19 – Your pricing options
Financial advisers can draw revenue from two sources: life insurers who pay commissions, and clients who pay fees. Commissions are being wound back, and fee for service is becoming more important.
When it comes to fee for service, there are three broad ways in which a practice can set its prices. These are:
- Time-based fees: setting prices based on time spent with clients;
- FUM-based fees: setting prices based on the assets being managed on the client’s behalf; and/or
- Project fees: setting prices for a piece of work, regardless of how many assets are involved or how long the work takes to complete.
Which option or combination of options you use depends on your individual practice. The best kind of pricing is the one that attracts the most clients and makes the best income.
Read through the following pages. We discuss each of the three main fee-for-service pricing systems. We examine the advantages and the disadvantages of each, and then look at the situations in which each form of pricing should be preferred.