How Do Financial Advisors Add Planning Fees To Their Practice?

Financial planning fees are an increasingly popular way for clients to pay for and receive financial advice. Unfortunately, advisor compensation has historically lacked transparency, leaving clients and advisors in an awkward and confusing place. 

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.

In this article, we’ll review what financial planning fees are, why it’s becoming the industry standard, and if it makes sense for you to charge fees in your practice.

 

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:

• Planning fees inherently create revenue as the fee itself is income for your practice, and
• 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.

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.

 

Will Charging Planning Fees Change Your Practice?

Charging planning fees isn’t a one-size fits all and definitely isn’t a fix for your practice.

But what charging planning fees CAN do for your practice is:

• Deliver clarity in costs for your clients
• Provide accountability for both parties, and
• Provide compensation for your value

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.

To better understand the role of planning fees for an improved client relationship and practice success, reach out to the team at Consolidated Planning.

 

Exp. 11/2027

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Consolidated Planning, Inc. is an Agency of The Guardian Life Insurance Company of America® (Guardian), New York, NY. Securities products and advisory services offered through Park Avenue Securities LLC (PAS), member FINRA, SIPC. OSJ: 6115 Park South Drive, Suite 200, Charlotte NC 28210, Phone # 704-5528507. PAS is a wholly owned subsidiary of Guardian. This firm is not an affiliate or subsidiary of PAS. This material is intended for general use. By providing this content Park Avenue Securities LLC and your financial representative are not undertaking to provide investment advice or make a recommendation for a specific individual or situation, or to otherwise act in a fiduciary capacity.