Henry’s firm hit $3 million last year.
Revenue-wise, he is two years ahead of his post-Covid plans.
New client flow is above expectations.
He is growing.
Two more client support in Vietnam have raised their headcount to fourteen.
However.
With more to manage, he is stretched, getting pulled into meetings and not getting to his own work.
His growing team is seeking more flexibility and more pay.
His workloads are ridiculous.
He reckons he needs a general manager.
But they are not cheap.
Worse still, any additional spending means yet another year without dividends.
When will he start making real returns?
Growth is adding more risk and less real returns.
The irony?
Henry’s problem isn’t growth.
It’s how he’s been funding it.
GROWTH TAX
When firms like Henry’s attempt to fund their growth with fees they are comfortable with but less than what their advice clients would actually pay, the gap between comfortable fees and valuable fees is an unseen tax – a Growth Tax – on every growth step.
This makes growth harder and harder.
Adding more team members, more systems, more clients increases the Growth Tax being ‘paid’. The bigger the step, like hiring a general manager, the heavier the tax, raising the risk of growth decisions and potentially lowering the returns.
When advice firms face high new costs such as new team members, IT spends, or teams seeking pay rises, which are all inevitable, founders like Henry are caught.
This is the paradox.
All systems work until they don’t.
To reach $3M in revenue, Henry has had to manage HR, client management, productivity and workflow issues.
However, like a slowly clogging deadly artery, he is oblivious to how his performance is being adversely affected by his growing Growth Tax.
Henry’s ‘comfortability’ with his current fee structure means he lacks the strongest driver for his fees – the value his clients experience.
Without value pricing, Henry can only tweak his team, his systems, his workflows, or possibly raise minimum fees by an acceptable inflationary-like amount (which is ridiculous considering his team is expecting far more than inflationary remuneration increases).
THE BLOCKAGES
Henry faces two blockages.
The first is clear.
Loss aversion.
The pain of losing a loyal client paying, say, $5,000 per annum, due to a fee increase, feels twice as bad as the pleasure of gaining one.
Raising fees feels like going against gravity.
Better to keep fee increases “reasonable.”
Don’t rock the boat.
The second blockage is not as clear.
Henry’s current fee models date back to the 1980s.
While he would never trust his day-to-day operations with software designed for the 1980s, he is comfortable with his pricing instincts still driven by 1980s fee models – hourly rates, funds-based pricing or combinations thereof.
This ensures his fees never align with client value.
Ironic, considering clients engage for the value they experience.
Pricing driven by fear of loss aversion and the use of models built for the 1980s means every advice firm will increase its Growth Tax, eventually experiencing challenges similar to Henry’s.
THE ALTERNATIVE – VALUE FEES
When advice fees reflect the value of advice provided, three things happen:
Firstly, clients are engaged in what they value, not their adviser’s efforts or products.
Secondly, as more clients engage based on their value, the team’s pricing confidence grows as more clients endorse the fees they are paying for the value they experience.
Thirdly, building the team’s skills to identify, price, engage and manage clients based upon what they value, while also delivering the expertise and capability they need, significantly reduces dependency on experts.
When clients are engaged by skilled teams based upon the value they seek, they’re engaging and paying for firm capability, not just access to key experts.
Henry started value pricing with all new clients and selected existing clients six months ago.
He and his team have increased existing fees by at least 20%.
He has also engaged five new prospects with new average engagement fees 42% higher than previous averages for similar clients.
Growth hasn’t been without challenges, as he also lost two new prospects that he feels his old fees might have engaged.
Change is hard.
To support needed changes, I’m starting a new group of firms like Henry’s in January 2026. This group will share their efforts and issues as they implement their own version of value pricing with other firms, such as Henry’s, on similar paths.
Whatever you do in 2026, question if fee models built for the 1980s still work for you and ensure your pricing creates the margins you deserve to fund better growth without also funding an increasing Growth Tax.
Value fees are the foundations of better growth for comprehensive advice teams.
What do you reckon?
Jim
PS – If interested in knowing more about what this means for your 2026 plans, reply with “2026”
Photo Credit: iStock_1266251076