There are endless ways to calculate your fees when operating under the fee-for-service model. While no single approach is the solution for every firm, trends in payment calculations have begun to appear among financial planners. If you're still trying to determine the best method for you and your business, these three examples may help provide guidance.
ABC Financial works with younger generations of clients, specifically high-earners in the medical field that are decades from retirement. Their typical client has a high income ($200K+), but a small net worth due to student loan debt. They choose to calculate their fees based on Income + Net Worth.
Calculation Breakdown:
Example:
Jim Smith recently graduated medical school and landed his dream job making $180,000. He has a net worth of $50,000.00
Benefits of Income + Net Worth Calculations:
Things to Consider:
You'll want to decide how often you'll update their fees. Should this be an automatic change after one-year? Do you want to update all client fees at the beginning of the year?
Fee Calculation Configuration:
XYZ Retirement Planners works with high net worth pre-retirees and retirees. Their clients have been looking for transparent fees and to preserve their investment accounts. XYZ Retirement has begun offering the fee-for-service model and is happy with how well it's been received by clients. While their clients have similar goals and situations, there are certainly some clients with complex situations. They decide to base fees off complexity of needs.
Calculation Breakdown:
Example:
Sam and Sally Johnson are in their mid-40s with two children, ages 14 & 11. They've worked hard to save into their retirement nest egg and their children's education funds. They'd like to retire in 20 years and agree they'll need professional assistance from a financial planner to ensure they feel confident going into retirement.heir advisor determines their fees using their pre-set complexity calculator.
Benefits of Complexity Calculations:
Things to consider:
Fee Calculation Configuration:
If you're interested in this approach, you can view our built-in complexity calculator as a reference by going to Tools > Fee Calculator > New Calculator > Complexity Based.
Mountain Financial Planning firm works with a wide range of clients. They began as retirement planners but saw an opportunity to work with their clients' adult children who were beginning their professional lives. They decided to offer a tiered service offering so they could be compensated fairly, no matter what stage their clients were in.
Calculation Breakdown:
Example:
A new prospect, Jan Smith, has worked in the hospitality industry for 20 years. She's saved into her employees 401(k) as well as non-taxable accounts, and has saved $350,000. She's planning to retire in 20-25 years and realizes she needs more help managing her finances. She decided (with the guidance of Mountain Financial Planning) that the Mid-Accumulation tier makes the most sense for her goals and current situation.
Benefits of Tiered Services:
Things to Consider:
Fee Calculation Configuration:
If you're interested in learning more about tiered structures, check out our article, USING TIERED SERVICE OFFERINGS FOR FEE-FOR-SERVICE FINANCIAL PLANNING.
These methods for calculating fees help ensure transparency that clients love and allow you to receive fair compensation for the value you're providing. While you'll have to put in a little leg work to initially determine the pricing structure (and amounts) that serve you and your clients best, AdvicePay's fee calculator takes the manual calculation off your plate.