Revenue vs AUM: Rethinking how to charge your clients

October 24, 2016 by Dan Pappas

A close-up of a man handing his credit card over being charged for a financial plan (rather than AUM).

About the author:

Dan Pappas

Business development representative

As a recent graduate of the Milwaukee School of Engineering, Dan likes to bring his technical background into understanding the FinTech industry. Paired with a desire to help others, he is working to make sure everyone has a chance to succeed in what they are doing.

Many advisors struggle to find prospects and qualify individuals that would be a good fit for the advising they offer. As it turns out, many advisors may be imposing too many restrictions on themselves without even realizing on what they are missing out. Evaluating the income model your firm uses could be the key to increasing your prospects.

Rethinking the AUM model

Advisors often select an AUM model for charging their clients for their services. While charging a percent or two may be attractive to both you and your clients, many advisors impose a minimum account balance with which they are willing to work.

For example: If you decide that you want to make at the bare minimum $2,500 a client and you only charge one percent, they you would be working exclusively with individuals with $250,000 or more in investible assets. If you are strict to those limits, you may be turning away clients who want to work with you and that can seriously limit the potential of your firm to grow.

There is hope, however, and that comes from a blended revenue and AUM model for your services. Continuing with that $250,000 client minimum at one percent, you could make the decision to charge for a financial plan for clients that do not meet that minimum.

Therefore, if someone with only $100,000 in investable assets wanted to work with you, you could still accommodate them. Then to ensure that client makes the minimum set by your firm, you can charge the difference for the financial plan itself. By doing this, you open up the amount of prospects you have available to you significantly, which will help you grow your business in the long run.

Leveraging FinTech when charging for financial plans

When advisors begin charging for financial plans, many think about how they can ensure the plan is worth the charge. Leveraging industry-leading financial planning software not only provides an accurate, comprehensive plan for the client, but also gives the advisor peace of mind regarding DOL compliance and quality of advice.

Additionally, clients are seeking technology they can personally use when managing their finances. By utilizing the Narrator® Clients portal from Advicent, advisors give clients the 24/7 access to their financial plan, goal progress, and cash flow monitoring.

Click here to learn more about leveraging Advicent software will benefit your DOL compliance strategy when charging clients for financial plans.