How many times have you heard “before you make any big money decisions, check with your own financial advisor”? NPR’s Marketplace Money program says that all the time. It can’t be taken at face value because it assumes that everyone has a financial advisor.
I’ve never had a financial advisor. I’m guessing the percentage of the population who have a financial advisor isn’t that high. If they all say people should check with their financial advisor, why don’t most people have one?
Too many sharks
For those who have a financial advisor, I’m guessing again that most are not working with a fee-only advisor who acts as a fiduciary and only gives advice in the best interest of the client.
There are many salesmen and saleswomen out there selling expensive products to unsuspecting clients. Advisors who work in bank branches and “full service” brokerage firms are notorious for this. When people can’t tell an unbiased advisor from a salesman/woman, they are afraid of getting burned. They end up not using an advisor at all.
If people are not paying the advisor through expensive products, a fee-only advisor can still be expensive.
Some will take you only if you let them manage your investments and pay them 1% of your assets. Some won’t take you at all if you don’t have at least a six-figure minimum asset level. 1% on $100k is $1,000 a year. 1% on $500k is $5,000 a year. And that’s just for investment. There’s much more to financial advice than just investment.
Easy to DIY
If you set your mind on it, it’s not that hard to learn about these financial planning topics, although the same can be said of almost anything: plumbing, exercising, lawn care, you name it.
You can educate yourself by reading books, newspapers, magazines, and now blogs, listening to radio programs, and watching TV and video. You can Google or get on Internet forums and message boards and get all kinds of information.
You have the same problem with not being able to separate the good from the bad if you don’t know much about the subject to begin with. You still have to be able to apply what you read or heard to your own situation. By definition the books, radio and TV programs, blogs and Internet forums can only be generic. Thus the “check with your own financial advisor” CYA disclaimer.
For the most part, people are on their own. If news media reports are representative of what’s happening in the real world, people on average are not doing a very good job at managing their finances. I would think we will be better off if we can get unbiased advice at an affordable price. The price paid for doing it right will be recovered many times over by avoiding costly mistakes. Still, given that there are many sharks out there and even good advice can be expensive, DIY seems to be the only viable alternative.
How much should unbiased financial advice cost? Suppose I convince you that you can trust me for giving you good quality, unbiased, individualized financial advice. What do you think should be a fair price?
Let’s get specific. Suppose a couple want to save for college for a child. They want to know which account type (UGMA, Coverdell, 529, Savings Bonds, Roth IRA, regular taxable, etc.) they should use, which provider, and which investment options they should choose. What do you think they should pay? $0 because people can just Google? $5? $25? $100? $200? $500?
If you have a trusted advisor to whom you can ask unlimited number of questions and get advice whenever you need it, how much should it cost? $0? $10 a month? $20 a month? $50? $100? $200? $500?
I ask these questions not just as a hypothetical. I’m willing to help others with their personal finance questions. If I start giving individualized advice though, I’ll have to become a licensed advisor and maybe get a CFP. I don’t necessarily have to make much money from it (my full-time job covers my living expenses), but I do want to at least cover my cost of regulatory compliance and liability insurance. However, if people are not willing to pay much for such advice, obviously there’s no point of getting licensed and certified and paying the associated costs.
So do you think there is an under-served market for unbiased financial advice? I can think of some friends and family members who can use some advice if it doesn’t cost an arm and a leg.
Usually an under-served market exists when there is a big gap between what customers are willing to pay and what providers want to earn. I suspect that’s the case in the financial advice market.
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Mike Piper says
Great question. One I’ve been pondering lately as well.
I can’t say from a customer perspective how much it should cost. But from a “how much are others charging?” perspective, you might want to look for the websites of planners in the Garrett network. From what I hear, they do mostly hourly and “fee for project” type of work.
Example: Dylan Ross is a CFP (in the Garrett Network) who frequently comments on my blog. You can find his rates here: http://www.swanfinancialplanning.com/solutions.html
A lot of fee-only financial planners will charge hourly for advice. The trick is to find a fee-only guy or gal who is not so “up market” they will still talk with you. Hourly rates vary with region and experience, just like lawyers. But I’d expect anywhere from $75 to $250. Retainers usually are done as a percentage of assets, but that percentage tends to go down with the amount under management.
Also, interview them BEFORE you engage them. Make sure you are comfortable with them, their practice, and how they view their clients. You also want to know they already have a good head start on your problem. It’s much easier to drop an advisor and move on before you pay them money.
I asked a guy locally and he quoted me $100/hr. That was exactly what I thought I would charge in the same circumstances in our area. In the end I haven’t made an appointment though.
Here are my musings on this topic with lots of gross generalizations, so take it for what it’s worth.
I think the biggest problem is that the people who need advice the most are more easily taken by salesmen and brokers. For 2 reasons:
1. They tell them what the client wants to hear, “I can make you 20% a year” or “All my stuff always beats the market” yada yada yada
2. Their fees are hidden, oftentimes embedded in their products – there’s a behavioral element in that people scoff at paying $200/hr for anything but they won’t hesitate to buy funds with 5% front end loads (they don’t realize the true costs)
On the other hand, people who are not likely to be taken by salesmen are usually those who can spend some time on google / boglehead’s forum / etc., sort out the good from the bad, and do it themselves.
So your market for clients as a honest fee-only advisor is limited. Either you have to convince those in the first group that they’re being lied to and paying too much for subpar performance (something they’re not going to want to hear) or you have to find those in the second group that are either too busy to do it themselves or who would rather spend their time doing other things and are willing to pay for your advice.
Bill Winterberg says
The folks over at MyFinancialAdvice.com have tacked your question and provided a solution through it’s group of advisors who abide by fiduciary practice standards.
Many offer fee-only advice and have reasonable per-hour rates as well as project and retainer options.
Daddy Dub says
I think an hourly rate of $125 is very reasonable for financial advice from a professional. I have considered a service offering similar to yours and concluded that it would have to be a side gig until I had enough rolling in to make a living at it. The roadblocks to success are many. In every networking meeting I attend, there are usually at least 10 financial advisors out “beating the bushes” for a lead.
“Usually an under-served market exists when there is a big gap between what customers are willing to pay and what it costs to produce what they want. I suspect that’s the case in the financial advice market.”
That’s it in a nutshell. The market for people willing to spend $75 – $250 per hour is extremely small compared to the number of people who need financial advice. I’m in a similar situation to you. I have a full time job that I have no intention of leaving anytime soon, but I’d like to start a side business selling financial advice. The people I’m most interested in helping are middle income folks who have a household income from 25 – 100k. If you tell them that you are going to charge them $75 per hour, they will laugh and walk away. With this demographic, you probably can’t get much more than $25 per hour. If you have to pay a lot for licensing and certifications, that rate may make it difficult to break even. Luckily, my state has no licensing requirements for financial advisers so that is less of a concern for me.
$25 per hour isn’t enough if someone needs a complex estate plan, creative tax plan, or similar advanced help. The vast majority of the market doesn’t need those things, though. They need simpler help like how to invest in their 401k, what mortgage to pick, and how to save for college. I think $25 per hour is reasonable for that type of help.
Most states do not have registration requirements for small advisory firms who give investment advice (registered investment advisors), but they do have requirements for the individuals who work at those firms (investment advisor representatives). This usually consists of passing your series 63 and 65, or passing your series 66 and 7 tests, or holding certain professional designations like CFP, CFA, or ChFC.
This all sounds confusing and bureaucratic, and it is to some degree. But it is a good idea to have some formalized background before giving advice. Even if you disagree with certain philosophical stances of the education, at least you will have a foundation to express those differences.
-former investment advisor representative
Folks can combine the second and third points (too expensive and easy to DIY) to make advice more affordable by only paying for the advice they need. The more you can figure out on your own, the less you’ll have to spend on help. Also, if you are knowledgeable about the subject matter and a good note taker, you may not want to pay for the additional time to have the adviser write up a summary.
It’s usually more important to find out how much you answers will cost then what the hourly rate is. How long it takes an adviser to deliver advice varies as much as hourly rates do. Also, you want to be sure that there is not another line of compensation in the background creating a bias. There are a lot of advisers that charge a fee for advice and tow the “unbiased” line but also receive referral fees, commissions, and other payments based on the advice. You might pay less per hour and be advised toward actions that end up costing you more.
Pelon: “Luckily, my state has no licensing requirements for financial advisers so that is less of a concern for me.
Aaron: “Most states do not have registration requirements for small advisory firms who give investment advice (registered investment advisors).”
I’m only aware of one such state, Wyoming, but advisory firms in that state are required to register federally with the SEC. Also series 7, 63, are specific to sales and distribution not advice.
Annual costs to maintain registrations, licenses, certifications are not extreme. If you are advising people about their finances, you’ll want professional liability insurance, and that can be expensive. It’s not so much a question of whether you’ll do something wrong; it’s more a question of whether someone might try to blame you anyway.
Bill, could you let me know if http://www.myfinancialadvice.com lets me specify the location of the advisor? I was not able to locate a link for that.
For that matter, how do I locate a trustworthy advisor in my city? I am in Indiana.
We never had a financial advisor. We are the DIY type. But I do a lot of reading but some time it is hard to sort through the solid stuff vs the tip of the moment stuff. So, yeah, we would pay for a financial advisor who we can trust. May be $75-100/hr. I would expect that we need the advisor for may be 2 hrs?
John D. Buerger, CFP® says
A number of excellent comments on this thread. Geoff is correct, the people who really need sound advice are the ones most likely to fall for the sales pitch and buy the products they don’t need and can’t afford.
Others speak about the “cost effectiveness” of paying a $200/hr fee for financial advice when your income is only $50k per year (which above the median household income in America, BTW).
THE COST SHOULD BE WHATEVER GIVES THE CLIENT THE BEST VALUE IN RETURN. If I can improve your investment returns by 7%, then paying me 1% has value. If you spend $500 on my advice and you end up $2000 richer at the end of the day, there is a return value to you … even if that $500 was for only 10 minutes of my time.
It isn’t the price you pay that matters … it is the value you receive in return for whatever you pay. This rule applies to every time you spend your money – you want to maximize the value you get for whatever price you pay.
The challenge with all of this is that sound, useful and valuable financial advice concerns a lot more than just your investment account (which most people in that $50k income range don’t have) … but most financial advisors focus ONLY in the investment realm. The reasons for this limitation? it is easier to demonstrate “value” in return for their fees on investment advice, especially when we’re talking about large sums of money under management.
Cash Flow management is the most powerful wealth-building tool for most average Americans, but it has been hard to build a viable practice (where the advisor can afford to stay in business) on Cash Flow management advice when nobody had perfected a way of monetizing (being paid for) that advice.
But even if the hourly rate is very high, there is GREAT VALUE for Cash Flow Management advice … EVEN for an average household income.
Example – a person spends two hours with an advisor in my firm working though our Cash Flow Hydrant Process (which teaches a different way of looking at the money you’re spending and how you are spending it). On average, that person will immediately improve their Cash Flow (by cutting expenses) by 5% of their overall income (our objective is 10%, but that can take a year or two of work). On $50k of income, that means an additional $2000 going towards savings in the first year alone (after all fees have been subtracted). The fee for this service is $500 and a few hours of your time. That is an 400+% return on your investment in year one. Not bad.
Meanwhile, if that same person spent $500 for two hours of my time and I did nothing to help them save money or build wealth in any way (which is more common with salespeople and investment … then I charged too much for my advice and would be just another small part of a very big problem.
Aaron, why are you a former investment advisor representative? If you dont mind me asking.
I did back-office work for a few years after getting my series 65. Because I didn’t affiliate with an RIA during those years, it lapsed. I could get it again pretty easily, but so much of my work revolves around insurance instead of investments.
Ann Dwork says
My Mom recently died and there will be an inheritance. I feel I need some advice on how to handle it but have had miserable experiences with financial advisors in the past, all banks. I have never used a private advisor. I talked with a CFP who was recommended by a friend. He has a 200/ hr fee but wants to manage the $ for a 1% yrly fee plus a $1000.00 set up fee. This includes qrtrly reviews and any other advice etc I may need. The prtfolio would be invested through Carles Schwab, where I already have an acct. At 1% yr he would make 10,000-15,000 / yr. I was thinking of putting a small part of the $ with him and see how he does but the set up fee gave me cold feet. He has met several times with me for free and I liked him but still am worried my based on past experience. How much should I pay for an advisor or should I just take my moms advice, stay with Charles Schwab and do it myself ?
Harry Sit says
@Ann – The best deal in financial advice comes from Vanguard. When you are investing $500,000 or more, they will give you a financial plan for FREE, plus you get to ask for advice from a CFP at any time. The free service is more than good enough for most people. See
or call 800-933-1970. I don’t work for them.
I find that many experts in other fields charge something like $70 to $100 per hour for their services. This includes plumbers, electricians, music teachers, etx. Many lawyers are in this range, as well, though many charge more. Doctors much more, unfortunately.
To me, spending this kind of money for financial advice would be sensible and affordable. If you expect a $1,000/year fee, then that would imply the advisor spending 10-15 hours SPECIFICALLY ON ME. General research, keeping up with trends, etc., doesn’t count. That`s overhead that is covered by the hourly fee.
Frankly, I doubt very much that, with the electronic tools available, very many financial advisors put this much effort into individual clients. That’s why I don’t use one.
I especially liked the $250 vanguard fee that encompasses vanguard and non -vanguard funds. My only concern is if vanguard will be truly objective and exercise a fiduciary responsibilty to me.
Harry Sit says
@paul – They are supposed to be. “The Vanguard Financial Plan is provided by Vanguard Advisers, Inc., a registered investment advisor.” All RIAs are supposed to be a fiduciary.
Steve Stanganelli, CFP(R) Professional says
To the folks who want to do this as a side job: Your comment that your state doesn’t require licensing is WRONG. Every state requires those who offer individualized financial advice to be registered with either the SEC or the state. This is addressed in the Investment Advisor Act of 1940.
There are lots of folks offering to paint my house or prepare taxes. The cheapest ones are those who are not licensed, have no E&O insurance costs, have no special training, are not members of a professional organization and don’t have the tools available.
Please,everyone, let’s get real about DIY. There is always a cheaper way of doing things like doing it yourself. But have enough set aside to pay to have it fixed. To paraphrase the credit card commercial: Price of avoiding a mistake – Priceless.
$25.hour??? Are you kidding? My plumber charges way more than that. And I’m a much a specialist in my area as he is in his.
Try a flat fee advisor program: Pay a retainer regardless of the value of assets and get a package of planning services. That’s one way I handle it with folks.
One example: I had a client that took my advice and know is saving $10,000 in the upcoming year on his son’s college tuition. That’s way above what he paid for my advice – and years of training.
Steve Stanganelli, CFP(R) Professional says
FYI -Sorry for the typos in the last post. Finger error caused by distraction of 19-month old running around.
White Coat Investor says
I’ve blogged before about how there are too many financial advisers. I envision a day when there are 1/20th of the financial advisers there are today and doctors, lawyers, and every day joes are lined up in their waiting room waiting for their 20 minutes. Because there are too many, no one can make a living at it at a fair price. If you had a whole waiting room of folks lined up at $75 every 30 minutes, you could easily make a good living giving unbiased advice. The overhead is nearly zilch. But no advisors have enough clients. The reason is because the clients can’t tell the good advisors from the bad ones. So the good ones aren’t busy enough without resorting to 1% AUM fees with $250K minimums. They might only meet with 2 or 3 clients ALL DAY. And that’s probably a good day. And while those with a $250K portfolio probably still need advice, the ones who really need it are those with a $5K portfolio. The first $100K is the hardest, right?
Harry Sit says
@White Coat Investor – It’s been two years since I first wrote this but I’m still puzzled. If you are saying there is an over-supply of advisors, you’d think it would drive down prices. I think it has more to do with lack of demand. There isn’t a roomful of people wanting to pay for advice. If I open a shop offering $50 per half-hour consultation, I would still have few takers.
Last comment is almost a year old, but I’ll try refreshing anyways.
I don’t think the problem has to do with too many advisors. The problem is there are very few real advisors who are fee-only, fiduciary advisors who truly want to help their clients. Everyone else is just a salesman clothed as a “financial planner.”
The other main problem is advertising and marketing. As long as the big wall street firms and wirehouses have millions upon millions to convince the general public that the product they are pushing “will help you retire comfortably,” the independent fee-only advisor doesn’t have a chance.
There has never been a greater need for objective, financial advice than 2013 and going forward. But convincing the general public to pay for a service when they aren’t forced to is a tall order.
I look at a fiduciary financial advisor (CFP) as a similar profession to a CPA or lawyer. What are the differences between the three? Most middle class Americans only use the services of a CPA or lawyer when they are forced to (complex tax situation, auto accident, etc). In theory, those same middle class Americans are never forced to hire a fiduciary financial advisor.
So the cycle continues. People who need the help the most are unwilling to pay and unaware of the services that could have the most positive impact on their financial life compared to any of the other professions mentioned above.
This coming from a CPA who would like to become a fee only advisor, but isn’t willing to let his family starve in order to live the dream.
Mike Piper says
Have you considered getting the PFS designation from the AICPA? I know many CPAs have tax practices, but also do a little financial planning mixed in.
Thanks for the comment. I’ve enjoyed reading different articles from your blog from time to time.
I’m currently studying for the CFP. I think the recent announcement NAPFA made might be some what of a problem for the PFS.
And back to my comment about marketing, I don’t think the AICPA is willing to invest the resources necessary to battle the CFP certification for public awareness. All the designations are confusing enough, the general public is mostly clueless on what they represent anyways. I think it would be better to stick to the “big three” designations in the finance world – CFP, CFA, CPA.
As far as the financial planning mixed in, that is certainly an option. Do tax work for three months and financial planning for the other nine months. Thanks for adding to the discussion.
Steve Stanganelli CFP (R) says
Your comments are spot on. The Big Box financial supermarkets create the impression that they are helping folks … for free, mind you.
You’re right. There aren’t too many advisors but too few who are qualified and willing to help as a fiduciary. BTW, I’m still here both willing and able.
But cutting through the clutter created by the financial supermarkets and the media is still a challenge as we are all so conditioned to “not pay a lot for this muffler” mentality when it comes to services.
I will say that even if you were to get the PFS designation (which I would recommend) you would still need to get properly registered and licensed with your state as an investment adviser. Yes, you could do like others I know and skip this but that is a risk because of the law.
Recent surveys by Fidelity shows how much better people are when working with a trusted advisor – key here is trusted – who looks out for the client’s long-term issues. On the other hand, a TIAA-CREF survey shows how few actually seek out advice much less implement it once they get it. And this is so unfortunate since I see so many middle-income and even higher-income folks who are living lives of financial chaos. And I think they know it. This is described as the “Whip Whitaker” syndrome named for the character in the new movie “Flight.” We know there’s a problem, need help but won’t seek it or pay for it.
The links to the surveys and my comments are available at my blog at http://www.ClearViewWealthAdvisors.com. The posting will appear on 12/15/12, BTW but the original article can be found in Financial Advisor magazine (December) and commented by me on Facebook.
Mike Piper says
I agree re: CFP having much better recognition than the PFS designation. On the other hand, I think you’re right that most people are clueless what all the letters mean anyway. From my experience as a CPA, most people hear “CPA” and think “money guy.” The difference between that and a CFP is very unclear to most people. So I’m not terribly certain that having the CFP designation would be a big benefit, since you’re already a CPA.
As far as NAPFA, I certainly admire the organization. I do wonder, however, how useful membership actually is for bringing in clients.
Of course, I’m not a CFP, nor do I have a financial planning practice. So I may be very wrong about everything I just said.
Thanks for the comment. I’m well aware of the registration requirements with the state (or SEC if over $100M) and see people give advice on securities all the time without the proper registration, insurance, etc.
In Missouri, you just have to pass the Series 65 and then submit your ADV forms and wait for approval. I’m sure there is more to the process, but those are the basics.
I was aware of the Fidelity study, though I didn’t recall the exact specifics. The main issue I still see is, most of the clients willing to pay for the services of a fee-only fiduciary are already rich and/or are young with high income potential.
Is this what you see in your practice? Even though you are fee only (not sure if you provide hourly consultations), most of the clients you are able to engage have money or a great paying job?
To be honest, I’m really perplexed by the situation on a grand scale. How do you change behavior? I think that is the real question…
To add a little more, take the Garrett Planning Network. In my opinion, it is a wonderful organization.
What percentage of the Garrett Advisors are actually serving the middle market (say a family making between 50k and 100k)? I’ve met with a Garrett Advisor in my hometown and he said basically the same thing. He gets a lot of upper middle class to rich clients who have been burned by a salesmen. He isn’t getting many school teachers, nurses, and police officers. He’s getting doctors, dentists, and successful business owners.
Maybe it is much more than I think. I really admire the work advisors like that do and would like to contribute my own skills to the “middle market.” I’m just not sure it will ever be profitable for the advisor.
Maybe the financial planning profession will forever only serve high income and high net worth individuals. I’ve read some blog posts by Michel Kitces that would seem to agree with that sentiment.
Your last post was spot on. To the common citizen who has no interest in these ideas or professions, this is what my experience has taught me.
CPA = “tax guy” – Even though most are auditors or work in corporate accounting. I think you’re correct that some would see them as “money guy”
CFP = “HUH?” – Some would give an answer similar to “investment manager”
CFA = “No clue” – I bet if you polled 100 people, 99 couldn’t even give a general idea.
I also agree with your assessment of NAPFA and would through in Garrett Planning Network as well. Great organizations, but what are the brand names getting you? I’m not sure.
Thanks for the discussion.
Steve Stanganelli CFP (R) says
I don’t want this to be an echo chamber but I echo your and Mike’s comments about the public’s view of designations.
I admire the Garrett Network’s work and mission to bring financial planning to the mass market. I just haven’t decided to adopt their process and the expenses involved. I have tried and continue to offer both hourly (on a sliding scale) and flat rate projects of a limited nature (cash management, debt elimination, newly married, 401(k) reviews, etc). I’ve tried to detail these on my website and use SEO to attract those who may be looking.
I’ve joined a platform that offers planning to those on a limited basis (www.MyFinancialAdvice.com) just for this reason. I think that the CFP Board’s “Let’s Make A Plan” campaign is great for building awareness of the role of a CFP(R) professional.
I do find that I get numerous inquiries from Google searches on “Financial Advisor” and “Fee Only” for example. I get a fair number of inquiries through the Financial Planning Association’s “Find An Advisor” search as well. All are looking for help with questions – college funding, financial aid, divorce, debt, decision about retirement.
But when push comes to shove and I start talking about fees (regardless of the rate) folks just evaporate. I even had one engineer (master’s degree) post on Craigs List looking for a fee only planner. When I responded, he said that I was way out of the market as he was getting CPAs and CFP(s) willing to do work for $15 to $25 per hour. No, that’s not a typo.
I had one woman – pretty sizable net worth and six-figure income – who called in a panic about paying for college. We sat down, I listened to her issues and explained my various programs (flat rate starting at $280). At the end she said “I can’t see the value and difference between what you do and my CPA.”
So there’s a perception problem, certainly. And I don’t know how to change that. As I’ve said in my blog, there’s more to it than the feeling that people don’t trust advisers. I think you have to get beyond the DIY, rugged individualist (“seek help and look weak”) mentality of consumers.
So while I offer all these options and programs, I need to focus on the HNW folks – who really don’t need me as much as the mass market – but can pay.
(Though I will say even here there is a disconnect as many here think they are getting “wealth management” by paying their 1% +/- AUM fee but like the HNW woman I met recently don’t ever have any financial plans, investment policy statements, or reviews of their non-investment finances by these high-priced wealth teams. In her case, I offered to help on the overall finances leaving the investments at a major wirehouse but she, too, seemed to think that this was duplicating what she’s getting – even though she’s not getting anything more than investment management. And that can be done for way less than what she’s paying).
John D. Buerger, CFP® says
Thanks to White Coat for resurrecting this discussion and good to see folks like Steve who is – like me – on the MyFinancialAdvice.com platform.
Now call me stupid or stubborn (you won’t be the first) but I refuse to believe that in the long run the masses will continue to ignore the chance to get something that will benefit them – as long as they know that opportunity exists. The biggest challenge (IMHO) has been getting a message out to the middle market that has traction and can rise above the sales jobs being pummeled on society by the product sales folks who are only “financial planners” by name.
Unfortunately, even most CFP® practitioners are hurting the process by focusing on a business model that charges for AUM and offers financial planning for free.
This is a general perception problem, but the only way we’re going to change that perception is by giving the middle market a different/better experience and having them tell their friends, not by getting frustrated and bailing on them to go after an easier client to satisfy.
The reason HNW clients are more willing to pay for planning is that it costs a smaller percentage of their income or net worth which leads to a more robust value proposition. Writing a check for $4k where that financial plan will increase my bottom line by $20k this year is much easier than writing a check for $1500 where it might mean I see an improvement of $1200 in my bottom line but I also get the peace of mind that comes with being on track.
I spent this last year experimenting with a subscription based model with pricing based totally on income. If you make $100k, I charge $100 per month. If you make $50k I charge $50 per month ($30 per month is the lowest I will go). $50 per month is easier to swallow than a $600 planning fee even though it’s the same annual amount. Also, the client sees the value proposition differently. With the annual re-up they ask themselves, “did I get $600 in value?” but they only remember what you did for them in the last month. On the monthly subscription they ask the “did I get $50 in value?” question with the same (warped) perspective.
I also have created a first-time introductory fee for anyone of $97 for up to two hours in one sitting. I do offer a 20-minute free consult, but I never give planning advice in that meeting. All fees come with a money-back guarantee (which has never been exercised because the value is there). Yes, the duty is on me to deliver value, but the financial planning process always delivers value. Cash flow savings alone are 3-5% in the first year which is a 300% return on their investment with me.
I do also manage investments, but my rates are lower because clients don’t have to pay me for the financial planning as part of their AUM fee.
The whole model is set up to deliver at an hourly rate of $100 per hour (the asset management is actually more time efficient even with lower rates) but you can design this with any hourly rate target. I do believe that part of the problem is the insistence that a CFP® should be paid $250 per hour or more because that leads to more drift towards HNW clients and families.
I operate my practice without staff (although I spend a lot on technology), but as this takes off (this first year was rough, but the last two months have been impressive) I will be able to bring on junior planners at a lower hourly rate to gain experience, handle the busy work and some of the simpler planning cases (like cash flow).
This is just one way to approach the issue – but from my perspective it is infinitely better than complaining that all these people “don’t get it” and don’t want our help.
Steve Stanganelli CFP (R) says
Thanks for the input. We actually have fairly similar models and I’d be open to comparing notes (or just commiserating around the virtual water cooler) off line.
I think that having clients think in terms of monthly fees can make it easier to get over the resistance they may have. I, too, offer such an option though I haven’t priced it out based on income. I call this the “Advisor-On-Call” program and offer it starting at $30/month. What makes it possible as well is the fact that I do accept credit cards.
In some ways, I believe that if planning services were priced like auto or homeowners insurance with a smaller overall fee broken up over months it would make it more palatable to consumers.
I’m not giving up on the mass market. I’m still offering both tracks. I just haven’t quite found the right way to attract more of these folks yet.
John and Steve,
Do you mind sharing how many billable hours you are able to get to each year with these middle market client types?
Dylan Ross, CFP (who Mike mentioned in the first comment back in 2009) has a similar model in that he offers an upfront $250 planning fee, with on going monthly fees of $40/month.
He heavily utilizes technology. Everything is online, etc.
I ask because I don’t see how it would be economically feasible for the planner. You would need close to 400 clients to make it work.
Maybe I’m missing something?
Steve – Thank you for sharing your experience in the field. “But when push comes to shove and I start talking about fees (regardless of the rate) folks just evaporate.” That’s the problem. People have questions but they are unwilling to pay. For what it’s worth, when a friend asked me where she could get help, in her words “like a family doctor,” I sent her to a planner charging $$/month. I think that’s a good model for the consumer. I would think if a planner can spend more hours in productive planning work, less in prospecting and marketing, the rate for the actual planning hours won’t have to be $250/hour.
Steve Stanganelli CFP (R) says
This is a model to make it accessible to the vast majority of people. In my case this is not an exclusive market focus. I market a similar approach with more hi-touch services and coverage of other additional planning topics (i.e. tax planning, ESOPs, investment policy) for higher income/higher net worth individuals.
To make this work there needs to be a combination of service arrangements: AUM for some, one-time planning fees for others, some time of subscription for others.
I think of it the same way that car manufacturers offer a basic vehicle and then continue to add features with benefits so that by the time the driver is ready to sell/trade his car they have another option which may have a higher cost. Look at Kia in the 1990s to now.
I think about 50 to 75 clients using a higher value option package plus maybe 100 to 150 of the mass market planning support clients plus a fraction of all who may actually need investment services/advice makes this a feasible model.
Steve Stanganelli CFP (R) says
I agree with your assessment.
Have you heard of the trend toward “concierge medicine”? Fewer patients, no insurance billing. Each patient pays a flat rate per month (not inclusive of tests and such).
That’s the kind of “Money Doctor” or “Family Money Doctor” approach you’re describing.
I think that does make it accessible and for less than $200/hour (but still above $100/hour).
John D. Buerger, CFP® says
It all depends on what that monthly fee is buying in terms of the planner’s billable time.
I operate without staff and spend about $2500 per month on back office, technology and rent. The fee structure is set up to deliver $100 per hour in fees. A $30 per month client gets access to 2-3 hours per year of my time plus an online portal which costs $60 per year for me to provide.
The bulk of the clients I have been signing on the past two months have been in the $75 per month average (with incomes of $75k per year). For this area, that is about the median income. That client is buying 6-8 hours of my time each year. 100 clients at that billable rate could account for 800 hours of my time of 1500 I have available (30/week X 50 weeks). That equates to about $60k clear after expenses for 100 relationships. Quite obviously, I could go to 200 before I started hitting the limit I set of 30 hours per week – more if I wanted to push those limits.
The model is designed to deliver $120k in net income on 30 billable hours per week with 200 client relationships at which point I will have brought on a junior planner at $25-30 per hour to take care of paperwork and simpler planning cases … which pushes the potential numbers up to at least 300 clients and $150k in net income before I hit that 30 hours per week limit again.
I will say, I’m not there yet. I just adopted this model this year and have only seen it gain traction in the past two months. I have a total of 19 clients on the model right now. It is also important to note that the middle market does not need 12-20 hours of planning time. Many/most only need a few hours a year to get answers to their questions and touches to keep them on track (which the software can do a lot of). I even question whether these middle market clients currently at $75 per month would be better served by paying $50 per month for only 4-5 hours per year. I’ll know more as we track hours over the next year.
Again, I repeat, this doesn’t work if you think you should be making $250k+ per year just because you’re a CFP® designee, but it is reasonable amount of money to earn while advancing the profession into the hands of the people who really need our expertise.
Thanks for the feeback. What you are saying is almost exactly the same thing Dylan Ross said.
I completely agree that the middle market probably only need 4 hours or so of planning a year. In fact, most of what they need is not financial planning at all. It is education, coaching, counseling, goal setting, encouragement, how to shop for the best home loan rate, 401(k) option selections, etc.
If I was to pursue this avenue, I think this would be a desirable model to include income tax planning and preperation with financial coaching.
Desired client base = 200 clients of middle income Americans (2 W-2’s, Sch A, maybe Sch C and E).
Fee I would charge = $200 initial setup fee, $70.00/month afterwards.
What they would get:
1. Tax return preperation,
2. Two hour, in person meeting once per year (try to schedule them all from September – December).
3. Unlimited quick, easy questions answered by email.
4. Four 15 minute quarterly phone calls to check in with them.
That should come out to 6-8 hours per client. So on the high end, that would equal 1,600 hours.
I think this would be a very similar model to everything your describing w/ the addition of tax prep, thus justifying the additional $20.00/month.
Thanks for the valuable discussion!