What You'll Learn In Today's Episode:

  • How a change in mindset is key when creating your pricing.
  • The formula for deciding your fee.
  • How to incorporate your goals into your fee decision.
  • What a Post-it-note business plan is and why it’s so important.
  • How often you should be doing your business planning.
  • The importance of conveying your value to clients.
  • Why your clients need to trust you in order to understand your value.

At some point, all advisors struggle with how much to charge. Matt and Micah share how they navigated their fee-setting struggles and discuss why it is such a big hang-up for so many advisors. They also outline the key elements to deciding on the right fee structure and choosing pricing that reflects the value that you deliver.

There’s a lot that typically goes into deciding fees, so Matt and Micah will be breaking it all down and delivering a formula you can use to streamline the process. You will also hear about the role of head trash in deciding your fee, as well as the importance of avoiding overcomplicating your business plan.

Read the Transcript Below:

This is The Perfect RIA, in case you didn’t know. Bringing you all the strategies to help your business grow. Are you happy? Are you satisfied? Are you hanging on the edge of your seat? Sit back and listen in while you feel the beat. Another myth bites the dust…

Micah Shilanski: Welcome back to The Perfect RIA podcast. I’m your cohost, Micah Shilanski. With me, as usual, is the legendary Matthew Jarvis. Matthew, how you doing, sir?

Matthew Jarvis: Micah, I am good. I’m excited that this is our 100th episode.

Micah Shilanski: It’s been a long time.

Matthew Jarvis: I have to confess just a little bit, Micah. When we first started recording this, as everyone knows, in a bar in Colorado, I don’t know if I believed that we would do 100 of these episodes.

Micah Shilanski: No way.

Matthew Jarvis: But we’ve had some 160,000 downloads of our episodes already. It continues to grow and get a lot of great feedback and a lot of great questions from the audience, which is why we’ve kind of changed the format of this podcast to answer questions specifically from our audience.

Micah Shilanski: And this is one of the things that advisors don’t do very well. At least we don’t do very well, right? We’re not just patting ourselves on the back for the sake of it. I mean, but we are a little bit. The other thing is really to highlight we don’t celebrate our own successes very often. How often as we as advisors, right, look at last year and we say, “Great, these are the things that happen next year. Last year, next, moving forward.” We don’t celebrate the successes that we’ve had. But when you hit milestones and you hit achievements, you really need to step back and say, “Congrats.” This is what it was about. It’s about the journey. It’s about these little successes that you have, and just say congratulations to yourself and your team. In our case, congratulations to you. Thank you to our listeners that are making all of this possible.

Matthew Jarvis: Yeah, it really is a lot of fun. In fact, it’s been great this year as we’ve been doing masterminds, in fact. Or excuse me, last year in 2020, we did four separate mastermind events, and it was great to hear all of these advisors coming out saying, “Wow, I’ve transformed my practice-

Micah Shilanski: Oh my gosh.

Matthew Jarvis: … Extreme accountability. Made so many changes.” So can keep those coming. We really do love hearing those. If you take a minute, shoot an email to lifestyle@theperfectria, and let us know your successes, big or small, right? We’ve had ones, Micah, as small as, “Hey, I’m only checking my email once a day.” Awesome. That’s a victory.

Micah Shilanski: That’s huge. That’s huge.

Matthew Jarvis: That’s a victory.

Micah Shilanski: Yeah.

Matthew Jarvis: Now go to once a month. But we’ll weigh progress here.

Micah Shilanski: And you know what? We’ve been there. Jarvis and I have both been there with every step of the way. That’s one of the reasons you probably love this podcast is that it’s real information from advisors that have actually been in your shoes, done the exact same things, made a billion different mistakes, trying to figure out the right way.

Matthew Jarvis: That’s right.

Micah Shilanski: On that note though, this came from a talking point from one of our masterminds, which is really great. And we had a guy there… Yeah, no, let’s just say he goes by the name Felipe. Felipe was there and he brought up a very interesting point about charging fees.

When the mastermind was first there, he came in and he just chatted with me for a quick minute and he goes, “Micah, you may not remember me, but we met at the FPA several years ago when you were doing an event.” And I was like, “Really?” So we’re chatting and he says, “Yeah, before you gave your presentation, it was on the first day, I happened to be at the breakfast table with you and I was talking with another lady advisor and she was like, ‘Well…’ And we were talking about how to determine what our fees should be for our financial planning.’ And I said that…” This advisor, Felipe, he said, “Well, the way you need to charge your fee is you look to see how much can the client afford, and that’s how you charge your fee. So you look at their budget, you look at their assets, how much can they afford? And they do that.”

And of course, he had no idea who I was, nor should he at that point in time, right? But it was kind of funny because in my normal Micah candor, I just came out and said, “That’s stupid. That is exactly not how you charge a fee. What you need to charge a fee is based on the value in which you provide. Get out of your client’s pocketbook. That has nothing to do with the conversation whatsoever. What value are you providing, that determines the fee in which you should charge.” And he was like, “Whoa, okay, who the heck is this guy I sat next to?” Right? And then lo and behold, a couple years later, he really embraces that and he’s dramatically changed his practice for the better, with that little bit of a mindset change.

So Jarvis, I want to talk a little bit more about that, because it’s such a real thing that we face all the time and we’re very passionate about fees.

Matthew Jarvis: We really are. While we’re very passionate, we have a lot of conviction about it. Now, that was not always the case. We’ll call PK, pre-Kitces, before Micah and I found each other on the Kitces’ romance podcast, also known as the Advisor Success podcast. We both struggled independently, unknown to each other, with fees.

I remember before I made my practice transformation, like 2008, 2009, right during that small thing called the financial crisis, right? I had dozens of clients not paying any fee. I had dozens of clients paying different fees. I had all sorts of assets we weren’t charging on. And I had a lot of head trash around, “How much should I charge? What’s the right amount? Am I charging too much? Am I not charging enough?” Right? All these questions that I think at some point or another, all advisors struggle with.

Micah Shilanski: And I want to frame this a little bit before we get too much into it, because sometimes there’s… Now in the podcast, you might be hearing that little gremlin in the back of your mind, that head trash that’s coming out that says, “This is ridiculous. Maybe I should charge that much. I’m not worth that much.” All of these other things could come in. Or, “I’m just helping these people,” or whatever these things are. Have you ever walked into a store and saw a small item that wasn’t very expensive and just put it in your pocket and decided to walk out the door and not pay for it? Right?

Matthew Jarvis: Well, hopefully the answer’s no.

Micah Shilanski: Hopefully the answer’s no. And there’s a word for that, and that word is stealing, right? We would never do that in a retail sense, but how often are we stealing from ourselves? Because now all of a sudden, we’re allowing people to come in and we’re not charging them for anything. Now, this is our fault, not theirs, right? Because we have not set those expectations. We have not set it up. It’s not the client’s responsibility to set those expectations, it’s yours as the advisors. But how often are we stealing from ourselves, giving away our inventory with not asking for the value in price that we should be getting?

Matthew Jarvis: Now, to be fair, it is very difficult, very, very difficult in professional services to set pricing. In any other tangible goods type of business, usually it’s just cost plus… In fact, it’s almost entirely cost plus, right? Our goods cost this much, we tack a margin on top of that, and that’s how much the product goes for, whether you’re selling goods at a grocery store or airplanes or anything else. We have essentially zero cost of goods sold. Again, we can negotiate how you define that, but essentially it’s zero. So our pricing is, in effect, entirely made up. That’s why, Micah, to your point, we’ve got to go to what kind of a value can I deliver, right, what kind of experience am I creating, and what’s a fee that’s commensurate with that level of value.

Micah Shilanski: Yeah, everything we just said though is so subjective, right? How much is the value going to be here?

Matthew Jarvis: That’s right. Yeah.

Micah Shilanski: We could really go off on a whole tangent on this and people can jump on their little fee bandwagon about fee only or whatever we’re going to talk about in this regard. That’s not what it’s about. You need to have a formula. You need to have a way to back into this number, right? Because if we leave it 100% subjective, it’s really challenging to come back and say, “This was the value.”

Now, we could quantify it, right? We could do a tax strategy for a client and save them $100,000. Are we going to be able to charge that client $100,000? Probably not, right? So yes, there is that. Maybe that’s my own head trash. And if you’re charging people that much, please email me, lifestyle@theperfectria.com. Love to have you on the podcast so we can chat about that.

So there needs to be some formula that you’re going to back into it. Let me share you mine. And then, Jarvis, I’d love to hear what yours is. And then maybe that’d be some great action items for the nation.

Matthew Jarvis: Perfect. Yeah, go for that.

Micah Shilanski: I always start with business planning, right? I start with the end in mind. I’m going to do it a couple of different ways. We just did this, by the way, for our live event that we had for 2020. We had advisors come together. We went through this exercise with them. It was very transformational on how they should set fee prices and fee increases, which is really cool.

But I’m always going to start with the end in mind. So for this year, for 2021, how much gross revenue do I want to make? Divide it by how many clients do I want to have at the end of the year. I know this sounds very simple, right? But why make it more complex? If we’re solving for what revenue… And you can have a range, which is fine. What revenue do I want to make, divided by the clients. Well, sweet, now I know how much each client household needs to produce in order to get there.

Another way we could nuance this a little bit is you could say, “Great, how much is my current book revenue producing now? How much new revenue do I want to bring on for 2021?” Well, new revenue divided by new number of clients. Awesome. I need to generate X amount of dollars from those households that I bring on. But you have to make it simple. At least for me, right? Someone could have a different way of doing this. For me, I’ve got to break it down to something simple. And once I have that fee, now I can take a peek at it and say, “Great, what do I have to do as an advisor to justify that fee?” So I’m starting with the end in mind. Awesome. A new household relationship needs to generate X amount of revenue. What do I need to do for that household to make that fee worth it?

Matthew Jarvis: Micah, let me jump in there on that simple thing. There’s this real temptation. And again, I spent years doing this to build out this elaborate spreadsheet, and two-thirds of this and one-half of the other and seven different formulas.

Micah Shilanski: Great point.

Matthew Jarvis: And I bothered color-coding it and making sure it formatted nice with great font. This is a Post-it note business plan. This is, to Micah’s point, target gross revenue.

Now, again, and Micah, feel free to push back on this, I would have that your next kind of milestone level. If you say, “Hey, I’m currently doing 300,000 gross, and I want to get to five million,” I wouldn’t put five million on there. I would say whatever the next milestone is.

Micah Shilanski: Correct.

Matthew Jarvis: So let’s say it’s 300 to 500, or 500 to a million, whatever it is. Anyway, top line number, a million dollars. That was mine for a long time, my goal. Number of clients I think I could serve, my number was always 150 there. Divide that in. That takes a calculator. It’s one calculation. That is now the Post-it note that’s on my computer. So I know what my minimum or average fee needs to be. In fact, I’m going to set that as my minimum. But these business plans have to be so simple, otherwise they become a giant time suck. No amount of time spent on business plans will result in more clients in the door. That will not get you more money.

Micah Shilanski: It won’t. And it’s such a way that we can get lost in our spreadsheet. We can play office and do this. So yeah, I agree on the milestones. So in my mind, the way I did it, I said, “Okay.” When I was starting off, right, there was barely six figures in revenue. I wanted to be at a million, but it was a mind-blowing number. So it was okay, that was a someday I’ll number, and I had to make it an actual number. This year, what do I want it to be? In two years, what do I want it to be? How do those numbers add up to that? Yeah, and Jarvis, I love it. It’s a sticky note thing. That’s all that it is.

Matthew Jarvis: It is. It is. So quick numbers. If your target is a million dollars in revenue and you’re going to have 150 clients, that’s about 6,500, 6,666 for anybody doing the math at home. But I would just put 6,500, I say, “Great, that’s my minimum per client revenue.” And Micah, to your point, then you can back in and say, “All right, well, that could just be a flat fee. I can translate that into an AUM fee based on my minimum client size or my average client size.” There’s a lot of ways to slice that. Pick one and run with it.

For me personally, I just would translate that into an AUM fee I wanted to do. Which at that time, 1% was all I could get my mind around. It’s quite a bit higher now. And I’d say, “Great. Well, if my fee is 1%, then my minimum client size has got to be 600,000. Done.” Now I can move on to prospecting. And I’d say-

Micah Shilanski: Done.

Matthew Jarvis: … “I’m not going to think about this again until next year.” This is a key point, Micah. You’re not doing your business planning every month, every week, every day, when you’re bored, whenever you feel like it. Once a year, sit down, map this thing out.

Micah Shilanski: Yeah. And it’s a week we have dedicated on the calendar that says, “This is what we’re going to do.” Now, when I say a week, this doesn’t take me a week to go through and do, right? This is a very quick time period we’re going to have. We’re going to set this and we’re going to move forward with it. And Jarvis will even tell you sometimes he’ll ask me what my goals are. I’m like, “You know what? Haven’t set them for this next year just yet. Here’s my general runs.” But when I do business planning, that’s when I’m going to finalize these goals, because I need to give it somewhere to live. For me, it’s a certain date and time on the calendar. That’s where I’m going to give all my goals a place where they’re going to be created. They’re going to live and they’re going to be set and I’m not going to address them until next time that year, going through those goals.

Matthew Jarvis: Yeah. It’s also a great one to do in kind of a December, January timeframe. Because if you are an RIA and you need to adjust your ADV, you want to do that when you’re doing your annual renewal, which will be one of our action items at the end of this podcast. But that’s one I always set to look at. I say, “All right, I’ve got to update my ADV. Now’s a good time to make that adjustment,” so that I don’t have to do a mid-year ADV change, which is something I don’t want to do. Now, if you’re with a broker-dealer, it may already say that your top fee is two or three or 5%, or who knows what. Great, no worries there.

Micah Shilanski: One thing I want to throw out there as well, Jarvis, you had brought up about saying if you wanted to do a million dollars in revenue divided by 150 clients, and that number was 6,666. Well, for me, that’s not a fun number, right?

Matthew Jarvis: No.

Micah Shilanski: Now, this could sound kind of stupid, but I promise it can make a lot of sense. So if I’m going to pick my fee, it also is a number that makes me happy. So I wouldn’t take 666 as my number. I don’t like that, just from the devil aspect of it. So I’m going to round up to 6,700.

Matthew Jarvis: Perfect.

Micah Shilanski: That makes me feel happy. I’m not going to round down to 6,500, because now I feel like I’m cheating my goals. Am I playing a head game with myself?

Matthew Jarvis: Yes.

Micah Shilanski: Yes, absolutely I am, and that’s 100% okay to do. When I onboard this client, what am I going to be happy with, that I’m delighted to serve them, I’m delighted to work with them, I’m delighted to deliver value? Because the more joy I get from that relationship, the more energy I’m going to be able to put into it, and the more value I’m going to be able to create for the client. This is really, really important stuff.

Matthew Jarvis: Yeah, it totally is. And it’s 100% head games. Perfect. Let me just play them to win. I’m going to stack this deck to work in my way.

So yeah, Micah, backing into your fee schedule is a great path to get there. I would say another path to get there, and this is one I’ve used myself over the years, is I say, “What can I see another firm is charging?” I’m going to be careful to name names here. But if I see another firm is charging X, and I think I’m delivering more value than they are, then I’ve got to charge at least as much as they are.

Now, I like Micah’s approach better, to back into the number, but if that doesn’t work for your head trash, great, pick an advisor in town or nationwide. Look at what Fisher Investments is doing. Let’s pick somebody who’s out there all the time and say, “Great. Am I delivering more value than them?” If yes, then I should charge at least as much as they’re charging.

Micah Shilanski: That’s right. And this kind of sort of thing is well, it is okay and not everyone you meet with sees the value in which you’re providing. For me, this is not a deal-breaker. This is expected, right? I don’t want to work with everybody. I can’t work with everyone, just logistically, right? There’s no way. There’s plenty of other great advisors out there that are well-suited for them. I am looking for a certain type of client that’s going to work really well with our team and is going to see the value in which we produce. So this is another thing with your fee schedule, it’s okay that it gets rejected. It’s okay that some clients don’t see that value. Perfect. Next. We’ve got to move on to the next client that does see that value.

Matthew Jarvis: Totally. And this, by the way, is true in every industry, right?

Micah Shilanski: Right.

Matthew Jarvis: Again, my kids and I were watching Saturday Night Live the other day. They had a funny Lexus spoof, and it was a reminder that not everybody wants to drive a Lexus. That’s totally fine. Lexus isn’t trying to come out with a $10,000 car. That’s not the market they serve. And like I said, it’s true in every industry. So pick, you only need 150 clients who think that your value proposition is worthwhile, and that’s it. That’s all you need.

Micah Shilanski: Jarvis, is there any right or wrong fee schedule that’s out there?

Matthew Jarvis: I think there’s a lot of bad fee schedules, but I wouldn’t say there’s any wrong ones. We had a fellow in our mastermind who was trying to articulate that he had… I think he had 12 different fee schedules, Micah. Maybe-

Micah Shilanski: That’s ridiculous. Yeah.

Matthew Jarvis: … I’m exaggerating. We said, “Dude, that’s way too many fee schedules.” Because it was like one-third of this and half of this, unless you onboard on a Tuesday, and then it’s the other… We’re like, “One fee schedule, maybe two. Maybe two. That’s it. And it has to be back of the napkin clear.” If you can’t articulate your fee schedule on the back of a napkin in plain English, your fee schedule is too complex. So I guess maybe that would be the answer, Micah. I don’t think there’s a wrong fee schedule. There are certainly fee schedules that are too complex.

Micah Shilanski: Yes, amen. You’ve got to make it simple. That’s going to be there. One, it’ll avoid errors on your end, which is a really important thing. Number two, it’s transparency for the clients, right? If we can keep it simple, if we can keep it easy, a one-page financial plan concept of it, same concept with the fee, right? There should be a one-line item that they can know exactly what they’re charging and it’s not a mystery. Because if it is a mystery, that’s not value.

Matthew Jarvis: Yeah. Yeah. Now, related to this, and this is a soapbox that Micah and I love to get on to from time to time, right? A lot of advisors ask us, “Hey, do I need to be fee only?” And I don’t know, neither Micah or I are fee only, and we seem to be doing pretty well. Come to the mastermind. We’ll show you how well. But no, you don’t need to be fee only. And at one point, that was sort of a differentiator, because there weren’t that many fee only people out there. Now it’s every person. I feel like every third LinkedIn post is talking about how they’re fee only, and I can’t resist going on there saying, “Huh, I always tell prospects the first question to ask is, ‘Are you any good?’” I don’t really care how much something costs if I don’t know how good it is.

Micah Shilanski: Right. Or, “Am I actually going to get value out of this?” is going to be the big thing. Now, when you’re raising fees… Actually, we’ve got to bring this up. It’s a wonderful quote that we heard just recently. I’m going to pull it up so I can read it for you guys. We were talking about raising fees. This was actually inside of my family. Jarvis and I were texting back and forth and I laughed, and so my daughter asked me what I was laughing at, and I shared with her what Jarvis’s text was. And she kind of cocks her head back, and my daughter’s 10, and she goes, “Well, if he wants to raise his fees, then he better deliver more value if he wants to get more money. People just don’t give you money for nothing.” So-

Matthew Jarvis: I love that quote. We were working with an advisor in our last mastermind and he showed me an email that he got from a prospect saying, “I’d love to work with you, but your fees are too high.” And for him, his head trash was saying, “Oh my goodness, this one person in the entire world said that my fees are too high.” So we’ll set that aside. This is a sample size of one. And I said, “Felipe,” it was the same guy from earlier, I said, “Hey, this is an issue of the prospects not understanding your value, not that your fee is too high.” So they’re looking… And again, nine times out of 10, if a prospect says your fees are too high, either they’re repeating what they heard and they feel like they’ve got to throw it out there, or you haven’t been really clear about your value.

In his case, I looked at his one-page financial plan. He’s been a follower of our work for a long time. And I said, “Dude, your one-page financial plan has great stuff on it, but it doesn’t translate to dollars. So the prospect sees $37,000…” It wasn’t that much, right? It was probably $8,000. “And this one page of action items, and it’s not clear to them that they’re getting more than $8,000 for what you’re doing.” And he says, “Well, I have this whole printout and my website says, ’37 points of contact and all this stuff.’” Perfect. None of that is valuable to the prospect.

Micah Shilanski: Yeah, that’s a really, really key part that’s going to be there is, “How do you communicate that dollar and cents value to a client?”

We’re onboarding a new adviser. He’s doing really good and we’re chatting with him. And Jarvis, one of the things that I shared with him is that you’ve got to be careful when you’re dealing with former colonels. Because I see this standard in former colonels in the military, as soon as you come out with anything, whether it’s a price, whether it’s a change, whatever it is, the first thing they are going to do is immediately push back, right? And they’re going to push back hostile. And what they’re doing is they’re not really questioning what you’re recommending, they’re questioning your confidence. Do you really believe in these things?

That’s one of the things I want to bring up on the fee schedule, because people could push back because they don’t see the value. Absolutely. They could just push back to see how soft the price is going to be. I’m in that category.

Matthew Jarvis: Totally.

Micah Shilanski: I can easily do that, because I want to see how soft it is. And once there’s blood in the water, all right, now it’s fun to see how low this thing will go.

Matthew Jarvis: That’s right.

Micah Shilanski: And I’m probably not going to buy it after I’ve negotiated that price down, because now it’s not worth it. So interesting mental psychology there. But you need to be confident in the value you are delivering. When you get that pushback, you need to be able to respond with confidence. Not hostile to them, but respond with confidence where that value is. Take ownership in not showing them the value, and step them through one step at a time how it is. And guess what, if they don’t want to move forward, great. They probably weren’t going to be-

Matthew Jarvis: Perfect.

Micah Shilanski: … an ideal client anyways. Wonderful. Mr. and Mrs. Prospect, I wish you nothing but the best success. If you change your mind, please give us a call.

Matthew Jarvis: Yeah. A script that I started using, Micah, on this when someone pushes back on fees, I say, “Hey, you know what? I never negotiate on fees, because if I negotiate on fees with you, Micah, I would feel only right that I go back and give all of my existing clients that same pricing. And if I discount everyone’s fees, then I won’t run a profitable business and I won’t be able to help anybody. Does that make sense to you?” And they always say, “Yeah, that makes sense.” Because now it’s an integrity issue and it’s a true integrity issue, right?

Micah Shilanski: Right.

Matthew Jarvis: How would it be if I negotiate for one person and not everybody else? Why didn’t they get that same deal?

Now, we could make this sort of moral argument, and I don’t need that. This is how I program my head trash. This is the game I play. If I discount fees for you, I have to discount fees for everyone. If I discount them for everyone, I go out of business and help no one.

Micah Shilanski: So in my mind, if a client asks if I negotiate with fees, I-

Matthew Jarvis: I love this.

Micah Shilanski: … absolutely say, “Yes, I am happy to negotiate with fees. You’re delighted to pay me anything more that you would like. It is 100% okay. There’s no problem whatsoever.” And I just leave it like that.

Matthew Jarvis: I love that. I love that. Well, Micah, let’s talk about some real world fee schedules, so yours and I’s, just to give people a reference point. Because another way to solve fees, like I said, is just pick somebody and say, “If they can do it, I can do it.”

That was actually how our text string started out. Somebody in my office says, “Hey, it looks like Micah is charging a higher fee than we are, and I think our office is just as good as Micah’s.” And Micah and I love to debate about this all the time. So we should charge the same that Micah charges, right? And that’s fine. If that gets you over your head trash, awesome.

So our fee schedule currently, which we’re in the process of changing with our ADV, it’s we charge 1.5% on all assets up to a million dollars or all households up to a million dollars. Anybody over a million dollars, we charge 1%. We’re currently changing our ADV, so it’s just going to be 1.5% on all assets, no matter what. So that’ll come out in our new 2021 ADV.

Micah Shilanski: Okay. So you’re just going to move to a flat 1.5% regardless of dollar value?

Matthew Jarvis: Correct, correct.

Micah Shilanski: Interesting. Yeah.

Matthew Jarvis: Yeah.

Micah Shilanski: So make it simple. Ours is a little different, right? This is where ours becomes more complex, just to be clear. Because we charge a financial planning fee, plus we charge an AUM fee. So our financial planning fee’s a bit of a range. It’s on average, $5,000 as a minimum for new clients that are coming in. It can be dramatic-

Matthew Jarvis: A year?

Micah Shilanski: A year, yeah.

Matthew Jarvis: Yeah. Just to be clear. Yeah.

Micah Shilanski: It can be more. So we’re going to talk about that in just a second. It’s a bit of a range, so we’ll just say five grand. Then we charge AUM on top of that. Our AUM starts at 2%. The lowest it will go is 1.5%. That’s the bottom of our fee schedule. Our average fee is around 1.75%.

Now, that is one set. I do want to throw out here, because when people pull our ADVs, there’s a couple other Jarvises out there that do this, right? We have a second fee schedule because we have a second tier of business, which is working one-on-one with businesses as more of the CFO role. So we have a second fee schedule for that, which we’re charging $5,000 a month minimum plus 4% of EBOC on that business. So it is okay to have two different fee schedules if you’re very clear. If you’re in the financial planning camp, awesome. This is what your fee is going to be, financial planning fee plus AUM. If you’re the business category, sweet. The flat fee plus the percentage, that’s the category it’s going to be in. But it needs to be clear.

Matthew Jarvis: Has to be really clear. Now, another thing. We mentioned a minute ago that prospects will push back on fees because the value is not clear. Another reason they will push back on fees is, and I don’t know how to say this nicely, they don’t have necessarily a reason to trust you that the value you’re going to bring to the table is worth the fee.

This of course is why people would say no at timeshare presentations, right? If you listen to the presentation, you get the entire world for a thousand dollars a month. The entire world. You can travel anywhere you want, anytime you want. No restrictions, no penalties.

Micah Shilanski: No restrictions ever. It’s perfect.

Matthew Jarvis: Everybody makes money on this. Everybody loves it, right? And people, they’re skeptical and they say, “This probably isn’t true.” So when you’re doing your financial plan, no matter how clearly you articulate the value, something in their brain is a skeptic saying, “I don’t know if this is really going to happen.”

So for prospects that are skeptical about that, and this ties into a whole prospect process, I would say, “Hey, listen, let’s just work together for one quarter at a time. So we’ll just work together for one quarter at a time. And each calendar quarter, you’ll see a line item on your statement that says, ‘Jarvis Financial advisory fee.’ And you’ll look at that number and I’ll look at that number. And if we say, ‘Hey, the value of this quarter exceeded the fee,’ perfect. Let’s go another quarter. And if at any time you say, ‘Hey, I don’t think it’s worth the fee that I’m paying,’ perfect. We part ways as friends. I’ll refund my last quarter’s fee as a gesture of good faith. You still get to keep all of the great work that we’ve done together. And now you can find someone else or you can do it on your own.”

Now, this script works incredibly well. The brilliance of it though is this was already their option, right? I haven’t even… This is literally their option. They can fire any advisor at any time, with very few exceptions, and you have to pro rata refund their fee for the quarter. But now I’m putting it out there, right? Which is the opposite of timeshare.

Micah Shilanski: Dishwasher rule.

Matthew Jarvis: Yes, the dishwasher rule.

Micah Shilanski: Yeah, 100%. If you charge a flat financial planning fee, as I do, one of the things that I love throwing out there to clients is just saying… If they’re kind of borderline on the aspect of it, says, “Look, my most important goal is that you walk away saying, ‘Wow, this was an awesome experience working with Micah and his team.’ Now that could go a couple of different ways. One is that you continue to work with us as clients, you continue to pay our fees. You see that value. We have a great relationship. That’s absolutely an option. A second option is we get six months down the line, you’re like, ‘You know what? I’m paying a lot in fees. I don’t think I see the value.’ And I want you to bring it up and we’ll have a talk. And if you don’t think it was worth the money, I’ll refund 100% of your financial planning fees and we’re going to part ways as friends, because that’s more important to me than keeping you on as an unhappy client, or taking your money and you don’t want to work together.”

Matthew Jarvis: That’s right.

Micah Shilanski: Clients are really happy with that. Again, for me, this is a whole integrity thing, right? I want them to have the value. And say you have one client out of a hundred that takes you up on that, perfect. I’m glad to refund their money, right? It removes them from a potential complaint. It removes them for saying bad things to other people about me. And if they didn’t see the value, I’m fine with that. It’s their perspective on the value, not mine. I see the value in the financial plan. I’ve looked at them. I’ve seen, “Yeah, we can add an X multiple on the fee that we’re going to charge in value for them, and it’s okay if they don’t see that.”

Matthew Jarvis: Yeah, I would say one last thing that’s really powerful about this approach is that it dissolves so much of my own head trash, right?

Micah Shilanski: Yeah.

Matthew Jarvis: When I deliver a financial plan, especially earlier in my career, I’d have a lot of uncertainty. Is this thing worth the fee? What is? And we get this imposter syndrome. And we’re all so used to looking at so many of those, that it feels easy, which is part of the imposter syndrome.

So I can remind the client of this and I can also remind myself, “Hey, listen, if the client didn’t think this was valuable, I made it really easy for them to get their money back. I didn’t trick them into writing the check. I didn’t say it’s non-refundable. I didn’t make them sign some binding contract.” I’m saying, “Hey, if you don’t think this is valuable, then I don’t think it’s valuable. Here’s your money back.” But I’m letting them decide. Back to the beginning of the podcast, get out of your prospect’s pocket. It’s not for me to decide, let them decide. They’re the one writing the check.

Micah Shilanski: Yeah, it’s a free market. Let them decide. All right, so let’s transition to some action items that are really, really important here.

Matthew Jarvis: Let’s do it.

Micah Shilanski: Number one, I’m going to say, let your business plan determine your fee. The same thing we talked about at the very beginning of this podcast, on that sticky note, what does your business plan needs to say your financial planning fee is?

Matthew Jarvis: Yeah. The counter to this is stop letting anybody else determine your fee. Ignore the industry studies, which are all crap. Ignore this thing about fee compression. Ignore what you hear. Ignore all this stuff. Unless you know for a certainty that an advisor is charging X and they’re delivering more value than you are, right, then I guess you could reference that. That’s why masterminds are good. I can say, “Micah, you’re charging what seems to be this high fee. What are you doing to deliver value?” And I can see that very clearly. But ignore everything else. Business plan or nothing.

Micah Shilanski: That’s a huge part about our masterminds, right? Because once people come in and then they meet me, they’re like, “Well, holy crap. If Micah can do it, I can charge double.” So it’s easy, right?

Matthew Jarvis: There is a piece to that. That’s Micah specifically.

Action item number two, really track your closing rate, right? The number of prospects you meet with and become clients. Specifically the ones who highlight about your fees. And if this is something that’s coming off really frequently, then let’s look at it differently. My guess is that it’s not, right? If they’re going in and saying, “We found another advisor. Provides the exact same thing,” and you verify the exact same thing, “but they charge a lower fee,” I need to look at that. Except I very rarely run across advisors who are providing similar value or higher value at a lower price. So I think this is a real anomaly, but track it either way.

Micah Shilanski: And it’s okay for clients to say no, and prospects. In fact, they should, right? You should be charging a fee that not everybody says, “Yes, this is okay.”

Third action item for you is make sure you update your ADV, right? This is the beginning of the year. This is coming out. ADV updates are coming out. So make sure it allows for fee increases. One of the things that we quit doing on ours, Jarvis, was we used to put it for the exact maximum fee we were going to charge. Yeah, horrible idea, right?

Matthew Jarvis: Yeah, I had to change that too.

Micah Shilanski: Really go ahead and give it for a much greater room, because we don’t know what the rest of the year is going to be, and none of us are going to want to update our ADV for a fee increase. That’s going to be a justification for not waiting until next year to do it. So now our ADV has a lot of room in it. So if we want to make a change in a service model, if we want to make a change throughout the middle of the year, we absolutely can. Now, how often do we do it? We really don’t, but it makes me feel so much better having that room.

Matthew Jarvis: Yeah. So even if you say, “Man, I really don’t have the courage yet to raise my fees,” perfect. This is a harmless step. Update your ADV that allows you to charge a higher fee. That way, you’ve taken this harmless first step.

Micah Shilanski: Okay, perfect. So really, really important to take these steps. Of course, the fourth action item, as you all know, vote early, vote often. Jump on iTunes, give us those five-star reviews and ratings. We keep growing. Share this podcast with your friends, other advisors. Because of you, this nation keeps growing. We keep getting wonderful feedback and we’d love to hear from you on your successes. Even your failures, right?

Matthew Jarvis: Yeah.

Micah Shilanski: Those are important things to share as well. So lifestyle@theperfectria.com.

Matthew Jarvis: Perfect. Well, thanks a lot, Micah. And until next time, happy planning.

Micah Shilanski: Happy planning.

Hold on before we go. Something that you need to know. This isn’t tax, legal, or investment advice. That isn’t our intent. Information designed to change lives. Financial planning can make you thrive. Start today. Don’t think twice. Be a better husband, father, mother, and wife. The Perfect RIA. The Perfect RIA.

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