Raising fees while maintaining a loyal client base can be a tricky but necessary exercise for wealth advisors. But advisors say that matching fees to services, gradually increasing fees and giving clients options have allowed them to keep clients while remaining profitable.
Though there is a growing
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At the same time, fee raises carry risks. High or unexpected fees were the third most common reason clients left their wealth managers in 2023,
Advisors interviewed by Financial Planning said clear communication and demonstrating value can make it easier for clients to accept fee increases. They pointed to three strategies that have helped them raise fees while retaining clients.
Match fees to client complexity
One way advisors can increase fees without alienating clients is by moving beyond a pure AUM fee model or supplementing it with other pricing approaches.
Carolyn McClanahan, CEO of Jacksonville, Florida-based Life Planning Partners, charges a set annual fee based on each client's financial complexity. Factors that determine a client's rate include whether they're part of a blended family, the number of account holders, investment management needs and tax planning requirements.
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McClanahan said she reevaluates the need to raise — or lower — fees every two years, based on whether a client's situation and plan has gotten more or less complicated.
With this model, Life Planning Partners has nearly no client turnover.
"Rarely do we lose a client," McClanahan said. "We're very good at setting our fees appropriately. For people who end up having more than $2 million in investable assets, we end up being a much better bargain than people who charge assets under management."
Raise fees gradually as the practice grows
For RIAs that operate under AUM models, McClanahan recommends starting with a minimum fee that will allow their business to be profitable, and then increase it over time as the practice grows.
She started her firm's minimum fee at $2,500. As her practice expanded, McClanahan raised the minimum to maintain profitability, but intentionally avoided charging significantly higher amounts before establishing a deep relationship with the client.
"If a client takes you to the dance, you need to not leave them off the dance floor," McClanahan said.
McClanahan said one advantage of a flat-fee model is predictable cash flow, even during periods of inflation.
Give clients a choice
Alvin Carlos, managing partner at Washington, D.C.-based firm District Capital Management, said offering clients options allowed his flat-fee firm to raise prices over the past two years without losing a single client.
The firm informed clients of firm-wide price adjustments months in advance and gave them a choice: pay the higher fee and continue meeting three times a year, or keep their existing fee and meet only twice a year.
"This way, our target hourly rate stays the same," Carlos said.
Based on his experience, clients generally don't leave specifically because of fee increases. They leave when they stop seeing value in a firm's services, Carlos said. Before the fee raise, District Capital Management made a point of discussing retirement account gains and net worth growth with clients to reinforce the value the firm provided.
Giving clients options is also how Bridget Borel, founder and CEO of Annapolis, Maryland-based Clairwell Financial Planning, approached increasing fees within her AUM-based practice.
Early on in her solo practice, Borel noticed that some smaller accounts were consuming a disproportionate amount of her time and attention.
For those clients, she offered two paths: stay with the firm under a comprehensive financial planning relationship with a $10,000 annual minimum fee, or switch to an investment-management-only arrangement where they only met once a year and only covered investment goals.
"Since I was moving them to a slightly higher AUM fee, their fees still increased slightly, but the time needed to service their account decreased dramatically," Borel said.
Raising fees can feel scary, Borel said, particularly when clients are being asked to pay more for the same level of service. But ultimately, advisors need to ensure that their pricing supports a sustainable, profitable business model.
"Discounted fees may help get revenue in the door, but in the long run they can be a drain on an advisor's time and energy, and in the end are not in service to our clients," Borel said.
