Implementing fee increases can be a considerable challenge for financial advisors. However, since the cost of doing business rises every year, it is important that you also get your clients in the habit of paying an additional percentage each year. Plus, it is a lot easier on your clients to accept an annual increase of 3%, rather than a 15% increase five years down the road.
So, how do you successfully implement a fee increase that is both profitable to you AND attractive to your clients? We sat down with Guy M. Cumbie, President of Cumbie Advisory Services, Inc. (CASI), to discuss how his firm has successfully implemented fee increases.
Guy M. Cumbie,CFP®, CIMA®, RLP®
Q: What benefits have you seen from implementing fee increases?
Guy: From a very broad economic perspective, financial planning fee increases through time, structured properly, enable service providers to maintain the nominal compensation stated in their original fee quote in real, inflation adjusted terms. Additionally, properly designed, scheduled, and communicated fee increases allow providers to receive merit compensation for continually upping their game in terms of professional competence (talent) and organizational capabilities (systems & tools) to deliver value for clients. Our client’s very much appreciate our continuing to deliver, and at a higher level over time, on both of those fronts.
Our financial planning engagement agreement is written, and evergreen, or “on-going” in nature. Because it may be terminated without penalty at any time by either party, a client lacking adequate value perception is always free to walk.
Our current financial planning service offer and fee arrangement entails the use of an annual fee, quoted in advance, both verbally, and in writing. The quote includes both the initial annual fee amount, and the deal terms describing how the fee is charged and how it is scheduled to change through time.
The annual fee is charged monthly in twelve equal amounts payable by clients through our AdvicePay portal.
On January 1st of the year following the client’s first full calendar year of engagement with us under these terms, the fee becomes subject to a cost-of-living type adjustment (up or down, per the prior year’s CPI), and, a flat 1% merit increase.
We believe an additional and very substantive benefit to clients from this type of fee arrangement is the absence of negative surprises that accompany occasional sporadic fee increases that are “catch-up” in nature and therefore can appear quite large and unsettling when they do happen. Our mode is clear and minimizes surprises. Stated differently, our fees are fairly readily plannable/budget-able.
Q: What do your clients think about fee increases?
Guy: While most anyone would, in what economists refer to as the ceterus parabus, or “all other things being equal “ case, prefer to, and in fact be happy to forego fee increases altogether, and indefinitely into the future, most people realize that all other things are not only not equal, but that they are not ever likely to be.
Inflation increases — Our clients are aware of the fact that 2% per annum inflation (i.e., 2% per year debasement of the USD) is federal government policy in the United States, and that over time, the government has been very (actually, more than) effective at implementing that policy.
Merit increases – Our clients expect the best from us. And they know that that entails our continuing to sharpen the saw of our professional prowess and getting continually better and better at what we do for them.
Q: How do you communicate fee increases to your clients?
Guy: Upfront, in writing, and specifically agreed to and signed off on in the Scope of Engagement and Fee Disclosure portion of our engagement agreement. And, we always welcome queries about any aspect of our service and/or its pricing as we have learned over many years in practice that the more our clients understand about what we do, and why and how we do it, the more they appreciate it!CASI is a Fort Worth, Texas based, boutique professional services firm founded in 1988. The CASI team is dedicated to providing high touch, "real" personal financial planning, investment management consulting, and Heritage Design services in a manner tailored to fit discerning individual clients and their families' situations and preferences.
How AdvicePay Helps Implement Fee Increases
AdvicePay has made it super simple for you to automatically escalate your fees on an annual basis. Set it up one time, and we take care of the rest. Your clients will automatically be notified before their next increase and can approve this on their end before it takes affect.
Want to learn more about our auto fee escalation feature?
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Posted by Honor Randall
Honor is excited to help AdvicePay users make the most out of our platform to help expand their businesses. Having worked in the financial industry for five years, Honor has considerable experience assisting financial advisors as a paraplanner. When she’s not helping enterprises implement AdvicePay into their business, you can find Honor running, cooking, and exploring National Parks with her husband.