For the first time ever, Chris Diodato of WELLth Financial Planning decided this year to significantly increase the basic fees he charges for financial planning and asset management.
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When he started his business in Palm Beach Gardens, Florida, in 2021, Diodato made a mistake common to new business owners: He set his prices too low. Now he’s intent on bringing his fees in line with industry standards.
Even more than that, though, he’s trying to keep pace with inflation. Over the past year, Diodato has watched as most of his RIA’s basic expenses have risen. Everything — from errors and omissions insurance to CFP certification dues and RightCapital’s planning software licensing fees — now costs more.
Diodato said his business couldn’t absorb all that without passing at least a little on to clients.
“So my baseline fees, I raised by about maybe 25%,” Diodato said. “But in addition to that, for complex cases — let’s say somebody shows up with a whole bunch of stock options — it might even be doubled.”
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Inflation was the main reason for fee changes cited in Financial Planning’s latest Financial Advisor Confidence Outlook survey.
Roughly 60% of the respondents, all of whom had either raised or lowered their fees in the past year and a half, cited inflation as the primary driver of the change. Other causes noted by the survey takers included the addition of new services or service tiers (45%), pressure from competition (30%), demands from clients (21%) and a reduced need for labor stemming from the use of AI (10%).
The effects of inflation have extended far beyond the wealth management industry. On Friday, the Department of Labor reported consumer prices rose by 3.3% on average in March. That rate, the highest in two years, was driven mainly by constraints in the oil supply caused by the war in Iran.
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Even when prices aren’t surging, industry consultants like the self-proclaimed chief financial planning nerd Michael Kitces of Kitces.com and the XY Planning Network encourage advisors to raise their fees with some frequency. That practice, Kitces has argued, helps advisors not only keep pace with inflation but also combat “fee compression” — the tendency for firms to compete with each other by reducing their fees.
In a 2023 blog post on how to communicate with clients about coming fee increases, Kitces said many advisors shy away from the hassles involved in making periodic adjustments to their pricing.
“However, the longer the advisor waits to take action, the greater the fee increase they will likely need to make — which, of course, makes the necessary conversation with the client even more difficult and thereby even more tempting to put off, and so on,” he wrote.
Diodato said he sets flat fees for the various services he offers. Rather than a percentage of the assets he manages, he charges clients $900 a year regardless of their account size (up from $750 previously). His pricing for financial planning has meanwhile gone from between $1,500 and $2,200 a year, depending on the complexity of a client’s needs, to between $1,800 and $4,500 a year.
Diodato said he has made tweaks to his fee structure in the past but never in a way that approached the scale of what he adopted this year. Yet, despite the admonitions to make frequent adjustments, Diodato thinks he’ll be keeping his new rates in place for a while.
Advisors who make frequent changes either have to have adjustment clauses added to their contracts, which come with a host of regulatory hurdles, or they have to approach clients for approval every time a change is made.
Diodato said his latest fee increases won’t fall on most of the 45 households he’s already managing money for. They’re instead being reserved for newcomers.
“I am starting to get a wait list of clients. I have more people than I can take,” Diodato said. “And a little bit of Economics 101 tells me that, OK, demand is really high. You might be underpricing yourself, which I know I was. So I wanted to get kind of in line with my competition.”
