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TDA4advisors Blog

We are excited to share a collection of relevant, timely, and insightful articles that can help you grow and strengthen your business. TD Ameritrade and leading industry experts will be contributing their unique perspectives on the challenges and opportunities that RIAs are facing today. Thank you for joining our community and we look forward to connecting with you!

  
  • by Kathleen Rooney
  • Content Manager , Business Performance Solutions, TD Ameritrade Institutional

Deciding your new fees—what you should know first (part 2/3)

Kathy Rooney- Portrait-July 22, 2013-006

Kathleen Rooney, Content Manager, Business Performance Solutions, TD Ameritrade Institutional

 “As content manager in Business Performance Solutions, I work on a team committed to bringing advisors insights, programs, tools, and resources designed to build sustainable growth and enduring value for advisory firms.”

By Kathleen Rooney, Content Manager – Business Performance Solutions, TD Ameritrade Institutional

Be sure to read my first blog in this three-part series that sets the foundation for making sure your pricing reflects your value.

Now that you have a better understanding of the benefits and structure options for a well-planned pricing model, you’re ready to begin reviewing pricing principles to help determine your pricing levels.

But before you get started, you’ll want to review these three key fundamental areas that will influence your pricing levels:

• Competition and the going rate in the market
• Cost
• Value delivered to clients

Competitor Pricing
While industry pricing data can be a great reference point for you, keep in mind that using market-based pricing alone won’t be enough. While many firms share common offerings like retirement and estate planning, not only will the combination of services between firms differ, so, too, will the breadth and depth of each component. Because this makes for a difficult apples-to-apples comparison and because the market for advice is continuously evolving, this market-based information should certainly inform, but not decide, your firm’s pricing model.

What is my cost to serve my clients?
Cost-led pricing in its simplest form is calculating your costs and adding a markup to create your desired profit margin. Interestingly, just 16% of all firms surveyed by FA Insight in 2014 use cost of delivery as the primary factor when determining how to price their services. While the task can seem daunting, a simple approach can be taken to assess how firm costs impact price.

You will need to complete a basic segmentation exercise and group your clients by complexity of needs. For example, you can segment your clients into three groups with segment “B” clients representing your average-complexity-need client. The next step would be to calculate the hourly rate and hours spent serving a typical B client for each role involved in the client relationship (see example below).Cost+Profit 600

 Apportioning Labor Costs Example—B Client (Average Effort to Serve)

Pricing blog 2 image 2

The next step would be to allocate overhead expenses across all of your clients. In this example, we can use $1,868 as our average overhead cost. In order to determine the total cost to serve your typical B client, you would add the total labor cost plus the average overhead cost.

This cost basis number will give you your “break-even” number for serving your average B client. You can repeat this process with your other segment groups. The final step would be to determine your desired profit margin, and add that to the cost basis number.

Profit_Margin 600

 Pricing Your Value
The core of this approach holds that pricing compensates a firm for the value delivered through the advice relationship. Due to factors like tax savings or lower investment fees through a restructuring or rebalancing of a portfolio, the value a client receives may be well beyond the fee paid under the cost-plus-profit model. You may want to revisit your value proposition in order to be confident in articulating the value you are delivering to clients. The ability to communicate your value will be an important factor if you decide to make any changes to your existing pricing levels and/or pricing structures.

Once you’ve decided which pricing structure(s) align best with the services delivered as well as the appropriate pricing levels, you’re ready to implement the change.

Look out for my next and final blog in this three-part series—focusing on implementation and clear, tactful communication to your clients.

For a deeper dive, including more industry trends and case studies, click here to read the full white paper titled “Pricing: Reflect Your Value,” by FA Insight in collaboration with the Business Performance Solutions team at TD Ameritrade Institutional (2015).

 

This information is intended to provide a general overview about the topics covered and to help you identify opportunities in your practice and important issues you may wish to consider in developing a strategy. Because TD Ameritrade Institutional does not provide legal, tax or compliance advice, this information is not intended to be relied upon as such. While TD Ameritrade Institutional hopes that you find this information educational and thought provoking, you need to determine whether the information is appropriate and applicable to you and your firm. You should consult with attorneys or compliance experts that understand your particular circumstances before utilizing any of the ideas presented here in your practice.

  
  • by Dan Klein
  • Senior Consultant – Business Performance Solutions, TD Ameritrade Institutional

Advisor or Salesperson? Depends On Your Perception.

There’s a fine line between sales and well, sales. You became an advisor to help people, not to become a salesperson, right? But at the end of the day, you’re not going to grow your business if you’re not selling something, Advisor or sales blog 1whether it’s your services, your firm or your expertise. So, how do you embrace the sales process without turning into the smarmy salesperson you think of every time you hear the word “sales”?

It starts by changing your perception. At National LINC 2015, I suggested that by changing your perception, it will make it easier to sell. If you can think of it as helping people, you can change your perception.

Whether your motivation is looking to attract new clients, build more equity or attract the next generation of investors, reframing the way you look at sales is key.

Do you believe that someone who utilizes your firm will be better off than they would have been before working with you? Then, going from a perception of helping someone to a perception of selling to someone is just interpreted differently. This is what I call a “healthy perception.” If you have a healthier perception of sales, you can better help your customers achieve their goals and proactively grow your business.

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  • by Jon Patullo
  • Managing Director, Technology Product Management, TD Ameritrade Institutional

What RIAs Can Learn from a Futurist

What RIAs can learn from a futurist blogIn 2020, a mere five years from now, futurist Peter Diamandis predicts that five billion of the world’s 7.5 billion people will be connected—66% of the global population online and suddenly accessible to everyone and everything. Even with conventional estimates being more conservative at 3.8 billion connected, it is still at minimum an additional 1.6 billion new minds in the global marketplace in the next five years. That’s between 1.6 and three billion new consumers, inventors and creators equaling tens of trillions of dollars newly flowing into the economy.

As the available pool of assets is poised to break the floodgates, offering incredible new opportunities for advisors, the competition and range of solutions is also set to grow in volume and complexity. We stand at the edge of a tipping point as global connectivity is poised to truly change the world we live in. And when no one is too big to fail or too small to make an impact, your approach to investing and running your business will have to be at least as disruptive as the investment landscape you are operating in. So where does the RIA go from here? How can you be prepared?

Read More

  

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