AdvicePay Financial Advisor Community Blog

Advisor Practice Management: How to Scale

August 14, 2018 By Alan Moore, MS, CFP®
Alan Moore, MS, CFP®

Scaling advisor practice managementTapping into a new generation of financial advisor client is an ideal way to scale your business. The retainer model, whereby you bill a monthly fee for investor advisory services, answers the call from a younger set of clientele for financial planning that suits their needs. This group of Gen X and Y’ers is looking for professional advice on financial management, but does not necessarily have a broad enough set of liquid assets to feed the Assets Under Management (AUM) model. You might be sitting in a situation where you’d like to cater to both client types — a combination of the younger and the more mature, the asset heavy and the asset free — or can see the potential in using a combination of both models for certain clients. Whatever your unique situation is, you are more than likely figuring out whether you can have your cake and eat it too — or, as the case may be, have a piece of each type of cake and eat them all.

You’ll be pleased to know the answer is that you can do it all. There are numerous permutations when it comes to how you can manage this in your advisor practice. Let’s start by having a look at the benefits and downsides of each model, and conclude with looking at whether combining the two is a possibility for you in your business.

  • Assets Under Management (AUM)

The AUM model has been instrumental in the financial management sector for many decades. The focus in this model, as the name suggests, is on managing your clients’ liquid assets, usually for a percentage of returns. In this model, the fees you charge are easily justifiable. Your client is able to see exactly where your value comes from without you having to spend too much time justifying it. As part of this structure, financial planning is not seen as a separate service that can be charged for on its own. While this model has certainly had its merits, it simply does not mesh with the needs of Gen X and Y clientele who do not typically have a large liquid asset base for you to manage. This younger demographic is looking for financial planning in a way that fits in to the rest of their lifestyle. This is where the retainer model steps in.

  • Retainer fee model for financial planning services

After much research on how best to serve this younger group, the results are in. A monthly fee charged through a digital platform aligns with other services this set of clients engages in — from software to gym memberships. The financial advisor business model for retainers will allow you to charge for financial planning as a standalone entity, rather than it being subsumed into the AUM model. The downside to the retainer fee model is that it is more difficult to negotiate compliance and, unlike the AUM model, it is imperative that you communicate your value. It cannot be assumed.

  • A combination of AUM and the retainer model

The good news is you do not necessarily have to forego the AUM model if you are looking to scale your business. In fact, a combination of the two models can turn out to be highly lucrative for you. To find out how best to configure this in your business, ask yourself whether your Gen X and Y clients currently have a liquid asset base, or if they are likely to acquire one in the future. If the answer is yes to either of these questions, it makes sense for you to charge your clients separately for AUM and planning. You may then want to outsource the AUM side of things and focus on the advisory side of your practice. Whichever route you decide to go, combining both models will increase your income per client. A real advantage is that you will be able to develop long-term relationships with your clients where you are their go-to person for all their financial advisory needs.


Posted by Alan Moore, MS, CFP®

When life hands you limes, make margaritas. Alan’s entrepreneur journey began in 2012 after he was fired from his job as a financial planner and decided to start his own business. With his undergrad and M.S. in Family Financial Planning, Alan quickly put his business-building smarts and experience to work in helping other advisors start, run, and grow their own financial planning firms to serve NexGen clients. In 2016, he launched AdvicePay with partner Michael Kitces to operationalize the fee-for-service business model with technology that makes sense for the specific needs of financial planners. When he’s not starting companies, Alan lives openly as a self-proclaimed CrossFit junkie and dedicated snowboarder, a skill he is already passing along to his four-year-old son.

Topics: Retainer Model