A Guide to Fee-for-Service Financial Planning: Everything Your Firm Needs to Know

Get Paid Instead of Giving Advice for Free

Under an AUM model, “getting paid” for financial advice essentially boils down to giving away financial planning at little or no cost. Charging for your financial planning services highlights the value of your expertise and creates a sustainable model that benefits you and your clients. It allows you to invest more time and resources into providing the best possible service, leading to greater client satisfaction and loyalty, all while establishing a steady, recurring revenue stream.

Minimize Conflicts of Interest

When clients pay you directly for advice – and not anything else – you can give advice that is in the best interest of your clients. Being free of any competing incentives to sell a certain product or add money to a client’s portfolio boosts their confidence in you and increases your chances of building a long-term relationship.

Increase Fee Transparency

Whether it’s upfront or ongoing (or both), clients who pay a fixed fee are clear about how much they’re paying and what exactly they’re paying for. There are no complicated fee structures to explain or potential “hidden” fees that may confuse a client or cause them to lose trust. Financial planning becomes a normal bill in their budget, just like Netflix or a gym membership, rather than an extra expense.

Expand Your Client Pool

Barely one-third of US households have enough assets to meet a $100k asset minimum, let alone the common $250k threshold. That means there’s a wide swath of the population who can’t be served by the AUM model, but do have the income, need, and desire to pay for financial planning services from their cash flow instead. This population includes many adult children of existing clients, clients paying discounted AUM fees, and prospects who may have assets tied up in a business, real estate, or other illiquid investments. Offering a retainer or subscription model makes an ongoing financial planning engagement accessible to this group.

Add Flexibility to Your Fee Structure

Various fee-for-service payment structures include hourly fees, project-based fees, flat fees, and monthly or quarterly recurring fees, which can be tiered with different service levels. With diverse billing options like these, the fee-for-service model offers financial planners a variety of ways to bill for their expertise, allowing them to tailor their fee structure to their business needs, ideal clients, and the services rendered.

Align Your Core Values with Your Fees

Many financial planners want to get paid for their advice. And when you get paid specifically for your expertise and advice, you can demonstrate that your clients’ financial needs and best interests are at the forefront of everything you do.

High-Earners, Not Rich Yet (HENRYs)

Perhaps the most well-known clientele for fee-for-service financial planning is those who are still in the accumulation stage of their financial journey. During this phase, many younger clients don’t have enough movable assets to reach brokerage firms’ AUM requirements, but they do have adequate cash flow to pay for financial planning.

These people are eager to work with a financial partner so they can feel more confident in their financial journey. Many millennials have seen enough economic fluctuations in their lifetimes to feel hesitant about counting on social security income, and want to be able to fully-fund their retirements. They may also be looking for advice as they experience big life changes that impact their financial goals like marriage, divorce, having children, buying a house, or advancing their career.

By making financial advice accessible to them with fee-for-service while they’re early in their financial journey, you can greatly impact their success and potentially have a client for life!

Pre-Retirees and Retirees

Pre-retirees and retirees working with other financial advisors may not fully understand the fees under an AUM model and want something simpler than management fees, expense ratios,12b-1 fees, trade costs, etc. These clients may also want more consistency in pricing. Understanding what they’re paying in dollars (not just percentages) can help them feel more comfortable.

People at this stage in life are often looking for a partner to help navigate complex financial situations, not just an investment manager. It’s also likely that over the years they have accumulated multiple policies and accounts with different firms/companies, making it difficult to assess their full financial situation on their own.

Existing Clients

It may seem intimidating at first, but we’ve seen advisors have great success in transitioning their current clients from AUM fees to fee-for-service fees (or a combination of the two). There are a couple of ways to incorporate fee-for-service planning fees into your firm: offering add-on services or fully transitioning to fee-for-service.

With add-on services, a great starting point is to offer employee-sponsored plan advice on a quarterly basis. For younger clients still working and contributing to their 401(k)s or 403(b)s, this allows you to review outside accounts and make recommendations while being compensated for the value you’re providing. This is a great benefit for your clients as their financial plan remains holistic, even if you aren’t managing these accounts directly.

The fee-for-service model is enticing in its simplicity, flexibility, and personalized approach, but it is different from the traditional AUM-fee model in important ways. With the right tools and technology in place, you can launch and scale a successful fee-for-service business. 

1. Hone in on your ideal client

Before you decide anything else about your fee-for-service model, it’s important to identify who you want to work with. It’s helpful to focus on a specific niche that you have special knowledge of or access to through your network or location. For instance, you may live near a law school that churns out young lawyers who are employed locally. Maybe you work near a hub of top software companies that constantly recruit well-paid developers. 

The more specific you can be about your niche, the better. When your company is aligned toward a specific target, your marketing dollars become super-concentrated and more impactful. You stand apart from your competition as unique and valuable. It is a proven, effective way to differentiate yourself and grow your business.

But don’t force yourself into a niche that doesn’t interest you. Your niche doesn’t have to be traditional and it doesn’t have to be job-specific, either. It just needs to be specific. A niche can be based on a trait that certain people or businesses have in common or a skill you possess, such as environmentally conscious businesses, cross-border retirees, or an interest in cryptocurrency.

This article from Kitces.com, illustrates six different categories of niches—affinity, values, education, experience, psychosocial, and technical skills. Whatever you choose, make sure it interests you and
differentiates your skillset from other advisors.

Once you’ve defined your niche, make it a priority to learn about your clients. Think about specific traits of your target market like age range, location, career level, marital status, spending habits, etc. Ask questions about their interests, skills, and reasons for working with you. All of this information will help guide your strategy around marketing, services, and pricing.

2. Define your ongoing business model

What will you do for your financial planning clients? Many of these decisions will be based on your personal preferences like the ideal size of your staff, how many clients you will service, how fast you will scale, what percentage of your work will be fee-for-service vs. AUM, and how your fee-for-service offerings will differ from your services for AUM clients.

With a fee-for-service model, you will need to ensure that you convey value to your customers and remain a top-of-mind asset in their financial lives. One of the best ways to do this is to create a client services calendar that outlines the work you will do for your clients in exchange for your fees.

3. Establish your pricing structure

The first step to establishing the right pricing strategy is to figure out what your clients will pay for your services. Find out the average compensation of your niche customer in the geographic area you plan to serve. Research shows that a reasonable fee is between 2-2.5% of your client’s annual income. This is a good place to start. It is fair to include stipulations in your contract for an automatic yearly fee increase of 3-5% to stay ahead of rising business costs and avoid larger fee hikes every few years. Once you know what you can charge your clients, it’s time to figure out how to charge them. 

Fee-for-service financial planning requires transparency and attention to compliance. There are plenty of different ways to charge for your services. Some of these include flat fees, tiered fees, time-based fees, or project-based fees. Fees may vary based on the client’s income, the complexity of a project, or the staff member assigned to assist with the task. You may find that one fee structure works best for you, or you may use a combination of fee structures. The most important thing is that you charge a rate that allows you to make the money you want while remaining competitive in your target market.

Fee frequency is another important consideration. Remember, your fee-for-service model shouldn’t aim to collect only hourly or one-time planning fees. Retainers and subscriptions for ongoing work are far superior to one-off projects and they fit nicely into the fee-for-service model. In general, younger people are more likely to happily pay a small monthly fee that is manageable within their budget, while older, more established customers may feel nickel and dimed by that model. When in doubt, consider your own cash flow needs, ask your clients about their preferences, and consider flexibility for various client situations.

4. Build a scalable client onboarding and billing process

Your clients will expect a personalized experience, but you need a repeatable process that makes it easy to check all the boxes that go along with adding a new client. Personalize your clients’ experience without increasing your workload by allowing them access to a portal to update their payment information, handle failed payment issues, view invoices, and update their profiles. Even better, customize your portal with your name, logo, and contact information so your client feels like they are working directly with you, and not a third-party interloper. 

To create a repeatable onboarding experience, start with a flow chart that allows you to
visualize each step of your onboarding process and identify its ownership on your team.

5. Find the right technology for your workflow

Your involvement in your clients’ financial lives is subject to federal, state, and local laws that demand compliance. The technology you choose to run your business must be built with the utmost security and attention to SEC and state regulations. It also needs to be designed to avoid triggering custody. To ensure compliance, you must choose technology platforms built to serve the unique needs of the financial services industry. 

Here are a few key categories of technology you’ll need to consider:

• Billing and payments: Many of your prime prospects who are looking for fee-for-service financial advice won’t have investment accounts, they may not even have checkbooks! You’ll need a way to bill them for your services. AdvicePay is the only payment platform that’s designed to maintain compliance and avoid triggering custody for the fee-for-service financial industry.
• CRM: To keep your client database organized, you’ll want a CRM. Choose one that integrates with your billing platform, so you can create seamless processes that maximize the strengths of each technology.
• eSignature: Most clients aren’t going to want to swing by your office to sign documents in person. There are many eSignature tools available, but focus on one that can help you bundle financial planning agreements (or other documents that need signatures) with payment requests.

Whether you’re new to the game or a seasoned professional, here are five things people often get wrong about fee-for-service and how you can learn from their mistakes.

Giving away too much for free

Oftentimes, financial planning is wrapped into an AUM fee, and advisors have never taken stock of all the financial planning they’re doing for their clients. With fee-for-service planning, first, determine what an hour of your time is worth to your clients. Then determine how much time you spend creating and maintaining financial plans. This will give you an idea of what you can reasonably charge for certain services.

The start of a new client/advisor relationship typically takes some time, so where it makes sense, advisors can charge an upfront payment to kick off the relationship. This not only compensates you for your value but also ensures you’re working with clients who are serious about their financial goals. 

Only marketing to younger clients

Fee-for-service financial planning is often marketed as the solution for younger generations that are cash-flow heavy. While there certainly is a great opportunity with Gen X and Millennials (and yes, even Gen Z as they’ve started entering the workforce), finding ways to implement fee-for-service with your existing clients can help you provide even more value.

Financial planners are finding the fee-for-service model can accommodate retirement clients as well. While you may not want to overhaul your business immediately, you can start to offer services that can be paid for outside of the AUM structure. A great place to start is with 401(k)/403(b) advice. For pre-retirees who may not be able to move these assets, charging a recurring fee to review their outside accounts is a great segway into fee-for-service financial planning.

Failing to set clear expectations with clients

If you’re not clear with clients, they may assume that paying their financial planning fees monthly means a monthly meeting with you, or that you’re always available for one-off questions. You may choose to operate this way, but if you do not intend to, make sure your clients understand what their fee gets them.

We often recommend advisors position their fees to clients as an annual fee, billed monthly or quarterly. Setting that expectation upfront can save you from a potentially painful conversation when your client wonders why you didn’t reach out more often.

Not reviewing your financial planning agreements

Before you start offering fee-based financial planning, it’s a good idea to review your current contract verbiage to ensure you’re compliantly supporting fee-for-service in your contracts.

While auditing your agreements, consider adding verbiage to include automatic fee increases! This can save you additional paperwork down the road. 

PS -- if you build automatic fee increases into your invoicing on AdvicePay, your client will have to approve it at the onset of their payments, so there shouldn’t be any surprises. A friendly reminder is, of course, recommended!

Spending too much time on billing

You provide value by partnering with your clients to help them achieve their financial goals, not by spending hours each month sending out invoices. Even if you have a team to help, there are better ways for them to spend their time!

Finding the right billing and payment platform will help you streamline the process. Some time-saving tools we’ve included in AdvicePay are:

• Subscription billing with automatically recurring invoices
• Fee calculators to quickly determine a client’s total engagement fee and monthly payment
• eSignature integrations to accelerate the client onboarding process
• Automatic fee increases, so you don’t have to create a new subscription every year
• A client payment portal that gives clients self-service options to retrieve documents and update their payment method or contact information