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How to offer the right pricing model

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Some pricing models may not fit the bill for potential clients, especially those looking for more clarity on fees.

Almost 37% of firms are charging the exact same 100 basis points, regardless of the services provided, according to the 2016 Fidelity RIA Benchmarking study.

This means that some firms are only performing investment management, while others offer additional services such as extensive financial planning or tax work.

Not every client is getting the same suite of services, and exceptions or discounts are fairly common. However, by focusing on three key factors, firms can home in on the right pricing model and stand out amid the 100-basis-point pack.

A focus on transparency can go a long way.

One way to improve transparency is to unbundle the firm’s offerings. This means charging separately for different services.

Firms can also evaluate alternative pricing structures, such as annual retainers, or one-time flat fees, and the potential impact that these changes could have on their financials. Either way, moving away from the fully bundled fee may reduce simplicity in some ways, but the trade-off will be worth it in the eyes of many investors.

Unbundling an offering also helps align pricing with the value the firm provides by better matching fees to the services that clients need. To take it a step further, consider establishing processes to measure client-level profitability or set minimum-fee levels.

The Fidelity study also found that the majority of firms (81%) set some kind of client minimum, yet 23% of their clients pay fees below those cut-offs. By better understanding client-level profitability, firms can make sure that their minimums are set at the right level and then stick to them.

Also, be sure to consistently communicate the firm’s value proposition, pricing philosophy and detailed pricing model to help clients clearly understand the value the firm delivers for the fees that they pay.

Although firms may be undermining their perceived value, they may also miss out on valuable clients who don’t want to buy a package of bundled services.

To help remain competitive, consider implementing a client segmentation scheme by tailoring offerings, service models and pricing models to not only existing clients but new segments as well.

Defining segmented approaches to different groups allows the firm to more consistently meet investors’ needs while keeping the firm from fully customizing for each individual.

When considering a pricing model for the firm, think carefully about the experience that a prospective client will have and be clear on the pricing model and how that model reflects the value the firm brings to the table.

This story is part of a 30-30 series on savvy ideas on modernizing your practice. This story was originally published on July 28.

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