How Do Financial Advisors Add Planning Fees To Their Practice?

Whether you just started offering comprehensive financial planning or you’ve been doing it for years, it’s important to know how you are being compensated for your time and expertise.

Unfortunately, advisor compensation has historically lacked transparency, leaving clients and advisors in an awkward and confusing place. But it doesn’t have to be that way, through increased transparency and clarity around your value and pricing, you can improve client relationships and your practice success.

Financial planning fees are an increasingly popular way for clients to pay for and receive financial advice. Consolidated Planning has worked with clients through financial planning engagements for more than a decade. We’ve witnessed firsthand how powerful transparent conversations about your value and price can be with clients. The entire client-advisor relationship is transformed and more engaged because everyone’s expectations are clear.

Continue reading to learn why, when, and how financial advisors charge planning fees. In less than 5 minutes,  you’ll know where to get started if you decide charging planning fees makes sense for your practice and clients.

What Are Financial Planning Fees?

Before we get into the why, when, and how, let’s make sure we’re all on the same page with the “what.” Financial planning fees are fees that are charged by an advisor in exchange for specific financial planning services outlined in a financial planning engagement letter.

The engagement letter will outline the scope of the advisor’s work and advice, as well as outlining the expectations of each party. The engagement letter may include the anticipated number of client meetings and estimates of how much time the advisor will spend working on the case. The letter will also include any information the advisor will need to collect from the client, like account statements and tax returns.

Planning engagements can be a one time affair or an ongoing relationship. Typically, one time planning engagements last 6-18 months and focus narrowly on a specific life or business event. In this case, the planning fee is often paid 50% up front and 50% upon completion.

More commonly, financial planning engagements are ongoing relationships similar to a subscription. These fees are typically paid on a monthly or annual basis throughout the duration of the relationship.

Why Do Financial Advisors Charge Financial Planning Fees?

Financial advisors charge planning fees to clearly tie the value their work provides clients with the compensation they receive from the client. Charging a fee for your advice helps to remove the potential for bias to muddy the waters of your recommendations.

When a client pays you a fee each month to provide them with financial advice, they tend to feel more comfortable that your advice is in their best interest than if you provide financial planning “for free” and you’re compensated based on the products you sell.  The latter scenario has been the industry standard for decades and has created some distrust from consumers – all the more reason to be crystal clear upfront with your clients.

Financial advisors charge planning fees to be fairly compensated for their work and time. Charging planning fees ensures that the client is equally invested in working together and not wasting your time. There is little more frustrating than diligently crafting a plan for a client that has no intention of implementing any of your recommendations.

Interestingly, advisors that charge planning fees generate more revenue than their non-planning counterparts. Here’s why:

First, planning fees inherently create revenue as the fee itself is income for your practice.

Second, and most important, clients that pay for financial advice are more likely to fully implement that advice meaning more assets under management and more protection in place. Both of which directly impact your practice’s bottom line.

When Should Financial Advisors Charge Planning Fees?

When you make the decision to start charging planning fees, it’s natural to wonder when to start. With your new clients, that’s easy- right now. You should onboard any new clients directly into your planning fee process.

Existing clients are more tricky. It can be challenging to tell a client “hey I’m going to start charging this additional fee for the work that I’ve been doing for free up until now.” As a best practice, implement planning fees with existing clients when the scope of your work changes . In our experience, this has been a well received and natural conversation.

Clear and open communication around your compensation, value provided, and the planning process are essential to transitioning to a fee based planning practice. The more comfortable you get with the conversation, the better.

How Does Charging Planning Fees Change The Client Experience?

Clients that work with an advisor with a planning agreement in place are more committed to the recommendations the advisor makes and are more likely to achieve their goals. They see the value of financial planning and are willing to pay for it month after month.

Planning clients are more engaged and have a clear vision for what they want in life thanks to the  planning process. At Consolidated Planning, our advisors focus on both short and long term goals so clients quickly see how their actions lead to progress, which helps to build momentum.

Additionally, clients that go through the planning process tend to feel more confident in their future and more satisfied with your services. Confident and satisfied clients quickly become raving fans and excellent referral sources.

How Will Charging Planning Fees Change My Practice?

At the beginning of this article, you were  debating whether or not to start charging financial planning fees in your practice. It’s clear  at this point that charging planning fees will benefit you and your clients, but how will it change your practice?

Planning fees necessitate a strong planning process for your practice. You’ll need the infrastructure in place to ensure you are delivering everything you stated in your engagement letter.

Consolidated Planning provides this infrastructure through its advisor support resources like the Advisor Performance Group . As you ramp up your capabilities, these teams provide instantaneous depth and experience to guide you and your clients. Schedule a call with our team today to receive a custom playbook for your practice today.

 

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