Our CEO, Aaron Klein, talks business leader to business leader about the subjects of pricing and contracts in advisor technology. The following is the post on pricing; click here to read the post about contracts.
By Aaron Klein
CEO at Riskalyze
Most financial advisors wear two distinct hats.
On the one hand, they are very focused on the day-to-day work they do to guide their clients to make the right decisions, and help them achieve their financial dreams. That is their core of their mission.
And on the other hand, most of them are also engaged in the pursuit of building a business. Whether they are a solo practice with an employee or two, or on the way to building a billion-dollar team, or already have an enterprise on their hands with multiple offices and a lot of employees…they are entrepreneurs building something of lasting value.
As a fellow business leader, I thought I’d take a few moments and write about our philosophy on pricing and contracts for our services. We consider ourselves incredibly privileged to serve tens of thousands of financial advisors in the noble work that they do.
Those advisors have the duty to build a sustainable practice with solid technology to support their clients. So on the one hand, advisors want strong and growing technology partners that they can rely on; and on the other hand, advisors want the best possible deal so they can take the extra savings and invest in improving their own client experience and competitiveness.
We’ve tried our best to design our pricing and contract philosophy to live within that tension, and satisfy both interests on behalf of the advisors that we are grateful to serve.
Let’s talk about pricing. (Or click here to read my post about contracts.)
Pricing Riskalyze Select and Riskalyze Elite
Our core products, Riskalyze Select and Riskalyze Elite, help financial advisors create risk alignment, generate proposals, and dive into portfolio analytics. There are a variety of features and capabilities in each product to help advisors achieve those goals.
Candidly, we’ve had a history of some larger advisory firms buying “one seat” of Riskalyze, and putting all of their advisors and staff into it. We’ve had single seats with thousands of client profiles and tens of thousands of “minutes in product” per month. Of course, it’s impossible for us to build a sustainable business if we allowed that, and that’s why our Terms of Service don’t.
Some wealthtech firms solve for this by charging based on AUM, or assets under management. The theory is that this best reflects an advisory firm’s revenue and scale, and thus is a “fair” way to reflect the value they are delivering.
We feel like taking a percentage of your revenue is the wrong approach. As your business scales, you should be able to get the advantage of growing margins because your technology helps you become more efficient — and then you can invest that margin into improving your client experience to help you grow even more.
Therefore, we’ve settled on pricing Riskalyze Select and Riskalyze Elite based on the number of registered staff in your firm. It’s clear, it’s consistent, and we find that it serves as a really good metric for how your firm is sized, and how our own costs scale with your usage.
Take two firms with 400 clients and $150 million in assets. One firm might have five advisors. Another might have one advisor and four registered assistants. We think the fair and consistent way to price is based on the number of registered staff in the firm.
In this model, as technology helps you be more efficient and add clients without adding staff, your revenue climbs without any increase in cost. And as markets grow your client assets, you also add revenue without any additional expense. Our revenue only increases when you grow enough to add more registered staff.
Advisors get most of the benefit of scale here, and that feels like the right balance to us. No pricing model is perfect, but that’s why we settled on “registered staff” as the right way to price these products. And that’s why our Office Pricing plan delivers substantial discounts and additional features for collaboration when you adopt Riskalyze across your entire firm.
Pricing our Trading Automation Platform
A Wealth Management study estimated that the average advisory firm spends 14 hours per year doing back office operational tasks for every individual client investment account. That’s a big impediment to efficiently growing your advisory business!
Our trading automation platform is all about helping great advisors achieve better scale, reduce operational costs, and make it simple to keep client accounts on track. We believe this is one of the primary ways that, as a profession, we can help to democratize access to advice and give you the ability to creatively serve clients the way you prefer.
It’s equally as typical for wealthtech firms to charge an asset-based fee for trading technology, but we generally avoid this approach. The truth is — our costs scale with the number of accounts you put on our trading technology, and don’t rise nearly as much based on the dollars in those accounts. In other words, our cost for trading a $2 million account is higher than the cost of of trading a $200,000 account, but nowhere close to 10x.
That’s why we’ve settled on pricing our platform services based on the number of client investment accounts your firm manages. We have a base license fee for smaller firms with 1-4 advisors, with generous account capacity built in, and very reasonable per-account fees for the firms with unique business models that go over that capacity. Once you reach a certain scale, you can move entirely to a per-account model with very predictable costs.
As your client assets grow, your revenue grows without any corresponding growth in expenses. The only time your costs grow is when you bring on new clients who open new accounts. Once again, it’s the advisor who gets most of the benefit of scale here, and that feels like the right balance to us.
In a few cases, we have entered into contracts with firms that have unique business models and prefer AUM-based pricing. Perhaps they wanted the ability to serve a large volume of very small accounts, or just wanted absolute predictability of their unit economics instead of the ability to get scale as they grow. But for the most part, we‘ve stuck to the account-based model so that most of the benefits of scale flow to the advisor.
We Love Helping Advisors Grow Great Businesses
Ultimately, our pricing is all about helping amazing advisors build great, successful businesses with expanding margins and solid growth. We know you need manageable costs while also having a strong, dependable technology partner, and we’ve built everything about our business trying to strike the right balance for you.
To read my post about our philosophy on contracts, please click here.
As a fellow business leader, I’m always happy to chat about this directly with any financial advisor. You can email me any time at [email protected].
We would be honored to serve you and your firm.