This $1.7BB RIA firm converted from AUM to flat fee and never looked back!

Sara Grillo

In this podcast we interview Jamie Menges of PDS Planning, a multi-advisor flat fee RIA firm with $1.7BB in assets under management. You’ll hear the story of why they converted from AUM to flat fee, how it has bolstered the growth trajectory of the practice, how to convert your firm from AUM and achieve similar results, and more!

Flat fee firms are not all solo lifestyle practices! We’re about to refute this myth!!!

For those of you who are new to my blog, my name is Sara. I am a CFA® charterholder and financial advisor marketing consultant. I have a newsletter in which I talk about financial advisor lead generation topics which is best described as “fun and irreverent.”

I am an irreverent and fun marketing consultant for financial advisors.

We’ll discuss:

• What was the trajectory in terms of being an AUM firm and making the switch to flat fees
• Why they made the conversion
• How they went about the process of switching into the flat fee model
• How it impacted their growth as an RIA firm
• What Jamie would tell an RIA firm that wants to start charging flat fees but is worried
• What their clients think
• How excited their team is to be part of a disruptive business model
• The importance of making this conversion in a controlled manner
• Putting clients’ interest first as a fiduciary when assessing contract scope of work

Why they made the switch

PDS Planning had 10 employees and everyone at the organization was excited to be a part of this disruptive business model. Flat fees are not just for lifestyle solo financial advisor practices.

The original impetus was the brand value (flat fees being more transparent and logic) and also to gain clarity about how much revenue exactly they would be earning. They believed in it and felt that it would be a true differentiator. They love the transparency of the flat fee. They love being able to talk to their clients about the fee they are being charged in dollars and cents.

“When someone asks you ‘What are you paying your advisor,’ we don’t want you to answer like everyone else and go, ‘I don’t know. I think it’s about the industry standard. I think it’s maybe 1% or something.” – Jamie Menges

What they learned

They learned they had to be very careful about how they price things in order to provide the best possible counsel to their clients while also allowing for career opportunities for the team. They went from having 10 people to 16 people today -and growing.

After they decided they were converting from AUM to flat fee, they had to define what the variables were that were going to drive the pricing model.

• Is this client going to be serviced mostly by a lead or an associate advisor?
• How much time will administrative roles play in this relationship?
• Are we going to do investment management?
• What areas of financial planning are we going to be providing?
• Do they have outlier circumstances that are going to create a greater volume of work? (stock options, concentrated positions, unwinding insurance policies, are they going to retain another custodian than Schwab?)
• Do they have family members in a younger generation that will need to be serviced?

If unforeseen things such as divorce or death happens, they manage through them. Their first thought is, how do we get a solution for client? In the longer term, there is a contract adjustment for change in scope that come up. To keep up with the cost of doing business, there is an annual adjustment to the client’s contract as a matter of course. They use the meeting with the client to right size the contract to the relationship for both expected and unexpected changes that happen.

Although it seems like an intimidating conversation, it gets easier over time.

How has it changed the RIA firm’s growth trajectory?

They had 400 clients when they started their flat fee conversion in 2016. They now have 600 clients. Their average growth per year in terms of top line revenue growth (organic, no acquisitions) is 11-12% per year. They want to grow in a controlled manner and work-life balance for their team is important. They turn away alot of clients who don’t fit their profile.

What he would say to someone who says the flat fee model is not scalable

It’s not as easy to scale as an AUM firm. But at the end of the day, PDS Planning is a profitable business that employs 16 people and provides a high quality service to its clients. They have grown. Scaling can be done; it may be challenging to maintain a 35% profit margin as a flat fee firm. It can be done with acceptable profit margins.

Alot of advisors who balk at the flat fee model are looking at themselves relative to other firms. He says they should worry about taking care of what they need to take care of in their own entity. If it’s all about dollars and cents for the advisor, they should think about trying to marry their clients’ interests with their own.

How to make the AUM to flat fee conversion easier

Having their employees buy in and be excited about being a part of this disruptive business is a key thing. Mindset wise, they have figured out what they need to charge in order to serve the clients they like serving. They are now working with clients who have $2MM or above and are providing an incredible cost savings versus what the client would be paying an AUM advisor. They have gotten to the point of clearly recognizing what it takes for them to be successful for their clients while being able to provide employees with a fruitful place to work.

Menges says this can be done on a smaller scale for flat fee firms who want to work with smaller clients. There is no one RIA firm size that flat fees work for. You can start out as a flat fee firm, you can change over from AUM to flat fees, or you can find a way to somehow make it work if you are abiding by another business model. It’s possible if you are able to understand what you do for clients, what you need to charge them, and whether or not that is a true value for the client.

You have to:

• Have a vision for what you want
• Take intention steps to get what you
• Have a sense of urgency in how you get it
• Don’t be complacent – keep doing what makes you successful

When have people ever been punished for doing the right thing? If you do the right thing for your clients and employees, good things will happen.

Sara’s upshot

Thanks for reading my blog about how one RIA converted to flat fee from AUM.

• I am an outsourced CMO for companies who need regular, full service marketing – blogging, social media posts, newsletters, etc.
• I am an hourly consultant for those who just need one-time or recurring guidance
• People hire me as a ghostwriter to write content for a project fee
• I have a social media training program
• I have a book about what to say on LinkedIn messenger

Join the Transparency Advisor Movement

The Transparent Advisor Movement’s mission is to promote ideals of clarity, modesty, integrity, dignity, and client advocacy in all aspects of financial advice, with a special focus on Advice Only, Flat Fee, and Hourly service models. There is a special emphasis on clear disclosure of services and their related fees.

The Transparency Movement is the future of the industry – we welcome anyone who believes in our values to join us.

Join our next Transparent Advisor virtual meetup.

These meetups are free and the goal is to learn from each other about how to grow and manage a transparent practice for the benefit of clients.

Even if you can not make the meetup, or even attend in its entirety, please register for the replay and to be notified of the next one. We meet on the second Wednesday of the month at 1 PM ET.

Disclaimer

Grillo Investment Management, LLC does not guarantee any specific level of performance, the success of any strategy that Grillo Investment Management, LLC may use, or the success of any program.

Grillo Investment Management, LLC will strive to maintain current information however it may become out of date. Grillo Investment Management, LLC is under no obligation to advise users of subsequent changes to statements or information contained herein. There is no guarantee that the information contained herein is accurate. This information is general in nature; for specific advice applicable to your current situation please contact a consultant or advisor.

Rates may vary as a function of geographic location due to exchange rate differences, fees, surcharges, and other factors. These offers are limited to the services advertised in the promotions contained on this page. Additional services may be provided at an additional cost at rates that are subject to negotiation.

The post This $1.7BB RIA firm converted from AUM to flat fee and never looked back! appeared first on Sara Grillo.