The Right Time to Implement a Fee Increase
Beverly Flaxington is a practice management consultant. She answers questions from advisors facing human resource issues. To submit yours, email us here.
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We need to implement a fee increase. We have clients who have been with us for over 15 years and have never had an increase. I acquired clients from a former advisor who refused to increase fees and he retired over four years ago. Many of these are his clients. My team tells me it’s crazy to think about doing this during the current virus crisis. But I think this is as good of a time as any because most of these clients only want phone meetings, and they don’t engage in planning with us. But they do eat up firm resources and over 15 years my costs have gone up significantly.
There are many clients who might resist the fee increase but most of the ones I believe will do so would be fine if they left the firm.
Am I wrong to consider this?
On the one hand, when is a good time to raise fees? On the other hand, is there ever a really good time to raise fees? I have a number of clients who are doing this in the fourth quarter in preparation for January of 2021. Just because the world has gone virtual, it does not mean your costs of running an advisory firm have gone down. In some cases, costs have gone up if firms are supplying team members with technology, printers and the like at home. One of my clients said it costs her over $500 every time a team member goes into the office to keep up with established cleaning protocols in her office building. Your clients are, of course, not responsible for those increased costs. But providing high-end service does not get cheaper over time.
The important thing I’ve found when implementing a fee increase is to put a clear communication plan in place letting clients know about the value they are receiving. When you increase fees, it is a good time to do what I call, “re-tell and re-sell,” meaning you remind clients of the value of working with you, the benefits you provide and let them know – if you have not increased fees in a while – how costs have gone up but you have managed to keep fees low for many years. No matter what business you are in, when there is a price on something, it’s critical to assign a value that seems greater than the price to the buyer!
Start to communicate the change early in the fourth quarter so your clients are prepared. Craft a nice letter to them thanking them for their loyalty, reminding them that you have not raised fees during their tenure with you and then outlining the business model you offer and the value associated with it.
If you can’t create a story of value, then look at your client servicing communication and approach and ensure you can support a values-based discussion.