Owners of advice firms track plenty of numbers: total revenue, new revenue, recurring revenue, profit, new clients, funds under advice, active clients, and cost-to-serve. These traditional KPIs measure progress, returns, and growth effectively.
But they don’t measure the advice industry’s biggest challenge today.
Capacity.
This explains why many advice teams have lopsided structures with owners and seniors drowning in appointments, emails, HR issues, and tech problems. Their growth drives them into endless cycles with more work but without the compensation and returns they deserve.
Managing capacity using traditional KPIs is like using a hammer when you need a screwdriver.
Something crucial is missing.
The Missing Metric: Median Fees
The median fee is the annual fee paid by your “middle” client when all clients are ranked by their annual fee. Unlike averages, median fees aren’t skewed by extreme outliers, making this one of my two favourite measures of advice team productivity.
Fundamentally, if a team’s median fee isn’t growing at least as fast as the team’s total revenue, the team is heading for serious capacity problems.
Trying to fix capacity issues by adding team members without managing median fees just pushes the problem down the road, creating harder challenges and wasted previous time. sometimes for years.
Two Real Examples
A well-established comprehensive advice firm in Perth had great team culture, strong referrals, and a median client fee of approximately $6,000. They acquired two advisory operations, nearly doubling total revenue but lowering their median fee by almost 20%.
Two years later, the principals were drowning in activity, managing ridiculous numbers of meetings and demands from tough integration challenges that nearly killed them.
Another solid, comprehensive advice firm in Hobart had an annual client median of $3,500. After three years, they’d added nearly 30 new clients, won awards, and moved into bigger offices. Unfortunately, their median fee hadn’t changed significantly, but they now had more team members, higher fixed costs, more clients, and greater demands on precious time.
Neither firm was earning returns that justified their risk, hard work, or growth.
Why This Happens
It’s reasonable to assume that advice firms’ experience, reputation, ability, and expertise grow over time. It’s also fair to assume that a more skilled team provides higher value than a less experienced one. Therefore, fees for engaging a more experienced team should logically be higher.
But here’s the problem: Most advice teams don’t calculate fees based on value—they base them on how much money each client has. This makes controlling median fees dependent on finding clients with more money rather than finding clients who value the team’s services.
This is one of the advice industry’s greatest vulnerabilities.
The Ongoing Fee Trap
The management of ongoing fees for existing clients adds fuel to a team’s capacity fire. Ongoing fees are essentially historical fees for relationships created years ago.
All advice teams want to increase their ongoing fees.
However, if ongoing fee growth isn’t controlled through median fee management, ambitious teams may be attempting an impossible strategy: continuously providing capacity to serve past clients while funding the training, development, and expertise improvements needed for future growth.
This creates an unsustainable growth path.
The AI Threat
AI advice may solve some short-term capacity issues, but it will create bigger long-term problems as new competitors emerge targeting the prosperous core of every advice firm—their ongoing clients. This might not concern owners planning to leave the industry within five years.
I believe it is the single biggest issue for owners building great advice teams for the future.
What is your ideal median fee?
It depends on what an ideal firm means to you.
But here’s what’s certain: if you’re not actively managing and growing your median fee at a rate that aligns with your growth plans, you’re adding capacity challenges that will eventually consume your returns, your time, and your own plans.
What do you reckon?
Jim
Photo Credit: alone_shutterstock_1509976991