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Robust Planning Process Bolsters FAs' Ability to Charge Separate Fees

By Crucial Clips     March 2, 2021
The following text is a transcript of a portion of a speaker's presentation made at an industry conference or during an interview. This transcript solely represents the view of the individual who spoke, and not the view of Financial Advisor IQ or any other group.
Source: FA-IQ, Mar. 1, 2021 

PETER RAWLINGS, FINANCIAL ADVISOR IQ: Hi. This is Peter Rawlings with Financial Advisor IQ. I'm here with Justin Duft, director of advanced planning with Commonwealth. So as advisors start charging separately for financial planning, what are some of the common fee structures that advisors are using?

JUSTIN DUFT, DIRECTOR, ADVANCED PLANNING, COMMONWEALTH FINANCIAL NETWORK: There's four big ones. Hourly fees — so you're charging for time spent doing the planning. That's your Garrett Planning Networks of the world. And annual recurring flat fees — so for advisors who have created a robust planning process that they can revisit every year.

Subscription fees — that's targeted to your younger market of investors who may have some substantial assets and a need for planning, but not necessarily assets that could be managed by the advisor. So think of 401(k)s, stock options. And then there's a fourth category — upfront, one-time planning fees. You know, this is really creating the initial plan for the client which takes the most amount of time at the beginning.

PETER RAWLINGS: Is there one particular way of charging for financial planning that has been the most popular, or which you feel is the most sensible?

JUSTIN DUFT: One I've seen, the advisors that are most successful incorporating separate planning fees are the ones that charge on an annual recurring fee basis. And I think the reason for this is they're forced to create a robust planning process that brings a lot of value to the client.

So as an example, I work with an advisor, she created her own template for the annual planning meeting. And it's a separate planning meeting that she does every year. And during that meeting, she uses the template to discuss the budget, education planning, employee benefits, allocating the 401(k), stock options, insurance coverage, estate planning, legacy planning. So it checks a lot of boxes. And it's a really comprehensive approach that allows the client to walk out of the meeting feeling like their financial house is in order.

Subscription fees are something I'm hearing a lot about, but I think there's challenges to making that work. These are typically targeted to younger investors as a monthly fee. But when you break down the economics, you really need to be charging at least $100 a month, and still need to pare down the services that you're providing just to break even in that model.

So I think most successful advisors will come to the conclusion that they're better off prospecting for larger clients that meet their account minimums. With that being said, I think it can work for a junior advisor who's looking for a way to grow their book and is taking a long-term approach.

PETER RAWLINGS: So how have clients themselves reacted to the trend of separate planning charges? Is this a shift that requires much work by way of explanation to customers?

JUSTIN DUFT: It's a difficult conversation. If you're trying to switch to separate planning fees from an AUM fee that you've been doing for a long time, it's hard to tell a client I'm going to charge you an extra fee for something I'm already doing for you. And I find that a lot of advisors, they try to implement separate fees with new clients, rather than going back to the established clients with the new fee structure.

I mean, that being said, for wealthier clients where the planning is apparent, and it's apparent that the advisor is spending a lot of time, a lot of extra time, working on their issues, these are clients that tend to be more appreciative of the depth of experience that the advisor is bringing to the table and more receptive to separate planning fees.

PETER RAWLINGS: Thanks so much for taking the time, Justin. I really appreciate it.

JUSTIN DUFT: Thanks for having me.

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Tags:  Finding and winning new clients , Client retention , Fees and compensation , Investment strategies , Portfolio management , Special services

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