Granite Peak Advisors: $340K Tax Savings Through Fee Schedule Optimization

Granite Peak Advisors: $340K Tax Savings Through Fee Schedule Optimization

Executive Summary

Granite Peak Advisors, a rapidly growing RIA firm, struggled with an outdated fee schedule that was leaving revenue on the table and contributing to unnecessary tax liabilities. Golden Door Asset partnered with Granite Peak to analyze their client base and service offerings, designing a tiered fee structure that aligned with the value provided and leveraged tax-advantaged strategies. The result was a remarkable $340,000 reduction in annual tax liability and a 12% increase in revenue within the first year, demonstrating the significant impact of strategic pricing.

The Challenge

Granite Peak Advisors managed approximately $350 million in assets for a diverse clientele, ranging from high-net-worth individuals to families planning for retirement. Their existing fee structure was a simple percentage of assets under management (AUM), a flat 1% for all clients regardless of their individual needs or complexity. This blanket approach presented several challenges:

• Undervalued Services: Clients requiring extensive financial planning, estate planning assistance, or complex investment strategies paid the same percentage as those with simpler needs, essentially undervaluing the firm's expertise and time investment for complex cases. For example, a client with a $1 million portfolio requiring extensive tax planning and philanthropic advisory services was billed the same $10,000 annually as a client with a similar portfolio only requiring basic portfolio management.

• Missed Revenue Opportunities: The uniform fee structure prevented Granite Peak from capturing additional revenue from clients who were willing to pay a premium for specialized services or higher levels of customization. They were potentially losing out on an estimated $50,000 to $75,000 annually by not offering tiered services.

• Tax Inefficiencies: The firm's revenue stream, generated primarily from AUM fees, was fully taxable as ordinary income. This meant a significant portion of their earnings was lost to taxes, impacting profitability and limiting reinvestment in the business. In the previous fiscal year, Granite Peak paid approximately $850,000 in federal and state income taxes.

• Client Perception of Value: The lack of differentiated service tiers made it difficult to clearly communicate the value proposition to clients, particularly those receiving more personalized attention. Some clients questioned the fairness of paying the same fee as others with less complex situations.

• Limited Growth Potential: The rigid fee structure hindered the firm's ability to attract and retain high-value clients seeking sophisticated financial planning solutions. Potential clients with complex financial situations, who were willing to pay a premium for specialized advice, often opted for firms offering more tailored service packages.

The Approach

Golden Door Asset worked closely with Granite Peak's leadership team to develop a comprehensive fee schedule optimization strategy. Our approach involved a multi-faceted analysis and strategic implementation process:

1. Client Segmentation Analysis: We conducted a thorough analysis of Granite Peak's existing client base, categorizing clients based on their asset levels, financial needs, service utilization, and profitability. This involved reviewing client statements, meeting notes, and service logs to understand the true cost of serving each client segment. This analysis revealed that approximately 20% of clients generated 50% of the firm's revenue.

2. Competitive Pricing Analysis: We researched the pricing models of comparable RIA firms in the region, benchmarking Granite Peak's fees against industry standards and identifying potential areas for adjustment. This included analyzing both AUM-based fees and alternative pricing structures, such as hourly rates, project-based fees, and retainer models.

3. Service Offering Evaluation: We assessed the firm's existing service offerings, identifying opportunities to create differentiated service tiers with varying levels of support and expertise. This resulted in the development of three distinct tiers: Core, Premier, and Executive. Each tier offered a unique combination of services, including investment management, financial planning, tax planning, estate planning, and retirement planning.

4. Fee Schedule Design: Based on the client segmentation and service offering evaluation, we designed a tiered fee schedule that aligned with the value provided at each level. This included:

   • Core: AUM-based fee with basic investment management and limited financial planning support (0.9% AUM).
   • Premier: AUM-based fee with comprehensive financial planning, tax planning, and estate planning support (1.1% AUM).
   • Executive: AUM-based fee with personalized financial planning, advanced tax strategies, and concierge-level service (1.3% AUM).

5. Tax-Advantaged Strategy Implementation: We collaborated with Granite Peak's tax advisor to implement strategies for reducing their tax liability. This included exploring opportunities to incorporate a business entity to take advantage of pass-through deduction, and funding qualified retirement plans.

6. Monte Carlo Simulation: To forecast the impact of the new fee structure, we conducted a Monte Carlo simulation, using historical market data and client retention rates to project revenue under different scenarios. This helped us identify the optimal fee levels and minimize the risk of negative financial outcomes.

7. Client Communication & Transition: We developed a comprehensive communication plan to educate clients about the new fee structure and the benefits of each service tier. This included personalized letters, informational brochures, and one-on-one consultations.

Technical Implementation

The implementation of the new fee structure involved the following technical components:

1. Pricing Analysis Software: We utilized specialized pricing analysis software to model different fee scenarios and project their impact on revenue and profitability. This software incorporated factors such as client asset levels, service utilization, and retention rates.

2. CRM Integration: The new fee schedule was integrated into Granite Peak's existing CRM system (Salesforce), allowing advisors to easily track client service levels and billing amounts. Custom dashboards were created to monitor revenue by client segment and service tier.

3. Monte Carlo Simulation Platform: A Monte Carlo simulation platform was used to model thousands of potential market scenarios and their impact on Granite Peak's revenue. The platform allowed us to incorporate factors such as market volatility, interest rates, and client behavior. We ran 10,000 simulations, and analyzed the results with specific attention to worst-case outcomes.

4. Tax Planning Software: We used tax planning software to model the tax implications of different business structures and investment strategies. This software allowed us to identify opportunities to minimize Granite Peak's tax liability and maximize their after-tax income. Specific algorithms included projections for estimated tax credits related to small business investment.

5. Data Security Measures: All data was handled in compliance with industry security standards, including encryption and access controls. Client data was anonymized where possible to protect their privacy.

Results & ROI

The implementation of the optimized fee schedule resulted in significant financial benefits for Granite Peak Advisors:

• Tax Savings: A $340,000 reduction in annual tax liability, achieved through a combination of tax-advantaged business structure and strategies related to qualified retirement plans. This represented a 40% reduction in their previous year's tax bill.

• Revenue Increase: A 12% increase in overall revenue within the first year, driven by the adoption of higher-tier service packages by existing clients and the attraction of new high-value clients. This translated to approximately $420,000 in additional revenue.

• Profitability Improvement: A 15% increase in net profit margin, as the increased revenue more than offset the costs associated with providing enhanced services.

• Client Satisfaction: Improved client satisfaction scores, as clients felt they were receiving better value for their money and were more aware of the services they were receiving. Post-implementation surveys showed a 20% increase in clients stating they felt the pricing model was fair and reflective of value delivered.

• Increased AUM: A 7% increase in assets under management (AUM) as a result of attracting new high-net-worth clients seeking comprehensive financial planning services.

• Service Tier Adoption: Approximately 35% of existing clients upgraded to the "Premier" tier, demonstrating their willingness to pay a premium for enhanced services. 10% of clients opted for the "Executive" tier, confirming the demand for personalized and concierge-level service.

Key Takeaways

1. Don't Undervalue Your Services: Accurately assess the value of your services and price them accordingly. Consider offering tiered service packages to cater to different client needs and preferences.
2. Tax Planning is Essential: Proactively manage your tax liability by implementing tax-advantaged business strategies and investment plans.
3. Communicate Value Clearly: Clearly communicate the value proposition to clients, highlighting the benefits of your services and justifying your fees.
4. Segment Your Client Base: Understanding your client segments allows for customized service offerings and pricing, maximizing revenue and profitability.
5. Data-Driven Decisions: Use data and analytics to inform your pricing decisions and track the performance of your fee structure. Conduct simulations to forecast future outcomes.

About Golden Door Asset

Golden Door Asset builds AI-powered intelligence tools for RIAs. Our platform helps advisors optimize pricing, personalize client experiences, and automate compliance tasks, giving advisors back time to focus on their clients. Visit our tools to see how we can help your practice.