How to structure your advisor service offerings

At the Oasis Group, we believe every business hits a growth plateau and needs to rethink its processes and technology.

I have the pleasure of working with many wealth management firms looking to restart growth each quarter. All these firms have high standards and provide their clients with fantastic investment management and financial planning services. 

We are seeing the emergence of additional service offerings that RIAs use to attract next-generation clients and next-generation advisors. These new service offerings seem to be accelerating in the market, given the early effects of the great wealth transfer.

Traditional RIA service offerings

The bread-and-butter business of most RIAs is investment management. Many RIAs offer financial planning as part of their sales cycle. For a prospective client not working with a financial advisor, the financial advisor will outline the value of working with a financial advisor, capture information about the prospect and develop a financial plan that outlines how the financial advisor can help achieve their financial goals.

The level of effort invested in creating the financial plan and then servicing the client throughout the year has a cost structure associated with it in the RIA’s staff, technology costs and custodian fees. This cost structure causes many firms to create and maintain a minimum investable asset level to consider working with a new client.

To work with the firm, firms with senior and junior advisors tend to have lower minimums, sometimes as low as $250,000.00 of investable assets. In these cases, prospective clients undergo a screening process, typically through a phone call, to determine their investable assets – then they are routed to an appropriate advisor. 

Prospective clients with smaller asset bases are sent to junior advisors who are building their book of business. Prospective clients who are more complex, which is often the case with larger asset bases, are directed to the senior advisors who have more experience. Firms without a junior advisor model or a market penetration strategy targeting high-net-worth clients tend to have minimums of $1 million or more in investable assets.

These minimums are set under the premise that working with a small client has the same level of effort as working with a large client. This is likely to be true if your services consist of financial planning to move the prospective client’s assets under an investment management agreement.

The referral dilemma

The minimums lead to a dilemma when a large client refers a small prospect to the financial advisor. This is often a family member of a large client. The financial advisor wants to keep their large client happy and will likely take on that small client to maintain the relationship with the large client. The alternative is to turn away the small prospective client and stress the relationship with the large client.

Firms with a junior advisor structure may find this more manageable, given that the small prospective client can be directed to a junior advisor. However, this approach does not account for the remaining fixed costs in the operations team’s time to service the account, technology, and custodian costs.

Service offerings approach

We recommend that our RIA customers consider developing new service offerings for small clients who do not meet the minimums for their firm. These new service offerings allow firms to work with an emerging wealth client, such as a HENRY or Super-HENRY. A High Earner Not Rich Yet (HENRY) may be a college graduate in a high-earning field, such as Science, Technology, Engineering, or Mathematics (STEM). A Super-HENRY is a HENRY without any college debt.  The HENRY and Super-HENRY subsegments of the emerging wealth market segment provide the RIA with a revenue stream likely to be forty-five to fifty years long.

All these service offerings are standard in other professional services fields. Many of these service offerings are not new to the financial advisor space, but considering them is new to many RIAs we encounter.

The first service offering to consider is financial planning only. This service offering includes developing an initial financial plan for the new client under a flat fee billing arrangement. The financial advisor can bill the client through their existing accounting system and accept check or bank transfer payments. The client can take the financial plan and execute it on their own in a Do-It-Yourself fashion. The financial advisor creates a new relationship with someone who may become an investment management client in the future while covering the costs of their financial planner’s time and the cost of the financial planning software.

The second service offering to consider is the subscription model. This service offering includes developing the initial financial plan for the new client under a subscription billing model. This service includes quarterly meetings where the client can ask the financial advisor about their plan and current financial situation. The advisor can determine if the client’s financial situation and progress on executing their financial plan have changed – a job change or an orphaned 401K for example. The financial advisor can bill the client an annual subscription fee like the financial planning-only model.

A final service level to consider is the expert service model. This service offering is a derivative of the prior two models. The financial advisor develops the initial financial plan under a flat fee billing arrangement. The advisor offers to provide guidance and advice to the client on an ad-hoc basis through conference calls offered at an hourly rate. The financial advisor can leverage technology such as Calendly to create a meeting link. When they schedule, the client is prompted to pay for the meeting using a credit card. These credit card payments can be tracked directly in your financial system.

Adding these service offerings to your firm

Financial advisors need some initial information to develop the price for each of these offerings accurately. The price to develop the initial financial plan should include the cost of your financial planning software and the fully loaded cost per hour for the advisor and their team members. Pricing the offerings without this information may lead to new client relationships at an operating loss for your firm.

These service offerings can provide a gateway for your firm to attract prospective clients who may be small now but stand to inherit their parents' wealth in the great wealth transfer. This allows your firm to work with referrals that do not meet your firm’s minimum asset level. These offerings may enable you to attract junior team members who start their careers in financial planning while embarking on a financial advisor career path. Think of the possibilities for your firm.