12 MIN READ
As a coach for financial planners, I see firsthand just how incredible the people who make up this profession are. Financial planners have so many strengths. They add value to the lives of their clients, they’re able to make an impact for generations to come, they build one another up, and they often fearlessly brave the world of entrepreneurship—all in the name of providing exceptional financial advice to people who truly benefit from it.
But do you know what financial planners aren’t so great at? Knowing their own worth and charging accordingly. Time and again, the XY Planning Network Benchmarking Study (performed annually) shows that advisors are notably undercharging in their first few years, and that their total per-client revenue or billable hourly rate isn’t growing in a way that reflects the experience they’ve gained, or the value they’re providing to their clients. Then, advisors often get “stuck” in the cycle of charging too little and continually earning less as their expenses grow.
I love the work planners do, and I want to see every single one of them be a huge success and reach all of their goals. That’s why I think it’s important to note there are so many different ways for a financial planner to start earning more money.
Simply charging more at the onset of your RIA firm isn’t the be-all-end-all answer (although, it would definitely help you get on the right track to earnings success earlier!). So, if you want to earn more than you currently do, or you’re worried that as your practice grows your take-home profit margins won’t grow at a comparable rate, you have a few options.
Raise Your Rates
Let’s be real—this option is hard. Nobody likes to raise rates on clients they love, and clients don’t love being told they need to pay more money each month for the services they’re receiving. That being said, I want you to remember one thing if you’re considering a rate hike:
Rate changes are routine. They’re not that big of a deal. This is the way the world works.
I think once financial planners, or any business owners for that matter, accept the fact that as demand for their services increases their rates will also increase, they feel a whole lot better about navigating a rate increase.
If you’re worried raising your rates will ultimately drive a few clients away from you, rid yourself of that worry right now. As your practice grows, your clients are likely growing their wealth. They have a larger savings than they did when they first started working with you, their incomes are increasing, and you have more work to do when it comes to creating their financial plan or managing their assets. A rate increase is a natural progression in these situations.
However, there will be some cases when a rate increase will cause some clients to leave you. And that’s okay. Sometimes, as you grow, not all clients continue to be an ideal fit. Maybe they’re unable to pay your higher rate because they just don’t fall within the same niche you’re serving anymore. Maybe paying a planner on an ongoing basis isn’t in their budget at this new price point, or maybe they fail to see the value you’re providing as being “on par” with your new rate.
Whatever the reason they choose to part ways with you, it’s likely for the best. It’s often painful to part with clients, especially when we enjoy working with them, but you have to realize that their decision to not move forward with your services isn’t necessarily about you.
Still, there are a few ways you can have the rate increase conversation that significantly decreases the likelihood that clients will discontinue your services:
Focus on Value
This isn’t a one-and-done conversation. Human beings are sensitive when it comes to their money, and they want to know that they’re paying you to add value to their lives and (hopefully) help them accomplish their financial goals. As a financial planner, it’s your job to routinely remind clients of the value you bring to the table.
This can be done in so many ways, but here are a few of my favorite examples:
- Reminders. Do a “progress check” regularly that tracks how your clients are moving toward their goals, and how you’ve helped facilitate that movement.
- Be a cheerleader. Celebrate their “wins” regularly and encourage them to keep making positive decisions around their money. People are more likely to see your value if you continually remind them how much you support and believe in them.
- Don’t hide your wins. Did you just complete your continuing education requirement for the year? Did you attend a conference where you gained valuable insight into the psychological behaviors people have about money? Are you adding a new service (like tax preparation) for your clients? Shout it from the rooftops! Write a blog post wrapping up what you learned at a conference, send a client-only email with market updates or information from recent courses you’ve taken, and take to social media to tout your wins. When you showcase the growth, experience, and expertise you’re gaining, clients are more likely to associate these successes with an increase in value.
- Amp up the service. Rate increases for the sake of rate increases aren’t anybody’s favorite thing. Instead, figure out a way to showcase how this increase in your rates will directly correlate to a positive impact on the lives of your clients. This doesn’t necessarily mean you’re revamping your service offering. Maybe it means you’re hiring an associate planner to help bring additional insight to the table, or an admin to make their information-sharing and appointment-scheduling infinitely smoother. It could also mean you gain the cash flow you need to attend more seminars, or continue your education and provide higher-quality financial planning. Whatever the impact of your rate increase may be, be sure to share it with your clients.
Increase Rates Routinely
Do you know the easiest way to minimize pushback on a rate increase? Make it part of your routine. Whether you choose to increase rates on a yearly or every-other-year basis, pick a schedule and stick to it. There’s no reason to make a big hoopla about it because everyone should see it coming. You can even build it into your annual review with clients so that they know it’s coming.
One added benefit of making rate increases routine is that you’re able to increase your rates by nominal amounts. Telling your clients you’re increasing their rates from $300/month to $315/month is much less of a big deal than telling them you need to double their rate to meet your new minimums after failing to raise your rates for five years.
In fact, most clients will see these nominal rate increases coming, and the small extra amount they’re paying each month is easily weighed against the value you provide them.
Don’t present rate increases as a bad thing to clients. Instead, focus on what this new, increased rate will bring them in terms of value. When you communicate your rate increase at your annual meeting (or next scheduled meeting), continually zero in on the positive side of this fee hike.
Have Something in Writing
When you communicate a rate increase to clients, they may be focused entirely on the fact that at the end of the day, you now cost them more. That’s a lot for someone to wrap their head around, so make sure you give them a few different ways to process the information.
You can tell them about it at your meeting, provide a screenshare reflecting how the rate increase will impact their current budget, and follow-up with a formal packet or new contract reflecting the increase in your rates.
This gives them plenty of opportunities to understand exactly what your new rate means for them.
Address Their Concerns
I’ve said this already, but it’s worth repeating: money is a sensitive subject. People don’t like feeling as though they’re being taken advantage of and, unfortunately, the financial services industry as a whole has plenty of “bad guys” out there who do just that.
You are not them.
You are one of the “good guys.”
So, communicate your rate increase accordingly. Ask your clients if they have any questions. Be receptive to the fact that they might be worried about how this increase impacts them. Don’t take it personally if they choose to discontinue services.
They might still love the work you’ve done for them, but they might also have a “maximum” they’re willing to shell out for that work, and that’s okay. Everyone is different. All this means is you’re making room to find clients who don’t view your rates as out of line with the value you provide, or as “too much” to pay for your hard work.
Track Your Profit Margins
Sometimes tracking your profit margins is one of the best ways to understand how much, exactly, your financial planning practice is earning. Michael Kitces talks about profit margins relatively often, and one thing he’s said time and again is that you should divide your calculation into three categories:
- Revenue generating expenses
- Operating expenses
These categories should closely align with three
- Revenue generating expenses (35%)
- Operating expenses (35%)
- Profit (30%)
These numbers are going to ebb and flow as your business grows. For example, you may have a huge profit margin when you’re at full-capacity as a solopreneur. When you hire someone to help alleviate some of the pressure and free up capacity for growth, your margin is going to be notably tighter as you continue to fill out your new available capacity. Don’t panic if you’re not exactly in step with this profit margin goal but do be mindful of what you need to do to get there.
As a financial planner, you know the solution for a client to have more cash flow isn’t always for them to make more. Sometimes the answer lies in trimming the fat out of their expenses—you should be doing the same.
To reach your ideal profit percentage for your financial planning practice, you can either hustle to find and sign more clients (who are willing to pay rates that are in line with your value), and/or you can figure out how to cut back on operating expenses or reduce your revenue-generating expenses.
Look at Averages
What are the average fees you charge per client, or per household? In most cases, advisors have a fairly set fee range that the vast majority of their clients fall into. This is especially true if they’re pursuing a niche that consistently has the same planning requirements (and therefore are charged similar fees). While we look at your average fee per client, it’s important to ask yourself a few questions:
- Is this fee sustainable if I want to grow? Will it be enough if I need to hire support staff?
- Is this fee in line with the value I provide? Is it too high/too low? (Answer: it’s almost always too low.)
- What would this fee need to increase to for me to have a healthy profit margin, or to be able to make the money I want to make?
Of course, raising your average fee per client is a quick way to start earning more, but it’s also high-risk. If you raise fees dramatically on the majority of your clients, you’re more likely to lose a chunk of them, which could dramatically impact your business’s bottom line.
Typically, if you need to raise your “average” fee per client, you should look at raising rates on existing clients slowly over time and seeking out higher paying clients who fit your ideal client persona.
It can also be helpful to look beyond your averages. In other words, who are your outliers? Who is paying you significantly more or less than your average client?
You may be surprised to find that you already have a few well-paying clients who require only slightly more or the same amount of work as your “average” client. If this is the case, ask yourself why they’re willing to pay more? Have you raised rates on new clients recently? Did you do a better job of presenting your value when you met them as a prospect?
Try to replicate those types of clients as you look to grow.
You probably also have a few clients who are underpaying you by a large margin. This might be happening for a few different reasons:
- They’re not your ideal client.
- They’re paying what’s fair for them.
- You undercharged them.
None of these situations is irreparable. If this set of low-paying clients is paying you too little because you undercharged them, that’s okay. You live and you learn. You have a choice now to increase their rates to bring them up to your new minimums, or you can choose to slowly increase with them over time.
However, if these clients are underpaying you because they’re no longer in your target market, or they’re paying these fees because they’re in line with the services you’re providing them, it might be time to go your separate ways.
It’s never easy to let a client go, but if you have a referral ready who can serve them even better than you can, you’ll find some relief in knowing that you’re not working for too little (and they’re not paying beyond their means).
Finally, you have every right to keep low-paying clients if you want to. There are plenty of advisors out there who allow a percentage of their client “seats” to stay open for cases they’re really passionate about or pro-bono work.
This might mean that even though you work with high-income tech executives, you have a deep desire to help low- to moderate-income families who work for a local nonprofit, so you make sure you’re providing services to a few of them annually.
As long as this fits your business model and the numbers make sense, I say go for it! Just make sure you’re not always putting being one of the good guys over earning what you need to earn in order to reach your personal and professional goals.
Another way to start earning more is to break through the ceiling you’ve set for yourself. If you feel you’re at capacity, or you’re about to start sacrificing your personal happiness to work more and build the company, it might be time to create capacity for yourself. Most of the time this looks like hiring some help. You might think the only solution is to hire another full-time financial planner who can act as a secondary rainmaker and help you grow your practice.
This is not the case.
In fact, for most solopreneurs, your first hire should be way less of a financial and emotional commitment. For example, hiring a contractor or part-time employee can significantly free up your time to service new clients while still helping your business grow in a seamless way.
A few roles you might look to fill are:
- A paraplanner to help with some of the heavier planning work
- An assistant to take some of the admin tasks off of your plate
- A marketer to help you hone your message, build content, deliver value, and fill your pipeline in an organic way
- A bookkeeper to save you time (and money!)
This is just a handful of ideas. The question you should be asking yourself when you’re considering whom to hire, or what role to fill, is: What tasks are taking up too much of my time that aren’t generating revenue?
Then, go out there and find the person who can take over those tasks so you can start generating revenue again and earning more.
As you look to grow and earn more, my biggest recommendation is start making intentional decisions about your life and your business. This is often easier said than done, but it’s so worth it.
Narrowing down exactly whom you want to work with, what tasks you’re best equipped to do yourself (and what tasks should be outsourced to support your growth), and what you need to charge to earn what you’re worth are all things that can help you to start making decisions from a healthy mindset.
When we make choices out of desperation, we’re less likely to act in a way that supports long-term growth and success. We’re more likely to hire the virtual assistant who isn’t a great fit, accept three new clients who are all underpaying you to grow your gross revenue in the short term or hike our rates without clearly defining our value to our clients.
Before you make any big decisions about your business’s growth, ask yourself whether or not that decision will move you toward your long-term goals, or the vision you have for your business. If the answer is no, it might be time to find another solution. But if the answer is yes? Go for it!
Another intentional decision you can make to grow your business is sitting down with a coach, accountability partner, or your study group to get clear on your goals and how you need to adjust your fees, the clients you’re marketing to, or the hiring decisions you make to start earning more.
These people all support you and want to see you succeed, and they’ll be able to provide you with an objective opinion, and possibly even offer up some ideas you hadn’t considered.
I’m so excited that you’re on the path to start earning more, and I’m here to help you in any way I can. You deserve this!
About Arlene Moss, Executive Coach
Arlene gets a kick out of helping financial advisors get over being overwhelmed and take on their frustrations so their businesses soar. Arlene works to ensure XYPN members are able to help their clients prosper while creating a sustainable business model. Through XYPN Academy and one-on-one coaching, members get the support they need to grow their businesses and overcome the challenges that come their way.