain both of those goals; lifestyle firm owners, who can put in fewer hours with higher margins, but sacrifice high growth to ensure they don't exceed their own capacity; and boutique firm owners, who have high growth and work fewer hours at the cost of lower margins – often because they are more mission- and purpose-driven, and thus may choose business initiatives that are less-focused on 'optimized' business growth.

Ultimately, the key point is that while there are many ways to build an advisory firm, there is no standard definition of 'success', which means that it's up to firm owners to decide which metrics they want to prioritize in order to build the type of firm that matches their personal and professional goals!

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About a decade or so ago, one of the most pressing issues facing the financial advice industry was the threat of an imminent deluge of advisor retirements coupled with a paucity of succession plans to transition clients to the next generation. While that scenario has yet to materialize as initially feared, the fact remains that transitions do occur on a regular basis, often as older advisors either sell their practices in one fell swoop or gradually offload part of their book while still staying engaged with a smaller group of core clients. In reality, the process of transitioning clients from one advisor to another is often challenging, especially when the legacy advisor and the next-gen advisor approach financial planning from different angles.

In our 143rd episode of Kitces and Carl, Michael Kitces and client communication expert Carl Richards explore the ways that next-gen advisors can navigate transitioning clients who may be accustomed to a more quantitative approach to financial planning, the 3 dimensions that the legacy and next-gen advisors should have alignment in order to increase the odds of a smooth transition, and the importance for advisors to ensure that they have some flexibility if not all of the transitioning clients turn out to be good fits.

As a first step towards making a client's transition away from a legacy advisor – particularly when the paired advisors have different communication and/or planning styles – as smooth as possible, the next-gen advisor might seek to replicate the legacy advisor's meeting structure and agenda in order to keep clients on an even keel. In an ideal world, the legacy advisor would participate in that meeting as well, chiming in as needed to reassure that the client is in capable hands. And, as a way to begin building rapport and trust, the next-gen advisor could reserve a few moments at the end of the meeting to introduce some of the foundational questions meant to establish a deeper relationship, including such hits as "Why is money important to you?" or "Is there anything that's top of mind right now that maybe we haven't addressed yet?" From there, the next-gen advicer could wrap up the meeting by reassuring the client that they've been heard and suggesting that whatever their answer was would be a framework for subsequent conversations.

In practice, even before a transition is initiated, advisors should give careful consideration to 3 broader planning dimensions. Specifically, the odds that a transition will be successful are increased when the paired advisors 1) have similar fee structures, 2) are aligned on investment philosophy, and 3) aren't polar opposites in regard to communication style. Even then, not every client will be a good fit, making it important for advisors to factor that possibility into the deal structure. For instance, rather than a fixed up-front payment, advisors could make an initial payment that's 60–70% of the total price, with the final 30–40% contingent on at least 90% of the revenue still being there a couple of years down the road.

Ultimately, the key point is that a next-gen advisor doesn't have to be a carbon copy of the legacy advisor or adapt their styles indefinitely to facilitate a smooth client transition. It does help, though, to keep transitioning clients on familiar ground, at least initially, and then gradually introduce new ways of framing the relationship and initiating meaningful conversations around money. And as an added bonus, the next-gen advisor can even offer the client the opportunity to reset by asking how they'd like the relationship to work. Because, at the end of the day, what matters most is doing work that is most meaningful for the client and that helps them progress toward their long-term goals!

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