For most financial advisory firm owners, ensuring that their business or practice is remunerative and that it can remain viable is often a key priority. And while there are many factors that help owners determine whether their firm is making enough money to profitably sustain itself, one common variable that can help them adjust their net revenue is the fee they charge to clients for financial planning services. By adjusting their clients’ minimum fees, advisors have a way to ensure they are being fairly compensated for the time they spend with each client, and that the revenue generated collectively by all clients will be enough to cover overhead, employee salaries, and other costs to run and grow the firm. However, as every firm’s structure, priorities, and growth goals are different, determining the appropriate minimum fees for clients can be challenging.
In our 115th episode of Kitces & Carl, Michael Kitces and client communication expert Carl Richards discuss how advisory firm owners can determine appropriate fees for clients by taking a close look at their current business metrics, their desired business metrics, and their desired lifestyle as an advisor.
Balancing the amount of personal income that advisory firm owners want to earn with how many clients they want to serve can help them decide how to adjust their fees to maintain a satisfying and sustainable business model. As while serving more clients can mean more compensation, setting realistic boundaries can keep solo advisors (who want to stay solo advisors) from exceeding their limits and relying on support staff (which can compromise profit margins) to ensure that all clients receive exceptional service. Once advisors determine their desired income and client-base size, the minimum fee can be calculated by dividing the target revenue that would cover all business expenses (including the advisor’s desired income) by with the number of desired clients.
For advisory firm owners who want to grow their business, deciding how to scale their operations is important to assess how they will need to adjust their minimum fees to accommodate growing costs and expanding services while also growing profit margins for further growth. As while a growing practice will have evolving objectives, its advisory firm priorities will need to be reassessed periodically to ensure a sustainable revenue model for the changing needs of the firm. And having a clear strategy to decide how client fees can be adjusted to provide sufficient revenue can facilitate the growth process more seamlessly.
Ultimately, the key point is that having a systematic approach to determine minimum fees per client will help firm owners ensure they target an appropriate revenue level to earn a fair and satisfying income, maintain the health of their practice or business, and support a healthy work-life balance. Most importantly, finding the appropriate minimum fee per client can help the advisor create a sustainable business and increase the chances of the business lasting for the foreseeable future – helping even more clients in the long run!
