XYPN’s 2025 Benchmarking Study Highlights — LIVE

Alan Moore: Welcome to Behind the Advisor with XYPN, your behind-the-scenes look at the challenges and victories fee-only advisors encounter as they launch, run, and grow their independent firms. I'm excited to be coming to you live from Austin, Texas at XYPN Live. Every year Michael Kitces and I 

Michael Kitces: Authentic clapping. Not recorded, not AI clapping, real clapping. 

Alan Moore: Every year, Michael Kitces and I share the story of where we've been as a network and where we're headed next. In today's episode, we'll walk through trends across the network. In profession, you'll hear insights from network around network growth per client profitability, significant firm changes, staffing patterns, and capacity ratios by business stage, all designed to give you a clear picture of what's working for advisors like you.

You can go to https://xyplanningnetwork.com/412 to see visuals of what we are discussing today. So with that, let's dive in. So we're going to get to the first graph. Alright. We are not seeing the slides on our monitor, just so you know, but Michael has all this data memorized, so it's totally fine.

Michael Kitces: The bars move up, so right. There we go. That's good. 

Alan Moore: The beauty of doing this live. The chart, which you all could see, is something that we show every year. It's something that we are, it's just really interesting data for us to pull. And now that we've been doing this survey for what, I believe eight, nine years now?

Michael Kitces:  Yeah. Eight or nine years now. We have nine years of data and so we can start to see trends instead of just individual years. 

Alan Moore: So what this chart is showing you are, advisors who joined XYPN basically with no clients. Okay. They're starting from scratch. And so this is showing revenue per year that they've been in business for those who just joined and they just had their first year.

To those who have been in the network six plus years, and their journey year over year of their top line revenue. The reason we show you folks who started from scratch is because those who come over with 50 clients skew the data. And if that's you, fantastic.

If you are starting a firm and you're like, I already have 50 clients, I can't guarantee your success, but I'm not too far off from it, from the data. But if you are starting from scratch, then it is a big unknown. 

So what have you noticed this year and in prior years with this data that might be helpful for folks as they're thinking about starting their firm?

Michael Kitces: We look at a version of this chart every year. The numbers are remarkably similar as we look at it from year to year. Year one is absolutely awful for everyone. So no matter how awesome you think it would be, and you've got all that wonderful energy and I'm so going to do awesome and have a great first year, and not do the $5,000 of revenue that most people do.

And then you get through your first year and you're like, oh God, it was $5,000. It's just, it's awful for everyone in the first year which to me is just - don't lose hope. The chart does move up into the right. It does get better over time. So some years we see this and members average as much as 10 or $15,000 in the first year. Sometimes it's more than five to 10. It's almost always somewhere in that range. For all the years that we've been doing this. It is brutally difficult in the first year. 

Then you get to the second year and it gets incrementally better. Like often now by the second year, we'll see firms that are coming in anywhere between about probably 35 to 55 of revenue. Most commonly if I average amongst a bunch of different bars. We look at the data on the slide here by different cohorts of when members joined. 

We do see some things like now with the discussion around the financial crisis. Members who joined during the financial crisis actually did quite well.

Members who were going are getting ramped up in 2022 when inflation picked up actually got hit harder. One thing that's interesting to me is just we look at the ongoing evolution of XYPN, and particularly how many firms launch with planning fees and subscription fee models.

Historically, just AUM firms for very obvious reasons, are sensitive to economic and market cycles. When there's a recession and the market goes down and you bill on AUM, ouchie. It turns out that for firms that price on subscription basis, we're much more sensitive to inflation than we are to the market.

It makes sense. When inflation picks up and everything gets more expensive and people are feeling like their wallets are tight and they might have to cut something at some point. That thing on your statement that several hundred dollars a month, your financial planner starts to come into question.

And notwithstanding all the very good cases we can make about why during difficult financial times is not exactly the best time to fire your financial advisor. We could see it like, we could see it in the growth rates of members who started through that time period. I don't think we have the chart in here, but we do in the overall benchmarking study, if you just look at growth rates by year growth rates were much better for XYPN members in 2020 and 21 than it was in 22 and 23, and then it picked up again in 24.

The trough was 2022, not 2020. So to me, it's just interesting to reflect. Then you get out to year three and the numbers usually start getting good. For most firms we see, like by year three, average revenue starts showing up. Any, like typically north of a hundred we're somewhere in the like a hundred to 130 range.

If you're tracking the compounding of that, that usually means by year three, we add as much revenue in year three as we did in years one and two combined, which is really aggravating for all us. I'm like, I've been working my backside off for three years. Where were all of you people in year one when I really wanted you and I had no revenue?

And it usually comes down to some version of just, it takes time for people to know and trust you, right? The hard reality when we're getting started is a few people, often from our friends and family network, are like, that's awesome. And you've always been my financial confidant friend already.

So I'll totally work with you now that you have a business for this. And a lot of the rest of our friends and family circle are like I wish her the best of luck. I just wanna see if this sticks before I like really. Work with her and move my life savings over there or love what you do.

Totally hope it works out, but I'm not sure and I'm ready to be your Guinea pig with my life savings. So I gotta see how this works out. And then after about two or three years oh it looks like she's really hanging alright, let's go now. I'm so excited. It's been going and you're like, I really wanted you two years ago.

But thank you for coming aboard with me now. And then once we get there like revenue growth just seems to chunk along pretty consistently. We see most firms from there adding somewhere in 50 to $75,000 of new revenue per year for the next couple of years. Just there comes a point where you don't necessarily want the growth to be too fast. Because in case anyone hasn't noticed, new financial planning clients tend to be more work in the first year. So if you take too many at once, it gets stressful. And the more current clients you have, the more stressful it is to take on. So as we see it, growth in practice often gets more linear for firms after they get through the first few years, which you see, if you look at the chart on the far right.

Just growth for firms who've been members who've been with us for five plus years. There's some overlapping effects. 'cause the last bar could be people who've been here for a very long time. But you'll see there's just a linear growth effect that starts to kick in, which I think is nothing more than we all have to manage our capacity about how many clients we're taking on relative to how many clients we have to serve.

As we'll probably talk about later, you can pick that growth curve faster if you're willing to reinvest into a team. The caveat is that means your take home will be flat or go negative because you're waiting for the growth while you hire the salary team members. Welcome to reinvesting in your business.

We all make our decisions about where we want to do that. 

Alan Moore: Yeah. And we're going to talk more about individual components that are leading to overall success in the firm, but I think what this chart is showing us and what it has shown us over the years is that it is all about starting a firm when you have the capacity for it to take three to five years.

Again, if you're bringing 50 clients over, great. Then you don't have to listen to me here. If you're starting from scratch, you need a runway. You need several years. That runway can come in the form of savings from another income source, from your spouse or partner. Like there are ways to do this where you don't just have to have a million dollars saved to be able to start a firm.

So there are options. But there is a reason why, the number of advisors at XYPN that are in their twenties is very small. This coming from a guy who started my own firm in my twenties, and I do not recommend it to anyone. 

Michael Kitces: I don't recommend it either

Alan Moore: Because there was no runway, there was no other income.

And this is why we see more experienced advisors who do have that runway being more successful. So I think this shows, to Michael's point, the first three years are tough. They are, the first two years are just, are really hard. You are going to be working so hard and you are going to feel like you're making no money.

You're going to wonder why you did this. Year two is the, oh crap, what did I do phase. Year one, you're just excited. You're just like all in, by year two, you're like, what in the world? I should just go get a W2 job. People keep calling and offering me jobs and they pay more than I'm making. 

By year three is when we start seeing advisors stop taking those calls, stop entertaining those conversations because they're making enough revenue, both gross revenue as well as revenue outta the business to be able to feel like they don't have to go get a job.

Michael Kitces: Yeah that's, year three usually becomes stages. Like it's still not where I want it to be, but it's good enough. Like I'm feeling okay, I've gotten enough client reps in so I can do this. I'm going to make it, it's going to take a few more years of additions to really get the numbers to where I wanted to be.

It's like enough that I'm not quite as stressed or my spouse is not drilling me quite as hard. I'm not burning a lot of household cash now, or at least covering down. And we get to keep growing. And now it gets a little bit exciting. It's wow, every single year of growth from here just adds, and then the compound kicks in and it's really the eighth wonder of the world.

Alan Moore: All right, moving on to the second chart. Okay. This chart looks at the question of whether or not folks are a CFP professional, and it shows the difference in average yearly growth of revenue for the firm or for the advisor when they have the CFP versus not.

And so really from day one, when we launched XYPN, we were big supporters of the CFP. We really believed in it. But candidly we didn't have this data. It was a hope and a dream that it would ultimately turn out that we were right, that, having the CFP ultimately maybe if it didn't cause success, it was correlated with success.

So I guess when you're looking at this over time, are you seeing a causation effect here or is this mostly correlation? Or I guess what would you say to that? 

Michael Kitces: So technically speaking, it's a little hard from one chart to make the determination. That being said, like I look at this and a lot of the research that we have on the Kitces end and frankly I think there are aspects of both that we're finding. So two things that, that, or I guess, sorry, like three related things that crop up here.

There's an extent to which CFP certification just gives you a base of knowledge to be able to delve deeper, find more opportunities with clients, and actually give them helpful advice. Although frankly, from the early stage growth end, it just be able to uncover. Gaps where clients might actually need help and the broader training you have into all the different areas that they might need help, the more opportunity you have to be able to give people you full advice and work with them.

The most fundamental aspect of getting a client is showing that there is some gap between where they currently are and where you can help them be and solving that gap by engaging you. So the more knowledge we have to find gaps and opportunities and be able to give helpful advice to help them, the more likelihood it is that we can do something useful for them and attract business.

So there's just some raw like competency from the CFP marks that helps. The second part of this that shows up as well that we actually see more on the kitsis research side, is when we just mix all together, all the advisors that do marketing things to grow their firms. We look at how much they spend to get their clients in terms of the time that they spend and the money that they spend in like hard dollar marketing costs.

We calculate a version of what's known as a client acquisition cost, which is essentially what are all of your marketing sales expenses together, divided by how many new clients you get in a year. And we can figure out on average, like what does it cost you to get a new client? And overall across the data, we find very consistently client acquisition costs are materially lower, 30 to 40% lower for CFP professionals versus not CFP professionals.

And what that essentially implies is consumers in the aggregate express a preference for CFP professionals over, over, not they are seeking out CFPs more than not, which means if you have one, you are getting more at bats than you would have if not, and that's how you end up with lower client acquisition costs.

For most of us who have done this, rarely do we get the - my clients never asked me if I had the CFP certification, the client meeting. I'm like, yeah, 'cause we have this thing called the internet, and they probably would've looked you up. And if they cared, they wouldn't be in the meeting with you.

So you don't see, non CFPs don't see all the people who do realize they didn't have a CFP and just moved on. But when we look at the data in the aggregate, what we find out is consumers are very clearly showing a preference for CFP professionals overnight. So I think this becomes a combination of, there's almost certainly a competency effect.

We're able to delve deeper into client issues and opportunities so that we can grow, do business and grow revenue. There seems to be a consumer preference, which means you're at least greasing the wheels. No, your phone doesn't ring because you have the CFP marks. But when you go and do your marketing things, they seem to all incrementally work a little bit better when you have the comma CFP after your name than when you don't.

And in the spirit of correlation, it's hard just wearing my nerd research hat. It is hard for me not to wonder whether there is some self-selection bias, self-motivation of the people who choose to seek out CFP certification versus the folks that don't choose to seek out CFP certification have some difference in things that are also correlated towards growth. Drive, conscientiousness, focus on clients. It could be a bunch of different things, but I suspect there's something there as well that colors the numbers a little bit. 

Alan Moore: Yeah. And I know we don't have the data for this, but I was curious your thoughts on, if I'm an advisor, I'm sitting here, no CFP, I'm in year three, I see this difference and I see, okay, if I go get my CFP, I can earn $20,000 a year more, I go get my CFP.

What do you actually think an advisor can expect from that? Do you, do we just see a revenue jump or is it going to take time? 

Michael Kitces: Oh it definitely takes time. It definitely takes timing. Again, there's not a I got the marks now the phone ring at, I don't, we actually don't have hard numbers on things like close rates, but if you imagine from home we'd be like, great, the CFP certification like boost my close rate by 10% just flat out because I have the comma CFP after my name.

It's awesome. So if I add up how many qualified prospects I'm in every year, I'm like, I got one more client per year. 'cause I'm seeing 10 or 20 people and I up my close rate by 10%. It's like I got one or two more clients. Like awesome compounds and cool ways in the long run does not dramatically move the needle immediately.

What I can tell you from what we see on the KITSIS research side of it though, because I was actually looking at these numbers recently when we looked very broadly over, across all the samples that we have of CFP professionals versus not what we find cumulatively over time average wealth levels of clients of CFP is about 30 to 40% higher than those without.

So we end up attracting. Higher dollar, more complex clients. So whether you're working on a subscription retainer model or an AUM model, just people with more financial worth all to pay, typically pay higher fees on average, like they got more complexity, they're willing to pay more for your time and expertise.

They got bigger problems to solve, and they're willing to write bigger checks to solve them. So if you move up the up market in clients' affluence you end out with higher fees, higher revenue, and not coincidentally, tying directly to that. We see average take-home in the income in the aggregate for CFP professionals, 30 or 40% higher than non CFPs.

Again, that is very much not how - “I got the marks in, next year I'm supposed to get 40% more clients than everybody else who is getting them”. But when we look over people's career arcs, like that's the gap difference, which is take any professional's income and what they earn, take 30 or 40% of that, multiply that by the career, by your career life.

Like that. CFP is a really good ROI, if you're going to do the math on it. But it does take years to play out. Although as we see even from some of the data here, like these are non-trivial differences and just raw new revenue growth that we get. And we I, when our benchmarking team does this, I always ask them like, please show it in dollars.

Not percentages. 'cause percentages get fun and weird when the denominator is small. I'm just like, dollar for dollar, pound for pound. Who's bringing in more revenue? And this is what we end up with. 

Alan Moore: Yeah. And if we assume that this, it's not literally I got the CFP, therefore I'm making more money.

It's more an indicator of experience and confidence and know. For anybody who is listening to this episode, who's in this room, who maybe is thinking about starting a firm I get this question a lot of, Hey, I'm a year, two, three years out. What can I be doing today to set myself up for success?

And in my answer I have a few different things I would recommend, but one of them is if you don't have the CFP, I highly recommend you get it. Yeah. There is no better time. You do not wanna be trying to study for the CFP while you are starting a business. It is overwhelming. There's so much to do.

And so go get your CFP and if you have the opportunity, if you have not taken any classes, what I think the CFP is seven courses. I'm like you might as well go ahead and get your master's while you're at it. Learn even more. And there's some wonderful programs that have online master's degree programs, university of Georgia, where I went, Kansas State, Texas Tech.

There are others. You can go to CFP board's website and find those. And it's not because I believe putting MS after your name is somehow going to generate more clients, but it is going to give you more exper more education deeper knowledge when it and that sort of, when we talk about leading to these higher growth numbers those are all going to be wins.

That's not going to hurt you by any stretch. 

Michael Kitces: Yeah, just look in the grand scheme, like we are a trust-based profession and demonstrating competency and credibility improves trust. It's like that's the reality of it. The bad version of that is why there are a lot of designations in our industry, some of which are fairly questionable.

They at least are pretty good on the credibility end. 'cause consumers don't want the, don't know which one the good ones are and the bad ones are, it's not so good on the competency end 'cause they don't actually teach you that much. And some actually really do. CFP marks are pretty well demonstrated for it now.

Alan Moore: So bottom line, get your CFP and if you can't afford to take the exam, let us know. 'cause we have a scholarship program where we pay for, there you go. 30 advisors to take the CFP exam every year. So 10 per cycle. Alright, moving on to our third chart here. 

Michael Kitces: Oh, now we're getting the nerdy data. Sweet. 

Alan Moore: There's a lot of data on this.

So we'll have to piece it out for folks who are listening in. And again, if you go to xyplanningnetwork.com/412, you can see these charts and graphs. So we're looking at figure three, which is median per client profit. And the total average profit margin from 2016 to 2024.

So this is the nine years, is that 1, 2, 3, 4, 5, yeah. Nine years of data. And showing revenue per client offer, operating profit, margin per client, and then the overall operating profit margin of the firm. So when you look at this chart other than the strange blip in 2017 revenue per client we were a little smaller than the data gets a little lumpy when the sample size is small.

It is true. 2016, I believe we had just over a hundred, I think we closed that year at about 180 members, which means only about a hundred people were even eligible. That had already been in business for all of 2016. Yes. Actually it was less than a hundred that would've even been eligible.

Whereas 2024 we had lots more, yeah. Over a thousand firms. Okay. So what are you seeing from this data? 

Michael Kitces: So a few things I look at when I. When I reflect on this data the first kind of getting to something actually that we mentioned yesterday that there is a certain level of just per revenue per client that it takes to run the firm and be able to grow and scale the firm.

And the said like magic number, it's not that magic, just what we find at the end of the day, and we've seen this crop up in research on the Kitces ascend as well, is that it's really hard to just scale this thing in at less than about $3,000 of revenue per client for on ongoing clients that you're working with.

If you're in a one-time transactional model, sometimes it can look a little bit different, but then you need a really high volume of clients, which creates other challenges in a recurring revenue model, it gets hard to scale south of $3,000 of revenue per client. I've seen a few firms that were eking it out at 2,500 per, and it just gets really bumpy below that.

And the reason for that is if I'm generating $3,000 of revenue per client, and I start thinking about how many clients can a single individual advisor handle, and you'll get to some number, like on, on their own before you start staffing up around them. Most of us, if we're really doing deep, meaningful financial planning relationships with clients, start capping out somewhere in the neighborhood of 75 to a hundred clients, put some admin and other staff support.

Maybe you'll get a little bit further, but it start usually by, by 40 to 60. It's feeling really busy with the admin tasks by 75 to a hundred. It's like I'm just trying to tread water and do all the planning meetings and service work and things that come up in between for clients. So if I'm doing $3,000 of revenue per client, I get to $300,000 of total revenue per advisor.

If I'm running a healthy advisory firm, ideally my advisor compensation salary. Is no more than 40% of total revenue. If I have 40% for advisor comp and I have 30 something percent for overhead, I can run a 20 to 30% profit margin as advisory firm. And then oversupply. I feel like if I'm taking on these clients and handing 'em to an advisor and they have no biz dev responsibilities, usually my advisor compensation is even a little bit lower than 40% if they're quote just in a service advisor capacity role.

So if you start backing into that if my advisor tops out at a hundred clients and I'm charging $3,000 per client, so my advisor's responsible for $300,000 and I'm trying to keep their comp at no more than about a third of their revenue to stay aligned on those metrics. If I'm at $3,000 of revenue per client, my advisor comp is topping out at a hundred thousand dollars, and it will be very hard to retain a high quality experience advisor for less than a hundred thousand dollars.

And so that's where that number comes from. As my revenue per client gets a little bit higher, if I can get to $4,000 now suddenly that advisor's responsible for $400,000 of gross revenue. Now I can be paying them 120, $130,000. The numbers are still coherent to the firm. I've got room to hire some administrative staff.

The firm is still profitable at the end, and the reinvestment cycle begins and continues. And so coming back to the chart here, ultimately what I see is a lot of firms started out just working on anything with anyone. And to be fair, a lot of us do that when we get started because we're just trying to survive.

And the higher the percentage of members that are now more established, mature firms and getting to the point where they want to grow and reinvest, we all collectively start realizing and finding, I'm working too many, I'm working too many hours, this isn't sustainable. I need to hire. I don't have enough revenue to hire, even though I'm at capacity.

Why am I at capacity and I don't have enough revenue to hire? The answer is because I'm not charging enough per client to make that work. And then we start making adjustments. I think our benchmarking study found for many years the percentage of members who raised their fees in the first three years of business was a hundred percent.

Recently it came down a little, I think in the last year's study it was like 90%. So, 10% of us decided we're just going to get it higher in the first place. For most of us, like I don't view it as a negative thing, right? Just you're getting started. Any revenue is better than not. We don't exactly have a lot of pricing confidence or business confidence or planning confidence or anything else when we're getting started.

So we all underprice ourselves. It's just a habitual thing. I now accept it as just part of the professional journey. But the more mature the firm gets and the more we get to the point where we really find we have capacity constraints and we need to hire and we need a certain amount of revenue metrics to make the hires work, the more firms end up adjusting their fees to a level that allows for reinvestment cycles.

And so when I look at this, ultimately just what I see is a larger and larger percentage of the network is getting to the point where they're deciding they wanna reinvest and they're making sure that fees are high enough to support that. Over the past five years, average revenue has drifted up from what would be like a little almost 2,600 to 3,400 to 4,100 to 4,700.

A little bit of that also gets dragged up by some of us that are just going after super high dollar clients that have a lot of complexity. I know there are a few of you out there that are charging like 10, $20,000 a year or more. But we deliberately draw this chart with medians, not means, not averages, so that we don't get dragged up by the long tail of folks that are working with some super big clients in specialized circumstances.

So I look at it like we are pricing the services at levels that let us grow and reinvest comfortably, be able to hire, be able to expand capacity so that we can grow and scale up the firm. 

Alan Moore: So there are just a couple points I wanna add to that discussion. And one is really from the beginning of when we started this benchmarking study, to your point, we kept finding a hundred percent of advisors were raising their fees in the first three years.

And so Michael and I started really beating the drum of, Hey, whatever you want to start your fee structure when you first double it. Just go ahead and double it. And I think what you are seeing in this chart, one is that I think some folks actually listen to us 'cause we do see a higher average fee in that first year.

And so I think one, it's working. Two, it's also fair to say that this chart does suffer from survivorship bias. And so for the folks who, it's only showing the people who. Stayed in business long enough to to get here, which means if you were charging $1,300 a year per client probably you, you either raised your fees or you probably ended up shutting down your firm and not making it to these future years.

And so this chart and really the whole benchmarking study, it's something that we you know answer every year or it's a question that we get every year, is just related to, how much survivorship bias is here. And absolutely, there, there is always going to be survivorship bias in data like this.

And so that is probably playing a part too, where those who had a little bit higher revenue per client have stayed in business long longer. And therefore this number is starting to incrementally go up over time. If you're just launching today, you don't have to look at this and say, I must charge $5,000 per client.

Per year, you've really gotta look at your target market. Advisors will ask what's the right fee structure? What's the right fee level? It depends on your target market. If you work with, CEOs that make a million dollars a year that's going to be a very different fee structure than if you work with folks who are making a hundred thousand dollars a year or have millions of dollars in assets versus no, you're managing student loan debt.

So all of that plays into it. 

Michael Kitces: Yeah. 

Alan Moore: One, 

Michael Kitces: one or two quick notes I would add on this as well. First the other interesting thing effect that we find for this is if I cross over to some of the research we do on the Kitces Ascend, which has a broader base with lots of AUM firms as well as subscription fee firms.

When we look at AUM firms the numbers are actually shockingly similar. We talk in XYPN context about $3,000 of revenue per client as a baseline, and now like median members getting close to $5,000. When you look in the AUM model, notwithstanding. The small subset of super fancy high dollar AUM firms that work with bajillionaire, most advisory firms work with the massive affluent have 250,000 to a million dollars in investible assets and is not a coincidence that the most common AUM minimum on the advisory side is $300,000, which if you're charging 1% is three grand.

And the median firm has half a million dollar clients as their average client. They got a couple bigger ones and some smaller ones, and the middle's right there. And if they're charging 1%, it's almost exactly the same number. Just the dynamics of what it takes to scale an advice business full of humans.

Because at the end of the day, we're not the tech thing. You can get like the tech thing super cheap and if you want to DIY, your tech thing, consumers will do that. But like we're the service business that lives between what the tech does. And so as long as that's true, we have to be able to staff service professionals.

It's service professional wages and it just creates a certain floor of what it takes to. Deliver advice in making an economically viable relationship. 

Alan Moore: And also not surprisingly, operating profit per client goes up as operating revenue goes up. 'cause that's really the important number there. Alright, moving to our next chart.

What this table two shows is the percent of the study participants who made a quote unquote significant change in their firm. So we asked a lot of different things of did you do this year, yes or no? And then we broke this chart out into launching, building and scaling. So just as a reminder let's see.

Launching is I am, I believe it's zero to five. Oh gosh, I should look at this. 25, 25 clients. Yep. So zero to 25 clients. I'm launching my firm. I'm in those early stages. 25 to 75 clients essentially is the building phase or about 150,000 of recurring revenue, or I'm sorry, 150,000 of annual revenue.

And then scaling is 75 ish clients or more. And so that's how we break this down. And what are you seeing that's, or I guess what was notable about this chart to you, when you look at what advisors, the changes advisors are making in their practices? 

Michael Kitces: I think it's striking just to look at where the large percentage is clustered and how it's showing up.

Again, basically as you go from left to right you're getting from early stage to mid stage to approaching personal capacity and deciding what's next. Launching stage. Lo and behold, the primary things are yeah, I'm in the launching stage, so I'm on my third niche, my fifth service model, and I just updated my fees again.

So if that's you, cool. Everybody else too that's normal. And to me like that, that, that's really that's valid. That's normal, right? The reality in when, anytime you start a business. There is a stage of, I think I wanna know what I want to do and I think I know who I'm going to do it for, and I think they're going to pay me for it, and I'm pretty sure how to deliver it.

And then you go and dream meets reality and you just start adjusting and figuring it out. I thought I was going to like working with these people at turn. I had a friend who had started out like super focused on the divorce niche and she was like, that's going to be my thing. Like I've been through a difficult situation.

I really want to help women who are going through a divorce. And then she started down to that road and she was like, I just feel really depressed. They're so stressed all the time and I'm like taking their stress onto myself and I'm just, I'm not enjoy, like I really wanna help them, but like I am, I'm contributing so much positive energy and taking back so much negative energy that I just don't enjoy working in this segment.

So much love to those of you who have done it successfully, there's a. An incredible emotional balance regulation thing. You are managing to, to deal with people that are going through some really difficult times. She just came back, she's I was so set to like, this was my thing. I was like I just realized I don't really enjoy working with this segment.

And so then she went and found another area to specialize in and focus on. So 

Alan Moore: said another way, these first three, they changed their niche or their target market. They updated their fees, they changed their service model. That is finding product market fit. Yeah. Yes. That is the experimentation. If you haven't read the Lean Startup by Eric Re highly recommended, it is all about that process of finding product market fit.

And then once it hits 

Michael Kitces: and then it hits and you get in the scaling you get into the building phase and everyone realizes they underpriced. There it is. People start buying. There it is. Suddenly you're there. Two thirds of all firms after they got to 25 clients went, oh crap, I didn't charge enough.

And not coincidentally, about one in six of them are starting to hire. Because usually what happens is you things get busy. You realize you're not charging you, things get busy. You wanna hire, you look at your books. You can't hire, you say, why can't I hire? You're so busy and you realize that you undercharge and need to raise your fees and you do cool.

And again, like I would even characterize that as part of the normal progression. I wouldn't feel bad about it. The biggest thing I would say to any folks out there, including this who are listed, who are like not launched yet and looking at this here's what I'd say. If you want to charge lower in the first few years, because you're just like, you're just trying to get comfortable.

You're just trying to get out there. You need to get revenue going. You are so gracious and thankful for anybody that's willing to actually hire you in that first year. That's awesome. Price, wherever you need to price to get them. Here's the one thing, this is the most important thing. Here's the one thing.

Do not say, and you can have this fee forever. Just don't say it. You're going to want to. You're like I'll only charge you $1,200, and you can keep that fee forever. Like it just like pops right out of your mouth before you can stop yourself. Don't say it, you don't need to say it. I promise you when they are trying to decide whether, do this experiment and hire you when you just became an advisor and they're not even sure if you're going to survive and be around in 12 months, no one is judging you by whether you're going to keep this fee in the decade of the 2050s.

They don't care. It is literally not a factor in their evaluation of whether to work with you right now at all. Price, where you're going to price, just give them a number. Whatever you feel is fair, appropriate at the time. Do not commit yourself to keep the fees low forever. They don't need it, it's not going to drive their decision.

It will box you into uncomfortable corners later that you will not want to back out of. And really ultimately find, like the biggest problem is not that we start low and raise our fees, it's when we start low and we pigeonhole ourselves into it, not being able to raise our fees when the time comes. So give yourself the room and Grace to be able to get to a point to say, now that we are better established with our client base and we're very clear about what it takes to deliver our services.

I love working with you, but we need to adjust our fees to reflect the reality of how much work we're doing for you and all of the value that we've created for you. And our new fee is blank. And the reality is you're terrified. All of 'em are going to say no. And basically all of 'em are going to say yes, except one or two.

One will be a bummer. And the other you'll be thankful 'cause you really didn't want them anyways. It was a good excuse to get rid of them. 

Alan Moore: And for those of you who are looking at this as particularly if you haven't launched yet, you're thinking about it, I would highly recommend based on the Lean Startup, there's a a course called.

The business model canvas and it is essentially a one page business plan with nine different sections. And it is essentially finding product market fit. There's, if you go to YouTube, you can look up the videos. They are from like the early two thousands, so you can chuckle at the clippy art PowerPoint presentations, but still super important sort of education in terms of how to go through this iterative process a little quicker.

So if you don't wanna get stuck in this phase of trying to find product market fit, highly recommend the business model canvas. I think the last thing worth saying is as we approach scaling phase I think this is obvious and makes sense, but our service model is dialed in. Yep. We've figured out what our service model, we keep raising our fees 'cause we are now hitting a scaling phase where we realize.

We should have been charging a little bit more. 

Michael Kitces: Two thirds of members raised their fees in the building phase and the other third got to the scaling phase, started to hire and then raise their fees. 

Alan Moore: And then we start hiring people, which makes sense. We're now at a revenue point where we can hire folks.

And once you have team members who you have hired, some of those team members get fired. And so, those are the bigger numbers that we see there. Alright our fifth graph is figure 22. The percentage of advisors leveraging in-house versus outsource staff and their number of clients.

Again, this is, looking at the launching phase, the building phase, and the scaling phase, and what percentage of those advisors have outsourced, business development, client meeting help, client prep, financial planning, prep, office admin, admin tasks. And then it also shows the number of clients.

So I guess this is sort of connecting back with some of the prior conversations, what are you seeing here? 

Michael Kitces: So a few things I would note here. The tallest bar and simply put like the number one thing that we start hiring or outsourcing is admin work transition. The admin work first. For anyone that's read Dan Martel's Buy Back Your Time, which if you haven't actually very highly recommend.

The first thing you get rid of is the administrative tasks. We find this in our benchmarking research on the Kitces Ascend as well. When we look at progression of hiring for the most productive firms, the first hire they make is admin.

Alan Moore: And said, another way, I think Dave says this in his book if you do not have an admin, you are the admin. You are a very expensive and probably really crappy admin. 

Michael Kitces: Yeah. Even aside from the cost dynamics, most of us got into this business to serve clients not to do paperwork.

So it also, frankly, just has a happiness lift for most of us, I think, to get rid of that. 

Alan Moore: The, a lot of that paperwork tasky stuff, 

Michael Kitces: For all which you said you 

Alan Moore: found, right? Like happiness for Advisors goes up when they make that first admin 

Michael Kitces: hire. Oh, yeah. We're working on a fresh version of our advisor wellbeing study right now.

And we found so parsing through the data, but when we look at the difference between advisors that are like thriving with Wonderful Bell being, and the advisors that are least happy the number one biggest difference that pops out in the data is the amount of hours that spent on administrative tasks.

The unhappiest advisors work eight more hours than the happiest advisors, and six of the eight hours are on admin work. Said in other ways the happiest advisors get rid of admin and that sheds enough hours that they work few hours and feel really happy in their businesses. No, it's not the magic formula.

There's some other things that happen in life as well, if it was only so simple. But getting rid of the admin work really matters. And just as you can see from the chart, you're like, and most of us have figured that out because that actually is the most common thing that we that we hire or outsource or delegate down.

And often it shows up a tiny bit in the launching phase where some of us at least do part-time fractional virtual assistants maybe. And it really starts to show up in the building phase. Again, as I think I mentioned earlier, like somewhere around 40 clients, you start to go, like there's just a lot of stuff.

I used to come in every day and there was like a client phone call or email to return, and then I could just dig into some planning things. And now I come in every day and there's like a task list. If you're good at making task list, if you're not, you're just going crap. I think there are things I'm supposed to do today.

I should find someone who helps me make task list because that's not my gift. It really starts to show up somewhere around 40, 40 clients sometimes a tiny bit earlier or later, depending on how efficient you are with your own tech and systems. But that's basically the middle of the building, phase 25 to 75 clients.

So admin really starts to show up there and then it becomes fairly ubiquitous in the in the scaling phase. Although as I think we'll talk about with some subsequent slides as well I, part of me is actually slightly concerned that it is not a hundred percent in the scaling phase. It's 83%, which means about one in six of us are already north of 125 clients and we still have not hired anyone to do administrative tasks, which means either I'm doing it or I hired associate advisors and I have very expensive admin people that I'm calling associate advisors and giving admin work to, which is.

Not ideal from a business end. 'cause that's an expensive way to get admin tasks done and frankly starts to create some retention issues. Because upwardly mobile, professionally oriented, aspiring CFP professionals are not big fans of doing admin work either for most of the same reasons that a lot of us don't like doing it.

Alan Moore: Yeah. Usually not very good at it. I remember when I was working as an advisor in a firm and they're like, all right, here's all the paraplanning tax. I'm like, I wanted to be a lead advisor. And they're like, no, you have to do the paraplanning stuff. I'm like, no, I'm terrible at that work. I wanna be a lead planner.

So one, one other thing I do want to note about this is that this is not necessarily showing up in the data, but just from my personal experience running a business is that looking at this, you cannot simply skip the phases either. You can't just go hire a full-time admin staff and suddenly everything works great.

You will have to go through the phases. Now, there may be, if you're struggling, I hope what you're seeing here is oh, these are the things I can't outsource. My peers are outsourcing these tasks. But if you're just starting out, you have two clients, please do not go hire a full-time admin staff.

All right. You're not ready for it. Yep. Alright, and our last graph table that we wanted to go through this looks like a small amount of data, but has big connotations and lots of conversation that we could have about it. And that is staff capacity ratios by business phase. I'm thinking back, it was two or three years ago, you gave a keynote presentation specifically on this topic of hiring and, revenue per advisor and revenue per staff member and that sort of thing.

And just really interesting to see this and I wanna talk about what, how this has changed I guess over the last several years. So what this is showing is clients per advisor as well as clients per total staff. So clients per advisor, number of advisors in your firm. If that's just you, that's one.

If you've got two advisors and total, clients per advisor, and then separately clients per staff. So if we look at launching, building and scaling, obviously we see the clients per advisor going up. We see the clients per total staff going up. So what about this chart is interesting to you? 

Michael Kitces: The numbers are a little low on the scaling end.

The real focal point of this chart to me is the scaling phase. The numbers are not terribly meaningful in the first two phases because the reality is it's not like I've hit my capacity and now I'm hiring or and now I'm hiring around it. Like, why does the average firm have only 10 clients per advisor in the launching phase?

It's because they only have 10 clients. So they are fully employed with every single client that they've got, and they probably have a good amount of spare time on their hands. 'cause it only takes so much time to service 10 clients. Ditto to some extent in into the into the building phase. At this point I probably have, I mean I think our median member in building phase has 40 something clients.

I've hired a part-time VA to help me with some of the administrative tasks. I got 40 clients, 1.5 staffers. It's about 24 clients per and like there we are. I get concerned about this when we get to the scaling phase. Ideally by the scaling phase. We're at the point where our numbers start to normalize from the data sense, which is, I'm at a point where my team is not necessarily at capacity.

'cause we're completely at capacity. We've got no room to grow. So ideally I'm 70 or 80% capacity, so I got some room to grow and as I add more from here, I'll hire another person, expand my capacity, and that's the process of reinvesting into the business. So that in and of itself, it's fine. And the raw numbers themselves, like how many clients per is a little bit rough here because you can't really figure out what a normal number of clients per advisor is until you know what revenue they are.

If you got 44 clients per advisor and you're working with Bajillionaire in a family office, that's amazing. Like some family office people cap out at 10 clients. If you're at 44, that's awesome. If you're working with young professionals who pay you $250 a month, $3,000 a year, that's a little rough.

That means your gross revenue per advisor is like $130,000. So if it's not you and you're paying them anything, there's no money left for admin staff overhead and certainly not for profit. And if we get back to the earlier numbers, while median fees and median clients don't perfectly match up, it at least gives us a neighborhood as we saw earlier, like median fee.

Revenue per clients. It was a little under $5,000. And so when I look at a chart like this, I'm like, so that means my clients per advisor, 44 clients, we'll call $5,000 of revenue per, just to make the math a little bit easier, we're running $220,000 of revenue per advisor. And as I said earlier, at the end of the day, the numbers have to add up to be able to pay a fair rate salary to your staff or you're going to have some problems.

And so I look at this and like I get worried that even in scaling phase, some of us are still a little bit low or my really, my concern is there's a segment of us that have priced up to the point that we can reinvest in a team and salary. And there are a segment of us who have not gotten there yet.

And we're now going to start really feeling the pressure of, it's really busy and there's a lot of stuff to do for clients and there's just not a lot of money left at the end of the day to hire. And if I do hire, because I don't wanna work in bajillion hours I've got some pretty good revenue in my firm and.

I'm really not making much. And I know there are a few of you out there are like, I've got you've got like four to six team members and five to $800,000 of revenue and you're taking home less than a hundred because ultimately it comes back to fees aren't high enough. And, I wish that wasn't the case.

I know a lot of us do this 'cause we're trying to expand accessibility. We talked about this a little bit in the opening keynote as well. But there does come a point where I'm all for the accessibility end as well, but at the end of the day, we do run a service business and service professionals need time to do the work and need professional wages to do what they do.

And unfortunately that just builds a certain layer of cost. And if consumers don't wanna pay that, I hope, like Origin and some of the others doing super cool AI driven DIY tech will help some of the people that can't afford an advisor. And I know some members out there are experimenting with. Pro bono models and other ways to do it, but otherwise just you have to get revenue per client to a point that the business is able to scale.

And at the end of the day, you can try to solve some of this with tech, but your tech is not going to magically double your productivity. But moving your fees from 1500 to $3,000 will 'cause you just literally double the revenue when you set the new price, probably like 

Alan Moore: six x your margin. 'cause it's yeah.

You'll margin, when you 

Michael Kitces: raise your fee, you'll six x your margin 'cause it drops the bottom line. So I worry about this as I look at the chart that, you know, knowing most of us are not working with very high dollar clients where we're getting 10 or $15,000 of revenue per client.

I worry a little bit that these numbers look low and so either most of us have tons of capacity or. On average, our fees are still coming in a little bit low relative to how much work we do for the client. 'cause look for a few of, you're going to come and say no, really for the service and the amount of work we do, like this is where we are in clients.

I'm like, awesome. If that's the amount of work you're doing, like just charge the client for the actual amount of hours that you're spending and whatever that adds up to, we'll put the math in the good place for the firm. 

Alan Moore: What caught my eye about this is I was expecting a much higher ratio of clients per advisor than clients per total staff.

Yeah. I was expecting to see more like a one-to-one, which means clients per advisor would be double Yes. What the clients per total staff and I do I wanna dig into this a little bit more maybe in our next benchmarking study, because anecdotally in conversations that I'm having here at the conference, I've heard a few different things that make me think, oh, I wonder what is actually causing this.

One is I talked to some advisors who have tried to hire administrative staff. It just hasn't worked out that they have high turnover. You're not able to keep those folks. And so you've tried and you just haven't been able to figure out how to hire and retain those folks. So that's one group. There's another group that's saying Hey, I don't need admin staff because the technology that's in the exhibit hall is making it so that I can automate so much of the processes that I don't actually have to hire this person.

And so it'll be really interesting to see if the technology essentially like fully replaces the administrative staff and if that, maybe it's the technology that's causing these numbers to start converging a little bit. The third angle that I have heard from this is that folks are hiring an advisor before they're hiring another admin.

And while some of it I think is it is easier to train an experienced advisor and hand things off to an advisor just because they have a little bit more experience, a little bit more education, I'm also getting the feeling that we're hiring an advisor because we're looking for. We're looking for someone to talk, shop, someone to talk about financial planning because we don't wanna be doing it alone.

Michael Kitces: We don't wanna just be, it’s nice to have someone to brainstorm on client cases with and just make sure we covered everything. We're not missing anything. 

Alan Moore: And so that also, and I'm not saying that's a bad thing, I'm just saying that may also be leading to this sort of convergence where we would expect to see a lot higher clients per advisor than staff.

But that's something that we can look at maybe adding a couple questions next year to see if we can't dig into that. Because I think this is going to be really important as our firms are scaling to be sure that we are at proper capacity, that we're hiring at the right time, that we're not hiring too soon too far ahead of the curve, and that we're also not waiting too late.

Michael Kitces: Yeah I would echo the concern when we look at most other just benchmarking studies across the industry those numbers are gapped further apart, right in the simplest sense from professional services and. Professional services firms thrive when they can create leverage for the people at the top.

That's whether it's law, accounting, financial advisors, or medicine, like successful doctors don't bring on junior doctors, successful doctors, hire admin staff and nurses and nurse practitioners so that they only do doctor things and they don't touch anything else. And if you need someone to be a nurse or a nurse practitioner or to handle the front office, you don't hire a young doctor to do it.

Like you hire someone who's good at that and trained at the level to do that. So do you have a good point for all the reasons you said about reasons why some advisors may be pulling associate advisor hires forward. But it's hard for me looking at this to not wonder if we are just under, under utilizing staff leverage and what we can get from.

Good administrative team and maybe it's, there's a whole separate conversation at some point of best practices in hiring, finding, training, and retaining admin staff, because that's not necessarily the gift for a lot of us either. I didn't get in this business to manage and train people. I got in this business to help and serve clients.

But that at least for all other research we've done, like that's where the biggest leverage kicks in and we don't seem to be getting there yet. So maybe the tech is automagically fixing things, or maybe we're just keeping too many things because the tech made it easier. But when tech takes a 30 minute process down to five minutes, that's awesome.

But when you don't have to do the five minute thing at all, or even think about it because it's someone else's job, that's actually still better. So are you expediting with tech, which should just be delegated and then it's a zero for you? 

Alan Moore: This is not intended to end on a low note just because this is not necessarily a negative thing.

This is just what we're seeing in the data in terms of decisions advisors are making in firms. But these are things that we can dig in further. 'cause again, we can tell a story of maybe this is a good thing and maybe that good thing is that we are better leveraging technology to get scale out of our back office.

But really where that's going to show up is in the clients per advisor and seeing that continue to lift over time. Yes. So with that, thank you so much for joining us for this episode of Behind the Advisor with XYPN. Again, you can go to https://www.xyplanningnetwork.com/412 in order to see the charts and graphs that we talked about today.

Thanks everyone. Thanks so much for joining us. Thank you.