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More Advisors Are Charging Separate Financial Planning Fees. Here’s Why

By Peter Rawlings January 22, 2021

Advisors are increasingly charging separate fees for their financial planning work, driven by a range of factors from improved payment processing to a desire for more stable revenue streams.

“We’ve certainly seen more advisors over the last three, four years introduce discrete planning fees,” says Greg Gohr, managing principal at Commonwealth Financial Network.

“The idea is that [the financial planning fee] ensures they’re getting paid for the work they do, and it describes the scope of the planning engagement in a much clearer way as far as what services are going to be provided,” he adds.

By separating fees for planning, advisors can be more transparent with clients about the charges they are paying, according to Gohr. “It attaches a very tangible value to the services the advisors are providing,” he says.

A survey of more than 1,600 advisors by Envestnet MoneyGuide found that the percentage of advisors who charge a flat fee, commission or asset-based fee for financial planning has shot up from 8% in 2017 to 72% in September last year.

Around 38% of the respondents charge a separate fee for financial planning. Of those, 65% charge a flat planning fee, while 18% bill by the hour, and 8% charge by subscription, according to the survey.

There has been, in particular, a recent move towards subscription-based fees as a means of charging separately for financial planning work, says Dennis Moore, financial advisor and chief operating officer at Quest Capital Management, which offers securities through Raymond James Financial Services.

“Over the last one, two, three years it seems like the subscription model is really gaining traction, Planning is a value-add, and people are starting to charge for that specifically instead of wrapping it in with an AUM fee.”
Dennis Moore
Quest Capital Management
“Over the last one, two, three years it seems like the subscription model is really gaining traction,” he says. “Planning is a value-add, and people are starting to charge for that specifically instead of wrapping it in with an AUM fee.”

At Quest, there are annual planning fees that are broken up into quarterly charges to clients, Moore says.

The recent trend towards separate charges is likely to continue in the years ahead, says Robert Russo, CEO of Independent Advisor Alliance, an office of supervisory jurisdiction on LPL Financial’s platform.

“In the future we will likely see advisors’ practices have more of a flat dollar fee than a basis point, or percentage of assets, fee because assets don’t always dictate the amount of time it takes to manage that client relationship,” he says.

The role of tech, new regulations and the pandemic in accelerating the trend

In part, technological developments have made it easier to facilitate and coordinate different types of payments, including separate financial planning fees, says Russo. In the recent past, it was more difficult to collect and process multiple or separate checks and, thus, it was easier to simply embed planning costs into an overall fee, he says.

The ongoing Covid-19 pandemic has also been a driving force in the change in planning charges, says IAA chief innovation officer Steve Gensler.

“You’ve had a lot of clients who have been working from home and may have spent several hours trying to do their own planning and come to realize that even with unlimited time, working from home, they still need help from a professional,” he says.

Regulatory changes, in particular the SEC’s Regulation Best Interest, are also cited as an underlying factor propelling the shift.

The new standards of conduct established by Reg BI and the earlier Department of Labor fiduciary rule “brought light on the need for [having] a focus on the client’s needs at inception. Planning provides it all,” says Tony Frigoletto, managing partner at LPL-affiliated River’s Edge Wealth Partners in New Jersey.

Benefits to advisors

There are also longer-term benefits for advisors who charge planning fees, says Commonwealth’s Gohr. An example is that by splitting the charges, advisors may be able to lower asset-based fees, which “positions them as a bit more competitive on the asset management side,” he says.

The shift also helps provide advisors with a more stable income by detaching a portion of their revenue from the performance of the market, according to Gohr.

“It’s a little bit like an asset allocation decision in a client’s portfolio in that charging discrete planning fees creates a predictable income stream for the advisors.”

Obstacles

“The roadblock, in my experience at WFA [Wells Fargo Advisors], is the client’s perceived value in paying a fee where some do it for free,” he says.
Tony Frigoletto
River’s Edge Wealth Partners
Still, there can be obstacles to restructuring fee arrangements in the form of questions from clients about paying separate charges, says River’s Edge Wealth Partners’ Frigoletto, who broke away from Wells Fargo Advisors last year.

“The roadblock, in my experience at WFA, is the client’s perceived value in paying a fee where some do it for free,” he says.

And while there is a noticeable trend toward advisors charging flat fees or separate planning fees, not everybody is hopping on board.

Kevin Smith, vice president at RIA Wealthspire Advisors in Florida, says that at his firm, for the most part, the decision has been made to keep a single comprehensive fee that includes planning, which makes it easier to “get buy-in” from clients and foster participation in the planning process.

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Tags:  Finding and winning new clients , Client retention , Fees and compensation , Retirement planning , Special services , Commonwealth Financial Network , Envestnet , LPL Financial , Wells Fargo Advisors , Raymond James Financial Services

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