Pricing Strategies to Create Growth

An unpredictable operating environment has dramatically challenged advisory firm profitability over recent years. Median operating profits as a share of revenue were down to approximately 11% in 2009¹, six percentage points below 2008.

Such a dramatic drop in firm financial performance makes for a long and painful recovery for shareholders. A return to better days is believed to be underway, yet several other environmental factors continue to challenge advisory firm performance. Clients are increasingly demanding, compliance costs have gone way up and experienced talent is still scarce. Indeed, the experiences of recent years have left many asking, "How can my firm diffuse the impact of the operating environment on revenue and profitability?"

Asset-based pricing levels across the industry indicate little change in the fee levels over recent years, despite the dramatic changes in the operating environment. Furthermore, asset-based fees as a proportion of total revenue are the predominant way advisors are compensated for their advice (Figure 1).

Most firms do not adjust their pricing to align with the business environment, compounding the impact of market downturns, the burden of growing compliance and the costs of human capital. Although the operating environment has evolved, pricing strategies have not. Only 31% of firms review their pricing structure annually to ensure suitability.

Pershing Advisor Solutions takes an in-depth look at the leading pricing practices that drive firm profitability. We present the four critical components of a pricing structure to help you build your own pricing model.

• Pricing methodology. Determine the most appropriate pricing methodology to ensure the pricing structure is aligned with the advice, services and level of value delivered
• Price level. Establish the right pricing levels to cover costs, achieve targeted profitability and compensate for the valuable outcomes delivered to clients
• Collection methods. Consider the various fee collection methods that may be required as your firm’s advice and service offering evolves
• Implementation. Communicate value and realize the full benefit of the new pricing structure

Click here to read the Pricing Strategies to Create Growth: An Independent Advisor's Guide.

Additionally, Pershing Advisor Solutions has developed a Pricing Your Advice tool built with FA Insight LLC. Available through your Pershing Advisor Solutions Relationship Manager, this tool helps you develop and implement an effective pricing model.

1All cited advisory firm statistics are derived from 2010 FA Insight proprietary survey data. Survey respondents included a wide range of independent firms, representing a cross section of firm sizes and affiliations models including independent RIA, independent broker-dealer and dually registered firms.