"Setting Fees for Service: An Argument for A La Carte Pricing" By David Lawrence One nagging question that keeps arising is whether or not the services provided by financial advisors are profitable given the amount of time, effort and resources expended to provide them. Despite how often this question comes up, the answer is frequently unknown. This may be because practitioners simply haven't taken the time to add up all the costs associated with various tasks performed on behalf of the client. As an example, a recent discussion with a financial advisor revealed that his firm was charging an average of $750 for a standard financial plan. Yet, a subsequent audit of the workflow processes required to produce the plan determined that it took the firm (consisting of the financial advisor and a Para-Planner) about 20 hours to complete the plan. Given a $150/hour rate normally charged by the advisor (according to him), the hourly cost to produce the financial plan was around $3,000, not $750.  Given staff time, printing costs, paper and binding expense, the actual cost to the firm could be even higher. The argument for continuing to charge the $750 was that they would make up the difference in the asset management fees. This may be true, but the larger question is; what is the overall impact to the firm for such sloppy workflow tracking? And, what is the message that is being sent to the client?   Many firms have begun to consider breaking apart their fee structures in an effort to get a better handle on profitability and to eliminate so-called 'loss-leader' services. The reason to create an a la carte menu of services is to create a stable cash flow for the practice and to better justify what is being charged to the client.  Let's say you have a fee-based financial advisory practice where you charge 1% asset management fees and you offer financial planning as a part of overall services that do not incur a separate fee. The advantage of this system, it might be argued,  is it is easier to do the accounting and simpler for the client to understand. The disadvantage is that, in a down market year when assets under management (AUM) might decrease; your fees would go down as well. And, it may be telling your clients that the advice isn't worth much. Additionally, many advisors question the wisdom of this practice as it suggests their services are worth less in a down market year.   The alternative is a la carte pricing or breaking out the advice fees and potentially decreasing the AUM fees. The calculated amount of revenue from a client might be the same, but in a down market year, the advice fees (if flat rate or fixed) could help stabilize an otherwise declining revenue base. And, the message being sent to clients is that the advice is worth as much or more when the going gets rough. You may also find your practice being more competitive in the AUM fees (if they are lowered) as compared to other practices in your community.   David Lawrence is a practice efficiency consultant and is President of David Lawrence and Associates, a practice consulting firm based in Lutz, Florida. (www.efficientpractice.com) David Lawrence and Associates is an approved sponsor of CFP Board of Standards continuing education credits and offers CE programs on a variety of topics, including the financial planning process.   **** Since our inception we have helped over 400 financial consultants make the move to independence. "I cannot express to you the joy and the increase in quality of life that I have found since leaving the wirehouse world." Shane Merritt, Branch Manager Merritt Capital Management Here Are A Few of the Benefits of "Going Independent": Payouts on all your business, including fee based accounts of 90% plus. The opportunity to build substantial equity in your business and sell it at an attractive multiple when you desire. The opportunity for you, not someone at the home office, to control your bottom line and the profitability of your practice. The opportunity to build related businesses such as insurance, qualified plans, or trust companies, and keep those revenues. The opportunity to eliminate your clients' perceptions of conflicts of interest with research departments and corporate finance groups - TRUE OBJECTIVITY. The opportunity to charge and keep substantial fee income for planning, analysis and other services to your clients. The availability of technology that is as good or better than anything you have now. The list goes on... This Month's Registered Representative Opportunity: At this Broker-Dealer, they really want to do what it takes to help their customers be successful, and that helps define who they are. They pride themselves on being able to present a variety of alternatives as solutions to their customers needs. They have a great degree of variety in thier operations consisting of a staff of special people with specialized talents. They have everything from options, to fixed income, to advisory, managed accounts, and fee based programs. They have experience at all levels in all areas, trading, marketing compliance and back office functions. Their clearing is through National Financial Services (Fidelity), having had a long and successful relationship to help make them one of their top broker/dealers. They offer a full service platform to meet a broad array investment needs, capable of handling all types of accounts (individual, business, or institutional). They also have an enviable compliance record since their inception; strong balance sheet that allows them to internally finance their growth and their up to date technology allows them to bring the solutions and support to your desktop. They have a good payout ratio; good breadth and the decision tree on final decisions is short.   If you know someone who might be interested in the above opportunity or who might be ready to go Independent, please have them contact Jason Burke directly at 727-725-8876.

Here's some additional information from Turning Point, Inc...

www.BrokerBestPractices.com
www.BankBrokerBestPractices.com
www.IndependentRepBestPractices.com (*Sept 2005 REPORT AVAILABLE!)
www.FABestPractices.com (Financial Advisors)
www.InsuranceAgentBestPractices.com

By clicking on any of these links, you will be taken to a webpage where you can Preview these reports, take a short survey, and then print the entire report when you're done. It's that easy.

TURNING POINT PARTNERS:
Are you getting the most out of your business?  Are you operating at peak efficiency?  How about your marketing, your compliance,  or your HR?  We have some friends who can help you out.  Just visit our Partners section in our website for links to a variety of services that are helpful to building your business!

Quote of the day: