AdvicePay Financial Advisor Community Blog

How to Charge for What You're Giving Away for Free

December 17, 2020 By Lana Dalton
Lana Dalton

Are you charging your clients for financial planning? Or do you solely rely on the sale of products and working with clients through AUM? For most of its history, "getting paid" for financial planning has really been about giving away financial planning at little or no cost. The fact that this "free" model has been giving away planning services at no extra cost has seriously undermined its value. It's time for consumers to start recognizing the value of financial planning. 

The financial planning industry is changing, and it's time to re-think how your current business model is structured. We are seeing more and more advisors serve their clients under the fee-for-service model, which has proven extremely successful among the next generation. We've outlined the reasons to consider changing your advising and business strategy and how you can implement this type of business model into your current practice and expand your clientele. 


The Financial Planning Industry is Evolving 

In recent years, trends show that almost a third of Americans do not reach a $100,000 asset minimum, and a large majority of them have saved very little and continue to make mistakes in managing their finances. Most of these individuals, particularly those in the XY Generations, do in fact make a substantial income but do not meet an asset minimum. This particular group is more than happy to pay for advising services, but due to an increasing debt load from student loans, mortgages, and credit cards, they have not had the time to accumulate wealth. The classic AUM-centric business model does not reach those who have assets available to manage. The AUM model may still survive in the long-term, but it will only become attainable to a small niche of high net-worth individuals. 

By working with people at a younger age, advisors can establish a solid foundation and build trust with their clients. It allows advisors to work with them sooner instead of waiting until they are older, and after they have been through most major life events and changes. Furthermore, as these clients age and have children, it enables advisors to charge for managing their children's finances, which would typically be done for free. 


Grow Your Practice

The monthly retainer model allows you to get paid for financial advice itself and supports an ongoing financial planning relationship with your client. There are a few ways you can grow your practice through adopting the fee for service model:

Minimizing conflicts of interest

 If clients are paying you strictly for advice, you're able to give advice in the client's best interest without having to sell a certain product or add money to their portfolio. This, in turn, will boost their confidence in you as their advisor and lay the groundwork for a long-term relationship. 

Create flexibility in your fee structure 

Fee-For-Service payment options can vary greatly -- you can charge by the hour, implement a project-based fee, or introduce recurring tiered fees. These different options allow you to customize your services to best suit your client's specific needs. 

Increase Fee Transparency

When clients pay a fixed fee, or upfront/ongoing fees, there are no hidden fees or fee structures to explain, which may cause your client to lose trust. The financial planning fee becomes part of their fixed budget, similar to how most subscription models currently work.


How can advisors start to think about transitioning their clients to a fee-based model for those who are already working with AUM? 

One of the biggest questions among financial advisors who have successfully worked with clients through AUM is how do you transition to the Fee-For-Service model? A few things to consider are where you want to go long-term with your current clients and how you introduce fees, as it can be a sensitive subject. 

One of the first things to do is to clarify what types of services you provide and make a clear distinction between how you get paid for them. For example, if you provide investment planning and financial planning, you can manage the investments through AUM and charge a fixed fee for the financial advice. The second thing is to think about what exactly your fees will be and run through your list of clients to determine if you will want to switch everyone over at once or ease them into it. Lastly, if you are new to fee-for-service and are hesitant to introduce it to your current clients, you can test it out with newer clients by introducing the fee model to them from the start and use that learning experience for future clients. 

This opportunity to serve and reach new audiences is quickly growing and can open doors for younger advisors to serve them without a sales agenda. Even advisors who have a successful practice working with existing clients through AUM can strategically introduce planning fees to create a smooth transition. This inevitable transition towards actually charging for financial planning means that advisors will have to re-evaluate their business model and re-think their support and internal infrastructure to help them be successful. 


Posted by Lana Dalton

Lana is a Happiness Champion (aka Relationship Manager) at AdvicePay and loves helping enterprise users implement and optimize the AdvicePay platform. After graduating from the University of Washington in Seattle, Lana spent the past three years working in the tech industry, helping organizations implement software, create training content, and establish onboarding processes. When she’s not helping our enterprise users, you can find Lana trail running, backcountry skiing, and cooking different types of cuisine.

Topics: Practice Management, Fee-For-Service