AdvicePay Financial Advisor Community Blog

How often should I bill my clients?

October 08, 2018 By Lucy Robeson, CFP®
Lucy Robeson, CFP®

At AdvicePay, we are asked this question often, and it’s an important one to consider. Charging a fee “too frequently” can make clients feel nickel-and-dimed, and may stress the relationship if the client feels they’re being charged more often than they’re talking with or receiving services from their financial planner. On the other hand, charging “too infrequently” will make each fee larger when it does occur, potentially causing sticker shock and more disruptive cash flow for your clients.

What's the Most Common Fee Frequency?

There are four common fee frequencies, each with different pros and cons, depending on your business and the clients you serve.

MONTHLY

Monthly billing is akin to the Netflix model. It is most common for clients paying fees directly out of cash flow, which is also typically managed on a monthly basis, making it familiar and streamlined. Many advisors describe this approach to their clients as “an annual fee paid monthly.”

The pros: Clients get into the habit of paying an affordable fixed fee and working with their advisor on a regular basis, building trust and making financial progress over time. Then, when an unexpected financial decision arises, the client can reach out to their financial planner without the added stress of finding one to begin with or considering the potentially disruptive costs of a large one-time fee.

QUARTERLY

Quarterly billing makes sense when services are structured on a quarterly basis. It is also a popular option when clients plan to pay fees directly from investment accounts.

The pros: Investment accounts are often billed quarterly, as opposed to monthly, in order to reduce trade frequency and minimize idle cash. For these reasons, quarterly billing has been very popular under the Assets Under Management (AUM) model.

SEMI-ANNUALLY

Semi-annual billing has been a fallback for advisors shifting away from an annual relationship, either in an attempt to meet more regularly with clients to provide more ongoing value or simply to avoid the challenges of annual billing and the custody it may trigger.

The pros: A semi-annual fee will, by definition, never be assessed more than six months in advance, avoiding the custody issue altogether. See the TOP COMPLIANCE TIP below for more information.

ANNUALLY

Annual billing is often an appealing way to wrap together a comprehensive set of annual services. However, in practice, annual fees are often problematic.

The cons: The sheer size of a fee paid all at once may incur sticker shock, or an outright cash flow squeeze, for some clients. (If you’ve ever been hit with a large annual or one-time bill, you know how this can feel!)


TOP COMPLIANCE TIP

Advisors who receive a pre-payment of more than $1,200 in fees more than six months in advance must provide an audited balance sheet of the business, along with Part 2 of Form ADV, and make further disclosures under Item 18 of their ADV. Note that both conditions must be satisfied - $1,200 and six months. If you charge $10,000 per quarter, then this rule would not apply. However, collecting $2,000 at the beginning of the year for all services to be rendered throughout the course of the year would trigger the additional reporting requirements.


What AdvicePay Users Are Doing

As a dedicated billing and payment solution for financial advisors, we’re able to see what’s really happening in the industry and notice common trends.

Among the billing options listed, monthly and quarterly billing are what we see most often. In fact, about 80% of AdvicePay users bill monthly and 20% quarterly.

Across AdvicePay users, the average monthly fee is $200 and the average quarterly fee is $1,000. When an upfront fee is included, it’s typically between $750 and $1,000.

AdvicePay has the flexibility to handle one-time fees and recurring payments on a monthly, quarterly, or semi-annual basis. It is the compliant, secure, and efficient payment processor needed for whichever frequency you choose.

 Which Billing Frequency is Right for Me?

How you handle billing is an important part of relationship management with your clients. In determining which is right for you and your clients, here are some questions to ask yourself:

  • What’s my unique value proposition for the clients I work with? 
  • Given the assets and annual income for my ideal client, which frequency makes the most sense?
  • Which option will my clients see as easiest to manage?
  • Given the services I offer and how often I reach out to my clients, which fee frequency is the best fit?
  • From a business perspective, which fee frequency can I best support operationally?

Getting into the optimal billing routine for you and your clients is crucial to setting up your business for long-term success. Take the time to make reflective choices that serve your clients and your business goals, and then establish the tools and practices you need to support the growth you want to see.


Find Out if AdvicePay is Right for You

Attend a free online demo of the platform when it works for you. Register now > 

Posted by Lucy Robeson, CFP®

Lucy is excited to help AdvicePay users make the most of our platform to help expand their businesses. She is a CERTIFIED FINANCIAL PLANNER™ professional and has extensive experience in comprehensive financial planning, directing firm operations, and (unrelated) swimming with bull sharks while living in Fiji. Lucy is passionate about promoting the fee-for-service business model and helping financial planners understand how and why to adopt it into their businesses. When she’s not working, you can find Lucy on the tennis court, hiking in the mountains, and cheering on the Virginia Tech Hokies.

Topics: Practice Management