Setting pricing that fits your client’s acquisition and retention strategy can significantly increase your profit margin, resulting in greater sustainability and more growth opportunities for your business. Moreover, correct financial advisor pricing will reduce the chances of underpricing or overpricing your financial consulting services. According to ConsultingSuccess, 33% of consultants in different fields lower their fees to win over clients, and 80% of consultants are looking for ways to increase their current rates. However, this doesn’t necessarily mean that financial advising and consulting services won’t let you earn as much as you intend to.
In this article, we overview the most popular financial advisor pricing models and show you how to study competitor pricing models as well as define the model that will let your business be profitable.
Financial advisor pricing models
A financial advisor pricing model is a way to determine the price for your products, services, managed assets, or time based on the factors that are most important for your business:
- Amount of time spent on providing the service
- Value your services bring to your client
- Number of projects you manage
- Scope of services you include in the product you offer
In the scheme below, you can see a general approach to defining what you charge your clients for.
Let’s overview the most popular pricing models in financial consulting and determine which specialists will benefit the most from each of them.
Hourly pricing model
Hourly pricing is one of the easiest financial advisor pricing models for beginners that requires minimum research and experience. To use it, you have to set an hourly price for your services that matches the average hourly rate of a financial consultant with your experience. We recommend using an hourly rate when:
- it’s hard to predict how much time the service will take
- you have little experience setting prices
Benefits of the hourly pricing model
Those who use this pricing model often benefit from more complex and time-consuming projects, as they charge for the time spent on each task. Also, this model is easy to understand, and when setting an hourly price, you can consider the average price for a specific service. This model is flexible enough to fit clients with varying needs.
Disadvantages of the hourly pricing model
Along with the benefits, there are downsides to setting hourly rates for your services. You should be prepared to:
- provide detailed reports at your client’s request to prove you’re moving in the right direction and haven’t spent time on unimportant matters
- highlight results to show your clients the actual value of your work
- deal with problems predicting your cash flow
Unless you have a portfolio of completed projects, most likely you will have to use the hourly pricing model at the start of your career.
Formula for an hourly pricing model
To establish hourly rates for your services, you will have to perform simple research that will let you understand how your competitors price their time. We advise you to check the average hourly price your competitors set for specific services. You can find freelance financial advisors on Upwork and Fiverr — just don’t forget to filter them by region to exclude offers from other countries or states.
Also, you should define how many hours you intend to work directly with clients. By dividing your target annual income by the hours you intend to work, you will get your desired average hourly rate. Note that your annual target income should be net income after all taxes and overhead expenses. So you should also find out how much taxes will be and add that to get the gross sum.
After that, divide the gross sum by the hours you plan to work per year to arrive at the hourly price of your services.
After that, make sure to compare the price you’ve calculated and the prices per hour of your competitors with the same experience working in your geographic area to check if you can compete.
With a project-based pricing model, you charge your clients for a project, which means you have to specify the services, estimate the time it will take to work on the project, and form the price. Using this approach will require you to have a portfolio that proves you can handle projects similar to the one you intend to work on. You should also have sufficient experience to provide a realistic estimate of what to charge your client.
Benefits of a project-based model
Using a project-based pricing model helps financial advisors focus on the client’s ultimate goals, shifting the focus from completing individual tasks to how your work impacts the progress of the whole project. Naturally, this approach increases efficiency. The project price is often self-explanatory, and the client knows what they’re paying for and what results they expect. Another benefit of this pricing model is that profit is easy to forecast, as it’s set for each project.
Disadvantages of a project-based model
This model requires experience to correctly price projects. However, this isn’t the only challenge financial advisors face when they choose project-based pricing. Consider the following risks of the project-based model:
- This model is less profitable when it comes to simple projects
- Sometimes it’s difficult to correctly estimate the time it will take to get a certain result
- This model provides little flexibility if more work has to be done than expected
In other words, when you charge your client for a project, you have to meet their expectations and complete project on time. If you’ve worked on similar projects and have been working with a client for some time, this model can be a success.
Estimating project-based pricing
When you use hourly pricing, clients often don’t know how much they will have to pay to get a certain result. This concern is fairly common, and it can be successfully addressed by implementing a project-based pricing model.
Within this model, you create a list of deliverables and estimate the time it will take to get the results. After that, you set the price for each of the deliverables and add up the amounts. This approach answers two of your client’s questions:
- How long will it take to get the necessary result?
- How much will it cost to get the result?
Check the scheme offered below to learn about estimating a project-based price.
As you can see, this model has much in common with hourly pricing, and you can use the techniques described above to find out how you should price your time for each of the deliverables. However, it is still project-centered.
Value-based (AUM-based) model
A value-based (or assets under management based) pricing model is the best way to connect the price of your services to the value you bring to your client while managing their assets. It is also the most obvious way to gain more profit if you’re good at what you do because you, as the financial advisor, become financially connected to the results of your work. Compared to the project-based model, when you set the price based on an estimate of its complexity, the value-based model ensures your profit is proportional to your client’s profit.
Many financial advisors look for ways to increase their rates, and a value-based model might be the solution. However, according to Consulting Success data, 42% of consultants have never tried a value-based pricing model because they don’t know how.
Let’s check out the pros and cons of this pricing model and learn how you can implement it in practice.
Benefits of a value-based model
A value-based model mostly benefits experienced financial advisors who have regular clients and are confident in the results they can achieve, letting them increase their income. Another advantage of such a pricing model is that you and your client share the same goal, and you’re mostly free to do everything it takes to help your clients succeed. Naturally, the success becomes measurable, and it reflects the value you have provided.
Disadvantages of a value-based model
Even the most experienced financial advisors and wealth managers sometimes fail because of market volatility. Thus, the value-based model is connected to certain risks, as results can’t be forecasted. Another downside of this approach is that the price of the assets you manage changes, and thus you’ll have to provide detailed reports and be transparent with your clients to let them understand why the price for your services changes every month.
Value-based pricing estimation
To estimate the price that correlates with the value you bring, you need to estimate the AUM value first. Calculations of this value differ from company to company, but the most common approach is to either calculate the total value of assets directly under your management or all assets you provide financial advice (this is also called “assets under advice” or AUA). Financial advisors often charge 1–2% of the asset value, depending on the extent of advice their clients need.
As you can see, no taxes are taken into consideration here, and there is no way to predict the outcome, which makes this model a bit less popular among financial advisors, though AUM is considered a marker of credibility in the financial advising industry.
Service-as-a-product pricing model
The service-as-a-product pricing model is a way to set a fixed price for a set of services that are in demand and work most effectively when bundled together. Some financial advisors prefer service as a product to other pricing models because it gives them the ability to plan their income and makes them less dependent on the results.
Benefits of a service-as-a-product model
No matter how good you are at what you do, you can’t always rely on value-based pricing models because the cases you work on differ and the market situation can unexpectedly change. A product-as-a-service model grants you stability. Its other undeniable advantage is that your clients receive all services you deem optimal for the best results.
Disadvantages of a service-as-a-product model
Some might say this model’s main disadvantage is that it’s disconnected from the results you achieve. This means you’ll have to regularly provide your clients with more detailed reports, compared to general reports accepted in other models. Also, consider that this model is inflexible, so sometimes you will have no option to increase your client’s income because of this model’s limits, missing the chance to exceed your client’s expectations.
Service-as-product pricing estimation
The price for a productized services bundle will depend on the services included as well as on what your client can afford. Technically, it’s similar to charging your clients for a project, only you keep providing your services in a subscription format.
Make sure you have several pricing plans that reflect your client’s needs and are affordable. Typically, you’ll aim at creating three pricing plans to cover different demands.
Should you consider competitors’ pricing models?
The fact that you charge more or less than your competitors can lead your clients to unwanted conclusions, so it’s essential to study how other financial advisors charge their clients before setting a price.
But first of all, make certain you know who your competitors are. We recommend you pay attention to financial advisors that work in your niche, have similar experience, work with clients from similar backgrounds. Also pay attention, that they should have AUMs equal or close to yours.
Now that you have found your competitors, carefully study them:
- Check which pricing models they use
- Learn if their prices are above, at, or below the market average
- Define whether they are using a premium pricing, loss leader, price-matching, or some other type of pricing strategy
- Learn what value they offer clients for the price they charge
- Check if they offer any discounts
- Use historical data to learn how their prices have changed over time
Considering these factors, you will be able to establish your prices and add value to your service offering.
Which pricing model is most effective?
We have reviewed the most popular financial advisor pricing models, so now you are aware of their pitfalls and advantages. Most likely, you already have used or considered using some of them. But if you aren’t satisfied with your current pricing model, you can try another one and check if it works better for you.
Make sure you also consider the following questions before committing to a pricing model:
- Is this model Agile, and what flexibility does it offer?
- Does it let you forecast revenue?
- Is it sustainable?
- Are your clients encouraged by it to continuously use your services?
- Can you implement this model using the billing software you use?
If most of the answers are positive, you should probably try the model.
As for financial consulting software, many products can help you showcase your services or implement an hourly model, as well as bill clients.
Let’s see how you can do this using ExpertBox functionality.
Implementing financial advisor pricing models in practice
No matter which pricing model you have chosen, it’s essential to share your terms of service with your clients, give them with a clear description of the values and services you provide, and let them pay online for your services or consultation time. Using a web-based solution for such tasks is a common practice that can make your life easier.
For example, in ExpertBox, you will find both functionality to showcase your services and embed them on your website as well as functionality needed to send billing reminders, accept payments, and share documents. All these features come alongside scheduling and booking functionality.
Let’s explore how ExpertBox works in detail.
Within ExpertBox, you can create as many services as you need and even build a plan that includes multiple services, which you can list in the description. The magic starts with creating a service and setting its duration, showcasing its description with all the values it includes, and setting the service location if you consult offline.
In Settings, you will have to choose how you want clients to view the service and define if you want to require prepayment. You can also define the price for the service, which might change based on the service provider, the duration of the service, and its extent and value.
You can easily embed an ExpertBox widget into your service, add a side panel to your website for convenience, or add a link that will open a booking calendar and let your clients search for the specific services you offer.
As for payments, you can accept them online right within the ExpertBox interface and charge clients before or after service is provided. Moreover, within ExpertBox, you’ll find a powerful CRM system that allows you to securely share documents with your clients.
Get a 14-day ExpertBox trial for free and use powerful software that will assist you in implementing various pricing models!
Using a fitting pricing model has helped many businesses grow their profits. Follow the recommendations above to choose the pricing model that fits you best and effortlessly implement it with the right software. Subscribe to our newsletter to get more insights and guides that will help you boost your financial consulting practice.
It depends on the pricing model you choose for your services.
If your price is based on the hours you work, divide your target annual gross income by the number of expected client-facing hours per year.
If you use AUM-based pricing, multiply the total value of your assets under management by 1% to 2%.
There are various pricing models you can use to find out how much you should charge.
There are four pricing models you can use to set the price for your services:
- Hourly pricing model
- Value-based (AUM) pricing model
- Project-based pricing model
- Services-as-a-product pricing model
To establish hourly rates, research the average price your competitors charge per hour to perform specific services. You can find freelance financial advisors on Upwork and Fiverr — just don’t forget to filter them by region to exclude offers from other countries or states.
Also, you should define how many hours you intend to work directly with clients. By dividing your target annual income by the hours you intend to work, you will get your desired average hourly rate. Note that your annual target income should be net income after all taxes and overhead expenses.