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Being a Professional Outlier


I’m kind of an outlier in my industry.  Again, this industry is the massive financial services industry that does its best to confuse people, at least in my opinion.  The biggest way I am an outlier is in how I charge.  I’ve beaten this drum before and will continue to hammer away on it.  Why?Well, because to me an advisor should charge based on services provided and not the size of a client’s accounts.

In my world, the industry likes to measure success in a variety of ways.  The most common is by how many Assets Under Management (AUM) a firm controls.  This is key for advisors who charge a fee based on AUM.  If an advisor charges 1% and has $100 million of AUM, well, their clients pay them $1 million a year in fees.  Another measurement looks at how much average revenue per client.  Wirehouses and insurance-based firms often call their measurements “production,” whether it is per client or per advisor. 

You may notice something.Nowhere is there mention of success by the services provided to the client.  Nope.  It is all based on how much in fees can be extracted from those clients trusting their advisors to do the right thing.  Is it such a radical idea to charge a reasonable fee based on services provided?

Behind the scenes in my world there are shifts happening as a result of outliers like me.  Advisors who charge fees based on AUM are being asked to justify their fees more frequently.  Lots of advisors are coming up with “alternative” fee structures.  One version is a combo approach where clients pay a flat fee for a financial plan and then charge a percentage fee for assets managed.  This seems backwards to me, but what do I know.  Another approach is for advisors to say they are “flat fee,” however, their “flat fee” varies based on a client’s asset levels or income.  So, basically the same as an AUM advisor where a client who can afford to pay more is charged more. 

Most advisors are spending their time and energy on ways to continue to justify their fees.  Basically, continue to enjoy their healthy revenue margins, which can easily be 70% for some firms.  Unfortunately, these actions make me wonder how long before my industry is considered a professional one instead of a sales-driven industry. 

Don’t get me wrong.If a client wants to pay 1% a year on their $3 million portfolio for the identical level of service as the client paying 1% on a $500,000 portfolio is paying, that is their choice.  Personally, my mother would have kicked my butt if I charged one client $30,000 for the same service another client is paying $5,000 for, but maybe I was raised differently.  I would rather charge based on services instead of a “take what they can afford” philosophy. 

Maybe I’m completely off base with my flat fee approach, but considering I have a waiting list and clients across the country, I may be on to something.  Or, maybe I could follow along with the rest of the financial services world and charge based on what clients can afford.  Of course, the only people I know who charge based on what you can afford is the IRS.  Or, as Arsenio Hall used to say – “things that make you go hmmmm.”