How to Communicate a Fee Increase or Fee Model Change to Advisory Clients

Raising your fees or changing how you charge clients can be a delicate conversation, particularly when you’ve spent years building those relationships. Communicating a financial advisor fee increase generally involves giving clients advance notice, explaining why you’re making the change and showing how it will affect their costs. Whether you’re increasing an AUM-based fee, introducing a flat fee or moving to a different pricing model, a clear explanation and an opportunity to discuss the adjustment can help clients understand what to expect.

Are you looking to expand the marketing of your financial advisor practice? Try SmartAsset AMP, a holistic client prospecting and marketing automation platform.

How to Communicate a Financial Advisor Fee Increase

Communicating a fee increase to existing clients involves more than simply announcing a new rate. Advisors should be prepared to explain the reasons behind the adjustment, show clients how their costs will change and address any questions or concerns that arise. Here are five steps to consider when communicating a financial advisor fee increase.

1. Explain Why You’re Increasing Your Fees

Start by giving clients a straightforward explanation of why you’re raising your fees. For example, an increase may reflect rising operating costs, additional services or investments your firm has made in technology and client support. Be specific about what’s driving the change rather than relying on broad statements about the value of financial advice.

2. Show Clients How the Increase Will Affect Them

Clients will likely want to know how much more they’ll be paying, so consider translating the new fee into actual dollar amounts. For example, increasing an AUM-based fee from 1% to 1.1% would raise the annual cost of managing a $500,000 portfolio from $5,000 to $5,500, assuming the account balance remains unchanged. Providing this type of comparison can make the adjustment easier for clients to understand, particularly if they’re unfamiliar with how basis points work.

3. Give Clients Advance Notice

Rather than surprising clients with higher fees on their next statement, communicate the change ahead of its effective date. Written notices can provide a consistent explanation of the increase, while phone calls or in-person meetings may be more appropriate for clients with longstanding relationships or more complex arrangements. Review your advisory agreements and applicable regulatory requirements to determine what notice or consent is required before implementing the change.

4. Give Clients an Opportunity to Ask Questions

Even clients who are satisfied with your services may have questions about paying more for them. Invite clients to discuss the adjustment and be prepared to explain how your firm’s services and pricing compare with their existing arrangement. If a client expresses frustration or questions the value they’re receiving, use the conversation to better understand their concerns rather than immediately defending the increase.

5. Follow Up and Document the Change

After communicating the increase, follow up with clients as appropriate to address outstanding questions and confirm their understanding of the new pricing. Keep records of your communications and complete any required disclosures, agreement amendments or client consent procedures before the revised fees take effect. If your firm uses automated billing, review the updated rates and effective dates to confirm they align with the agreed-upon terms.

Client Acquisition Simplified: For RIAs

• Ideal for RIAs looking to scale.
• Validated referrals to help build your pipeline efficiently.
• Save time + optimize your close rate with high-touch, pre-built campaigns.

CFP®, CEO

Joe Anderson

Pure Financial Advisors

We have seen a remarkable return on investment and comparatively low client acquisition costs even as we’ve multiplied our spend over the years.

Pure Financial Advisors reports $1B in new AUM from SmartAsset investor referrals.

Target New Clients This Year

I am a registered fiduciary*

Book Your Free DemoNot sure? Learn more about AMP.

How to Communicate a Change in Your Advisory Fee Structure

Changing how you charge clients can require a different conversation than simply raising your existing rates. For example, if you’re transitioning from an assets under management (AUM) fee structure to a flat fee, hourly rate or subscription model, clients may have questions about how the new arrangement works and what it means for their costs.

Start by explaining how the new fee structure differs from the current arrangement and why your firm is making the change. Rather than focusing exclusively on the benefits of the new model, explain how it will affect the individual client, including any changes to billing frequency or the services covered by their fees.

A side-by-side comparison can help clients understand the financial implications of the change. For example, here’s how moving from a 1% AUM fee to a $6,000 annual flat fee could affect clients with different portfolio sizes, assuming constant account values:

Keep in mind that a new pricing model may benefit some clients while increasing costs for others. Be prepared to discuss these differences individually, particularly with clients whose fees would rise substantially or whose service arrangements would change. You’ll also want to clarify when the new structure takes effect and whether clients need to sign an updated advisory agreement.

Build a Better RIA

Drive growth with automation, not headcount using the all-in-one advisor marketing platform.

Get Started

Sample Financial Advisor Fee Increase Letter

A written fee increase notice gives clients a record of the upcoming change, including the new rate and when it will take effect. The message should explain the reason for the adjustment, outline how the client’s costs will change and provide an opportunity to ask questions. Here’s a sample financial advisor fee increase letter that you can adapt for your practice.

Subject: Upcoming Changes to Our Advisory Fees

Dear [Client Name],

I’m writing to let you know about an upcoming change to our advisory fees, which will take effect on [Effective Date].

Beginning on that date, our annual advisory fee will increase from [Current Fee] to [New Fee]. Based on your current account balance of [Account Value], this would change your estimated annual advisory costs from [Current Annual Cost] to [New Annual Cost], assuming your account balance remains unchanged.

We’re making this adjustment to reflect [Brief Explanation of Fee Increase, Such as Expanded Services, Higher Operating Costs or Investments in Client Support].

We appreciate the trust you’ve placed in our firm and remain committed to providing you with personalized financial advice and ongoing support. If you have questions about this change or would like to discuss how it affects your accounts, please don’t hesitate to contact me.

Thank you for the opportunity to continue working together.

Sincerely,

[Advisor Name]

[Firm Name]

[Contact Information]

Before sending a fee increase letter, review it with your firm’s compliance team to confirm that it aligns with applicable notice, disclosure and client consent requirements. You can also personalize the message based on the client’s relationship with your firm, particularly if the adjustment involves a substantial increase or a change in the services they receive.

Compliance Considerations When Changing Advisory Fees

Before changing fees, registered investment advisors (RIAs) should review their advisory agreements, Form ADV Part 2A, applicable Form CRS disclosures and billing procedures. The requirements depend on the firm’s registration status, existing contracts and applicable securities regulations.

• Advisory agreement: Review and, where required, amend the fee terms, including the rate, billing frequency, whether fees are charged in advance or in arrears, proration and payment method. Many jurisdictions prohibit negative consent and require affirmative written consent to contract amendments, according to NASAA. ¹
• Form ADV Part 2A: Item 5 requires disclosure of the fee schedule, billing methods and refund terms for prepaid fees, when applicable. An interim amendment generally isn’t required solely because the fee schedule changes, but materially inaccurate fee information should be corrected when the brochure is otherwise amended. Other material changes may trigger separate updating requirements. ²
• Form CRS: SEC-registered advisors serving retail investors must update and file Form CRS within 30 days if its information becomes materially inaccurate. They must communicate the changes to existing retail clients within 60 days after the updates are required, either through an amended Form CRS or another delivered disclosure. ³
• Billing: Apply revised fees only after they are authorized and effective under the applicable agreement. The SEC has identified billing discrepancies, including incorrect rates and charges that don’t match advisory agreements, during investment advisor examinations.

State-registered advisors must also review applicable state requirements. A compliance officer or qualified legal professional can help determine which disclosures, agreement changes and client approvals are needed.

Bottom Line

A financial advisor fee increase is ultimately a business decision that can also affect how clients perceive the value of their advisory relationship. While some clients may accept higher fees without hesitation, others may reconsider whether the services they receive justify the cost. Understanding how a pricing change affects different clients can help advisors anticipate potential challenges and evaluate whether their new fee structure aligns with their broader business goals.

Tips to Improve Communication With Prospects and Clients

• Consider exploring automated marketing tools. SmartAsset AMP (Advisor Marketing Platform) is a holistic marketing service financial advisors can use for client lead generation and automated marketing. Sign up for a free demo to explore how SmartAsset AMP can help you expand your practice’s marketing operation. Get started today.
• Use communication schedules, email templates and follow-up reminders to stay in touch with prospects and clients. Automated outreach tools can help streamline routine communications, giving you more time for individual conversations and relationship-building.

Photo credit: ©iStock.com/ronstik, ©iStock.com/Jacob Wackerhausen, ©iStock.com/Jacob Wackerhausen