How to Choose From the Six Ways to Price Your Services
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How your firm prices its services is about more than just boosting profit margins. The right fee structure is vital to client satisfaction and your long-term success.
Fees have always been a hot topic in this industry.
However, with trading commissions getting slashed to zero, the rise of passive managers and price pressures across the board, many advisors are rethinking the way they price their services.
Even if your firm’s current fee structure seems ideal, it’s good to know your options.
The six most common ways financial advisors price their services
Let’s begin with an overview of six commonly used fee structures. Chances are one of these will look familiar.
1. Assets under management
Assets under management (AUM) has always been popular for its scalability and the way it compensates firms for increasing account values.
That said, when the market falls, firms that utilize AUM need to work harder (more case work, more client interactions) even though they’re making less. The model also doesn’t lend itself well to complex clients with less assets to manage, like business owners. Finally, AUM presents a potential conflict of interest because advisors are dis-incented from certain recommendations, such as purchasing annuities or paying down a mortgage.