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Insights and best practices for successful financial planning engagement
• Brandon Heid • March 14, 2024
As technology and automation have advanced, consumers have grown to expect more in every industry, and financial services is no different. Today, clients want more from their advisor, and they want transparency into what they’re paying.
Financial advisors are now adding more services to remain competitive and meet the rising demands of their clients. However, the combination of needing to meet higher client expectations and growing regulatory, operational, and technology costs is increasing advisors’ costs to serve.
These rising expectations and rising costs mean that both clients and financial professionals are thinking more about fees. To future proof your firm, considering going fee-only. Adopting a fee-only financial advisor compensation model is one way that you can meet client expectations while managing costs.
A fee-only compensation model is when a financial advisor receives only advisory fees and does not earn commissions. This model lets you align your compensation with the amount of work you are doing and the value you are providing to your clients.
A flat fee, hourly rate, annual retainer fee, monthly subscription fee, or an AUM fee are all fee structures that financial professionals can consider. Just as there is no “right” or “standard” client service model, there is no one “right” or standard” planning fee. These popular fee structures each have pros and cons, so it is important to select the one that works best for you and your clients.
There are a number of advantages to making the shift to a fee-only compensation model. Here, we’ll explore how it will help you meet client expectations, gain a competitive advantage, and reach an untapped market of potential clients who are willing to pay for financial advice.
Today’s clients are looking for more than just investment management. The top areas consumers are seeking advice on include preparing for retirement, improving their overall financial knowledge, and smart budgeting/spending habits. In addition, one of their top priorities for financial advice is that it factors in all aspects of their lives.1
When you adapt your business and add new services to meet these demands, you also change the true value that you deliver. Now, the true value a financial professional delivers is through financial advice that helps their clients achieve their goals and factors in all aspects of their lives. By using a fee-only compensation model, you can align your compensation with the planning work you are doing and therefore with the value you deliver.
For example, you could decide to charge a flat flee upfront for a financial plan. Between onboarding a new client, collecting all of their information, developing an initial plan, and preparing recommendations, much of the work is being done at the start of your relationship with a new client. Charging a flat fee for a financial plan upfront would align better with how you are doing the work. If you take a modular approach to planning, you might consider charging a monthly subscription fee for the ongoing planning work that you complete.
Prospects and clients are becoming increasingly aware of the fees they are paying. There is a competitive advantage in being able to easily explain your fees and demonstrate the ways in which they correspond with the work you’re doing.
The different ways you can structure a fee-only compensation model give you the opportunity to get creative by aligning your fees with your beliefs about your value. Nearly any fee model “works,” so you can decide how to structure your compensation model in the way that works best for the way you work and what your ideal clients need.
Transparency in interactions was cited as an extremely important factor when choosing an advisor for 56 percent of consumers.2 Transparency means being open, honest, and straightforward in your interactions with your clients, including when you are discussing your fees.
Fee-only compensation models make it easier to be transparent with your clients. There are no hidden commission fees or other conflicts of interest, so clients have peace of mind that they are getting impartial advice and they know exactly what they are getting for what they are paying.
There is a huge untapped pool of mass market and middle-market clients who could benefit from financial advice but cannot be profitably served under certain compensation models. By shifting to a fee-only compensation model that utilizes fee structures such as a flat fee, retainer fee, or subscription fee, you can lower the barrier of entry to financial planning and serve a new segment of clients who want financial advice.
While changing your compensation model may seem like a daunting task, it will set your firm up for success in the future by helping you serve more clients who want and value financial advice.
Learn more about how you can adopt some of these newer fee schedules by reading our eBook, Shifting Your Compensation Model.
Sources:
1. eMoney 88 Million Consumer Research Study, April 2022, n=1,616
2. The Cerulli Edge. Cerulli. 2022.
DISCLAIMER: The eMoney Advisor Blog is meant as an educational and informative resource for financial professionals and individuals alike. It is not meant to be, and should not be taken as financial, legal, tax or other professional advice. Those seeking professional advice may do so by consulting with a professional advisor. eMoney Advisor will not be liable for any actions you may take based on the content of this blog.
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