Financial advisors looking to increase their firm's productivity may often start by choosing either to hire more employees as a way to delegate their workload, or to implement new technology solutions to increase the efficiency of their work processes. While the expectation is often that investing in these solutions will enhance efficiency, advisor capacity, and margins without proportionally increasing costs, the reality is that they typically have a modest impact on profitability (with no more than an estimated 10% margin of improvement). This suggests that technology alone may not be the panacea for scalability and profitability many advisors hope for. Yet, a more direct and potentially immediate revenue-boosting solution is for advisors to adjust their firm's fee structure, aligning their fees with the true value of their services – which often results in significantly higher profitably!
In our 126th episode of Kitces & Carl, Michael Kitces and client communication expert Carl Richards discuss how raising one's advisory fees may perhaps be the most efficient strategy for growth and scaling, and how advisors can justify and execute a fee increase for their own services.
As a starting point, the positive math of raising advisory fees is relatively straightforward, primarily because it avoids the same resource-intensive investment and ongoing costs that accompany other growth strategies, such as implementing new technology solutions or hiring additional staff. However, while the work of raising fees may be as 'simple' as sending an explanatory email to announce fee increases to clients, there are often psychological barriers that prevent some advisors from charging appropriately for their services. For example, many advisors may hesitate to raise fees for long-time clients who have been with them since the beginning – the ones who took a gamble on a fledgling practice and practitioner. Others may face deep-seated beliefs that clients will react badly to increased fees, and some advisors may even struggle with asserting their own value proposition.
Nonetheless, clients are willing to pay for perceived value – especially when that value goes beyond the technical aspects of financial planning (including personalized attention such as goal clarification, behavioral coaching, and empathetic listening). Which means that when advisors find themselves ready to take their next steps to growth, hiring more people or implementing new technology are not the only solutions to consider. Instead, raising fees to accurately reflect the true value of an advisor's services might be the best solution to help advisors realize their growth goals.
Ultimately, though, the key point is that whatever fee structure an advisor may choose, it is important not to underestimate one's own growth and value. By reflecting on their value, recognizing and acknowledging the complex narratives that might have limited their past pricing strategies, and embracing the worth of their services, advisors may develop a new perspective on raising fees as a growth strategy – recognizing that this approach not only serves to increase growth, but also ensures the firm's success and sustainability, serving as a win-win situation for both advisors and clients!
