Understanding Common Investment Management Pricing Models

The landscape of pricing for investment management and financial advisory services is diverse, though certain models dominate.

1. Assets Under Management (AUM): The most traditional model. You charge a percentage of the total assets you manage for a client. For example, 1% annually on $1,000,000 in assets equals a $10,000 annual fee. This model works well when asset growth is the primary focus and value proposition.
2. Fixed Fee (Retainer): A flat annual or quarterly fee, regardless of asset size. This model is increasingly popular, especially when comprehensive financial planning, tax strategies, or other non-investment services are core to the offering. It provides predictable revenue for the firm and predictable costs for the client. An example might be a $5,000 annual fee for a family receiving integrated planning and investment guidance.
3. Hourly Rate: Less common for core investment management but sometimes used for specific consulting projects or initial planning phases. While simple, it often fails to capture the long-term value provided.
4. Hybrid Models: Combining elements, such as a reduced AUM fee plus a fixed retainer for planning services, or a tiered AUM fee that decreases at higher asset levels. These can offer flexibility.

Understanding these models is the first step, but deciding which one, or which combination, best suits your firm and target client segment requires deeper analysis.

Moving Beyond AUM: When and Why?

While AUM remains prevalent, many firms are exploring alternatives, especially in 2025. Here’s why:

• Value Disconnect: For clients with significant complexity but lower liquid assets, or those needing extensive planning before assets are consolidated, an AUM fee might not adequately compensate the advisor for their time and expertise. Conversely, high-net-worth clients with simple needs might feel a pure AUM fee is excessive.
• Market Volatility: AUM revenue fluctuates directly with market performance, creating unpredictable income streams for the firm.
• Aligning Incentives: Some argue fixed fees better align incentives, focusing the advisor on comprehensive planning and client goals rather than solely on asset gathering.
• Broader Service Offering: As firms offer more services beyond just portfolio management (tax, estate, financial planning, etc.), a pure AUM model can feel inappropriate or needs supplementation.

Consider shifting towards fixed or hybrid models for clients where:

• Comprehensive financial planning is the primary need.
• Client assets are held in various places (real estate, business interests) not directly under management.
• Clients prefer cost predictability.
• You want more stable revenue.

Determining Your Costs and Desired Profitability

Before setting any price, you must know your costs. Don’t guess.

1. Direct Costs: Software (CRM, portfolio management, financial planning tools like MoneyGuidePro (https://www.moneyguidepro.com) or eMoney Advisor (https://emoneyadvisor.com)), research subscriptions, licensing fees, professional development.
2. Indirect Costs: Rent, utilities, administrative staff salaries, marketing, insurance, legal fees.
3. Your Time/Opportunity Cost: What is the value of your expertise and the time you invest in client work and running the business?

Calculate your total operating expenses. Then, determine your desired profit margin. If your costs are $200,000 annually and you aim for a 30% profit margin, your target revenue needs to be around $285,714 ($200,000 / 0.70). This helps inform how many clients you need and your average fee per client to achieve your goals.

Understanding your cost basis is fundamental, whether you charge AUM, fixed fees, or a hybrid.

Structuring Your Investment Management Service Packages

Offering tiered or packaged services provides clarity for clients and simplifies your pricing discussions. Instead of listing individual services, bundle them into distinct offers:

• Base Tier (e.g., ‘Investment Essentials’): Focuses primarily on portfolio management, perhaps with basic goal tracking.
• Mid-Tier (e.g., ‘Comprehensive Financial Partner’): Includes investment management plus core financial planning, retirement modeling, and annual reviews.
• Premium Tier (e.g., ‘Wealth Management’): Adds advanced services like complex tax planning coordination, estate planning review, philanthropic advising, and quarterly deep-dive meetings.

Clearly define what is included in each tier. This allows clients to choose the level of service that matches their needs and perceived value. You can price these tiers using fixed fees, or a tiered AUM structure where the percentage decreases at higher asset levels or increases based on the complexity/tier of service selected.

Presenting these packages clearly can be challenging with static documents. Tools specifically designed for presenting complex, configurable service options can be very helpful here. PricingLink (https://pricinglink.com) allows you to build interactive pricing sheets where clients can see different packages, understand what’s included, and even select optional add-ons, instantly seeing the price adjust. This simplifies the initial pricing conversation and modernizes the client experience.

Communicating Value and Presenting Pricing Confidently

Pricing discussions can be awkward, but they don’t have to be. Shift the focus from cost to value.

1. Deep Discovery: Before quoting a price, truly understand the client’s situation, goals, challenges, and why they are seeking advice. The more you understand their pain points and aspirations, the better you can articulate how your services provide a solution worth the fee.
2. Frame Your Value: Don’t just list services; explain the outcomes you help clients achieve – financial security, peace of mind, realizing life goals, tax efficiency, etc.
3. Present Options: Instead of one price, present 2-3 relevant service packages (as discussed above). Use pricing psychology principles like anchoring (presenting a higher-value package first) to frame the options.
4. Be Transparent: Clearly explain your fee structure and what the client receives for their investment. Eliminate jargon.
5. Use Modern Tools: Replace generic spreadsheets or PDFs with interactive pricing presentations. Showing options clearly and letting clients engage with them can significantly improve understanding and confidence. PricingLink (https://pricinglink.com) is built specifically for this, allowing you to create shareable links where clients can explore their options dynamically. While PricingLink is great for the pricing selection part, remember it doesn’t handle the full proposal with e-signatures or contracts. For that, you might look at comprehensive tools like DocuSign (https://www.docusign.com), PandaDoc (https://www.pandadoc.com), or Proposify (https://www.proposify.com).

Confident pricing comes from knowing your value, understanding your costs, and presenting options clearly in a way that resonates with the client.