As fee-for-service financial planning continues to be a growing trend in the financial industry, it’s hard not to compare it to Assets Under Management (AUM), especially when working with pre-retirees and retirees. While AUM is based on growing and maintaining a client’s assets, financial advice was often an add-on that didn’t receive much attention. In recent years, as clients have begun seeking more advice and not just asset management, advisors have shifted to advice-giving, but their pricing model doesn’t often reflect this change.

Younger Clients and Their Needs

The fee-for-service model (or retainer/subscription model) allows clients to pay recurring payments (often monthly or quarterly) in exchange for ongoing financial advice and services. It’s often appealing to younger generations of clients, namely Gen X & Y. As pensions become a thing of the past and confidence in social security benefits for young professionals is shaky, the need to be financially aware is becoming pressing. Most are still accumulating funds and likely don’t have the liquid assets to turn over to a financial advisor to manage (at least not enough to make them a high priority client under the AUM model). Fee-for-service allows them to make recurring payments from their cash flow so it’s profitable for advisors and familiar to clients. 

What About Pre-Retirees and Retirees?

While fee-for-service is generally painted as a solution for young clients, many firms have seen success in implementing this structure with pre-retirees and retirees alike. They too are beginning to seek the ultimate transparency that fee-for-service provides. Assume a retiree has $2 Million and is paying a 1% fee, they’re spending $20,000.00 per year for asset management. Depending on the services you provide, you could charge 75% of that amount, still be profitable, and provide them the advice they need in retirement. 

Justifying the Fee-For-Service Model

When financial planning fees are being withdrawn directly out of a client’s bank account, it can often feel more “real” than payments made from their potentially large investment accounts. Because of this, transparency and honesty are at the heart of fee-for-service financial planning. You need to be confident in the value you bring to clients and be comfortable sharing that message with prospective and existing. Tell them, “I’m going to do XYZ for you over the course of this year, 5 years, 10 years,” and then do it! We often talk about creating a list of services or service calendars so clients know upfront what to expect. Be sure clients know that even if they are paying you monthly, they shouldn’t necessarily expect a call or meeting at that same frequency. You can explain their recurring payments as an annual fee, billed monthly (or quarterly/semi-annually). 

There is plenty you can offer to clients of all ages and backgrounds:

• Cash flow analysis
• Debt management
• Retirement savings planning
• Education planning
• Tax planning
• Insurance needs analysis
• Investment recommendations
• Withdrawal strategies
• Estate planning needs

Working with clients in a way that takes their current financial status into account can lead to long-term (if not life-time) clients! The fee-for-service model can help you earn trust, build confidence in your value, and grow a client base that will be with you for years to come. 

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