The average advisor is generating more revenue per client than ever — but this momentum may
not stem from pricing discipline. For the
average firm, the increase in revenue
stems from market lift, increases in asset
flows and growth in wealthier clients.
The 2018 InvestmentNews Study of
Pricing & Profitability, sponsored by
BNY Mellon Pershing, revealed that
28% of the respondents redefined their
fee brackets based on assets under
management. More than half of those
making some price adjustment actually
raised their fees. This was true among
the top-performing firms as well as the
average participant in the study.
Seventy-two percent of those surveyed made no change at all to their fee
schedule. Basis points on assets under
management have declined slightly,
while the dollar revenue per client has
increased. What we have found, is that
as client size increases, firms hit natural
break points in the schedule. The result
is that clients’ total fees will increase
while basis points decrease.
Interestingly, 10% of the firms who
responded actually lowered their fees
( 13.7% of the top-performing firms). Did
they reduce fees because of client push-back or because they anticipate a need
to discount based on market pressures?
An advisor’s pricing strategy reveals
his or her perception of the firm’s value
in the marketplace. With most advisors raising fees or holding steady, what
made those few firms feel the need to
reduce prices? Some advisors say they
have started to cut their fees because
they keep reading about fee compression and they are concerned about being
at odds with the world around them.
Those who preserved or raised their
fees in the past year are demonstrat-
ing confidence in their proposition.
They have a strong connection with
their community of clients and pros-
pects. They have made it easy to do
business with them, and have helped
clients achieve success in pursuit of
Furthermore, advisors who enriched
their offering to be more relevant to their
optimal client are able to demonstrate
value where automated portfolio management platforms and discount brokers
cannot. For example, some have added
reporting that includes non-investment
related goals. Some have developed a
unique process around philanthropy or
managing multi-generational wealth.
Others have added tax planning or
bill paying to their offering, and many
have become involved in negotiating
banking needs on behalf of their clients
such as mortgages, lines of credit and
A CLEAR STRATEGY
Advisory firms who rely on investment
performance as their primary differentiator suffer when clients compare their
annual returns to the general market
indices. Pricing must have a clear strategy. If you are reducing your fees, you
may be negotiating against yourself:
1. Are you extrapolating from isolated
conversations with a few clients
who demand a fee reduction —
before validating how your overall
client base perceives you?
2. Are you trying to be the price
(discount) leader in order to grab
3. Do you believe that you are not
worthy of what you are paid relative to what you are delivering?
Are You Negotiating Against Yourself?
Advisors must demonstrate value to command a fair price.
FORMULAS FOR SUCCESS
By Mark Tibergien
We found that as
client size increases,
firms hit natural
break points in the
schedule. The result is
that clients’ total fees
will increase while
basis points decrease.