6 Strategies to Personalize Fee Schedules and Automate Billing

Posted by Freedom Advisors on Apr 1, 2024 10:25:20 AM

Traditionally, financial advisors primarily charged clients based on a simple percentage of assets under management (AUM). While this model has its merits, it can also pose challenges, especially for clients with varying financial needs, asset levels, holding types, and service requirements. Moreover, the standard billing engine may not adequately equip advisors to compete for larger, more complicated, and demanding investors.

The advisory business today demands a modern, flexible, and automated fee design and billing system. Recognizing the need for tailored solutions and transparent pricing, many advisors are shifting towards a billing system that offers more options and customization. Rather than a one-size-fits-all approach, these advisors are demanding the ability to offer a menu of fee schedules and billing options based on the asset types, such as managed, non-managed, cash, fixed income, equity, and aggregated held away, as well as based on services provided, such as tax optimization.

It’s also imperative that regular assessments are completed to ensure that all fee documentation and disclosure practices are compliant with relevant regulatory requirements. This includes staying updated on regulatory changes, maintaining accurate records of fee agreements and billing cycles, and providing clients with clear and comprehensive fee disclosures as mandated by regulatory bodies. By prioritizing regulatory compliance in fee documentation and disclosure, advisors can mitigate potential risks and build trust with clients.

The Benefits of Flexibility

The adoption of flexible fee schedules brings several advantages for both financial advisors and clients:

  • Transparency: Flexible fee schedules promote transparency by clearly outlining the cost of each service. Clients know exactly what they're paying for, eliminating any surprises and fostering trust between advisor and client.
  • Customization: Every individual's financial situation is unique, and one fee structure may not suit all. With flexible fee schedules and billing options, clients have the freedom to tailor their financial advisory and investment services to specific client needs and preferences.
  • Cost-effectiveness: By paying only for the services required, clients can potentially save money compared to traditional AUM fee schedules. This cost-effectiveness is particularly beneficial for individuals with larger, more complicated investment portfolios and those seeking specialized financial advice.
  • Alignment of Interests: Modern billing systems allow advisors to focus on delivering value-added services that directly benefit the client's financial well-being. This alignment of interests strengthens the advisor-client relationship to enhance outcomes over time.
  • Accessibility: Flexible fee schedules and billing settings make financial advisory services more accessible to a broader range of investors. By removing barriers to entry, more people can benefit from professional financial guidance and expertise.

Exploring Ways to Personalize Fee Structures and Automate Billing

Here are six strategies advisors can utilize to personalize their fee schedules and automate billing processes, enhancing their practice's efficiency and transparency for clients:

  1. Decouple Fees: Consider separating your advisory fee from other charges like investment management and platform fees. This segmentation provides clarity to clients about the specific costs associated with each service.
  2. Customize Fees per Portfolio: Have the ability to vary fees at the individual portfolio level within a client's account. This approach allows for a more nuanced fee structure that reflects the complexity and unique needs of each investment portfolio or asset class.
  3. Household-Level Consolidation: Ensure that clients benefit from the aggregation of assets at the household level. By automatically combining assets across accounts, clients can enjoy potentially lower fees based on the total assets under management.
  4. Tiered Fee Structures: Implement tiered advisory fees based on asset levels or other criteria. This tiered approach incentivizes clients to increase their assets while rewarding loyalty and larger portfolios with reduced fee rates. It also equips advisors to compete for the business of larger investors.
  5. Automated Fee Transfers: Enable the automatic collection of fees for one account from another account within the client's household. For example, IRA fees could be deducted from a taxable account, potentially bringing tax benefits, streamlining the fee payment process, and minimizing administrative burdens.
  6. Fee Caps at Account or Household Level: Offer the option to cap fees at either the account or household level. This ensures that clients are protected from excessive fees while still receiving comprehensive financial advisory services.

By incorporating these customizable and automated options, financial advisors can better tailor their services to meet the diverse needs of clients while maintaining transparency and efficiency within their practice.

Implementing Flexible Fee Schedules

Financial advisors in need of a modern billing system, should consider the benefits of a highly advanced and integrated turnkey asset management platform (TAMP). At Freedom Advisors, we provide a complete portfolio management solution, comprehensive outsourcing of operations, and high-touch service to help advisors run efficient practices and deliver superior outcomes for their clients. Our platform supports the flexible fee structure strategies and billing system capabilities outlined in this blog post. We encourage you to connect with one of our consultants for an introductory discussion to explore your specific requirements and how we can best meet them.

Topics: Advisor Support

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