AdvicePay Financial Advisor Community Blog

How Often Should I Bill My Clients?

May 18, 2021 By Lana Dalton
Lana Dalton

Here at AdvicePay, we genuinely believe in the fee-for-service planning model and how it can successfully grow and scale your business. More and more, we are seeing that clients want advisors to justify their fees and provide more value than just their investment expertise. If you are already offering Assets Under Management (AUM), the fee-for-service model can be leveraged as an add-on offering in addition to your current AUM model -- not as a replacement. Or, if you are a younger advisor getting started, you can base your firm around providing the fee-for-service model instead of the traditional AUM model. There is an abundance of reasons why the fee-based business model has been immensely successful for advisors -- one being having the ability to determine how often you can debit your client. 

One of the most common questions that comes up from advisors who are looking to add fee-for-service planning to their practice  is, “How often should I be billing my clients?” The freedom to set your own structure to recurring fees is a huge benefit but can also be daunting if you are just getting started with this new method of charging your clients for advising services. We’ve summarized a few tips and tricks to help you get started in choosing your billing cycle and schedule.


Getting Started

After first getting set up with recurring fees, you can run into a few challenges based on how often you charge your client. Having clients pay too often can sometimes make them feel like they are being nickeled and dimed, which could stress the advisor/client relationship. Conversely, if an advisor charges for a fewer amount of payments, the client will end up with a more significant fee, which could be potentially cash-flow disruptive. The frequency of payment will be subject to the type and needs of the client, which is ultimately one of the benefits of fee-based planning. Fee-for-service gives you flexibility and a new world of possibilities to both advisors and clients who may not have otherwise had the opportunity to work together in an advice relationship. 


Most Common Fee Frequencies 

There are three ways you can charge your clients for advising fees -- monthly, quarterly, semi-annual. 

Monthly 

Trends show that a majority of ongoing engagements bill monthly. Most clients are already used to this subscription or “Netflix” billing model, and paying their advice fees directly out of their monthly cash flow provides consistency. Breaking out fees into monthly payments will get your clients to pay affordable fixed fees regularly, similar to any other monthly bill. 

Quarterly 

Having clients pay quarterly makes the most sense if their fees are structured on a quarterly basis. We also see this as a popular choice if clients want to pay directly from their investment accounts. 

Semi-Annual 

Advisors who bill semi-annually are typically shifting away from an annual relationship in an attempt to either meet more regularly with clients to provide support or want to avoid the challenges of billing annually with the custody it may trigger. 


Compliance Tip

Having a client pay on an annual basis can be accompanied with compliance issues. When a client pays a retainer fee or more generally makes any prepayment of an advisory fee, there’s always some risk that the advisory firm could actually go out of business before it fully renders its services, creating a risk of loss for the client (of the unearned fee). As a result, the SEC requires that a registered investment adviser who receives a prepayment 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, in addition to making further disclosures.

 

For example, 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 Are Users of AdvicePay Doing? 

After reviewing transaction data among all AdvicePay users from 2020, we found the following data:

  • 90% of AdvicePay users are billing their clients on a monthly frequency, 9% on quarterly, and .6% on a semi-annual basis. 
  • We found that average monthly fees were $225 and upfront fees came in at around $800. Average quarterly and semi-annual fees were $885 and $1245, respectively. 
  • Additionally, we saw that average one-time invoices were at $1305.

The AdvicePay platform gives your client the capability to pay their monthly fee automatically by either CC or ACH, approve fee changes, and update their billing information all within their portal. 


How to Choose Your Billing Frequency

Figuring out the right billing frequency for your clients can be overwhelming simply because options are abundant, but very few specific recommendations. The perfect fee structure for all clients does not exist -- however, the ideal structure for your particular niche of clients does. Taking the time to select the choices that will meet your clients’ needs and your business goals is imperative to achieve the growth you want to see. 


Ready to see how AdvicePay can help you launch or grow your fee-for-service business?

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Posted by Lana Dalton

Lana is a Happiness Champion (aka Relationship Manager) at AdvicePay and loves helping enterprise users implement and optimize the AdvicePay platform. After graduating from the University of Washington in Seattle, Lana spent the past three years working in the tech industry, helping organizations implement software, create training content, and establish onboarding processes. When she’s not helping our enterprise users, you can find Lana trail running, backcountry skiing, and cooking different types of cuisine.

Topics: Practice Management, Fee-For-Service