One considerable challenge for financial advisors providing fee-for-service financial planning services is figuring out the “right” price that is both profitable and attractive to consumers. Notably, this is a challenge that largely did not apply to past generations of advisors, who typically either just sold products with commissions that were determined by product manufacturers, or charged an AUM fee in which there was strong convergence on the 1% price point. As a result, fee-for-service advisors who are aiming to reach clients through a different compensation model – and particularly those prospective clients which cannot be reached through traditional compensation methods – have both an opportunity to expand service into previously unserved markets, but also a challenge in needing to take more responsibility for determining how to do so.
In this guest post, Alan Moore of XY Planning Network and AdvicePay, shares his thoughts on how to profitably price fee-for-service financial planning services, including options for calculating financial planning fees (e.g., flat fee, hourly, project-based, percentage of net worth and income), the structure of paying advice fees (e.g., one-time fees, ongoing fees, or a combination), setting the right advice fee frequency (e.g., monthly, quarterly, semi-annual, annual), how to integrate some combination of fee-for-service and AUM fees, how to make sure your fees are both profitable and reasonable for your niche clientele, and also how to make sure you handle fee-for-service planning fees in a compliant manner!
Ultimately, though, the key point is to acknowledge that like the massive shift from commissions to AUM over the past few decades – which allowed advisors to serve clients in a fundamentally different way and reduced certain conflicts of interest – the opportunity to provide fee-for-service financial planning services allows advisors to continue to evolve their business models, profitably serving an increasing range of clients with fewer conflicts of interest. The fee-for-service model does present new challenges in setting a firm’s fees, but advisors with a fee-for-service financial planning model are poised for success and capable of serving the next generation of clients who are eager to receive real financial advice!