While younger generations have become the face of fee-for-service clients, they aren’t the only folks who can benefit from this unique model. Advisors are having great success in working with various clients of all ages, financial situations, and backgrounds. So, who really is a fee-for-service client?

HIGH-INCOME EARNERS IN THE ACCUMULATION PHASE

Perhaps the most well-known clientele for fee-for-service financial planning are those that are still in the accumulation stage of their financial journey. During this phase, many younger clients don’t have enough movable assets to reach brokerage firms’ AUM requirements, but they do have adequate cash flow to pay for financial planning.

Characteristics:

• High-income earners with the capability to pay financial planning fees from cash flow
• May have smaller account balances that don’t meet AUM requirements
• May have employee-sponsored accounts that aren’t eligible to be moved under your management
• Eager to work with a financial partner to feel more confident in their financial journey
• May be concerned with funding retirement exclusively on their own (not counting on pensions and social security income)
• Hold fee transparency in high regard

If you’re working with pre-retirees and retirees, you may be sitting on a gold mine of potential younger clients - your clients’ adult children! 

Why You Want Them as Clients:

• You can begin to build trust and provide value early on in their financial journey and greatly impact their financial success
• They can be a fantastic resource for referrals as their colleagues and friends also seek out financial advice.
• As their financial situations become more complex, you can continue to provide value and gather assets as they become available. When their accounts are eligible to be rolled over, you’ll be there to help them (and they’ll likely be eager to move them to your management if you’ve done a good job).
• You can always switch them to an AUM model down the road if it makes sense for their situation.
• Opportunity to become clients for life!

PRE-RETIREES AND RETIREES

Younger clients aren’t the only ones who appreciate fee transparency. Pre-retirees and retirees working with other financial advisors may not fully understand the fees under an AUM model and want something more simple than management fees, expense ratios, 12b-1 fees, trade costs, etc. These clients may also want more consistency in pricing. Understanding what they’re paying in dollars (not just percents) can help them feel more comfortable.

Characteristics:

• May not be fully aware of current financial planning fees
• May be frustrated with AUM structure and hidden costs
• Are looking for a financial partner to help navigate complex financial situations, not just an investment manager
• Have multiple policies and accounts with different firms/companies, making it difficult to assess their full financial situation

Why You Want Them as Clients:

• Appreciative of fee transparency
• Generate stable revenue with set pricing instead of varied AUM revenue
• Can refer you to other pre-retirees or retirees looking for the same type of partnership
• As these clients enter into retirement, they’ll likely be looking for their financial planner to guide them throughout all of retirement, which means a long-term client for you

Success Stories: Kaleb Paddock, CFP®, Ten Talents Financial Planning, LLC

EXISTING CLIENTS!

We’ve seen advisors have great success in transitioning their clients from AUM fees to fee-for-service fees (or a combination of the two). This transition can be successful for younger or older generations. There are two ways to incorporate fee-for-service planning fees into your firm: offering add-on services or fully transitioning to fee-for-service.

Add-on Services

A great starting point is to offer employee-sponsored plan advice on a quarterly basis. For younger clients still working and contributing to their 401(k)s or 403(b)s, this allows you to review outside accounts and make recommendations (usually on a quarterly basis), and be compensated for the value you’re providing. This is a great benefit for your clients as their financial plan remains holistic, even if you aren’t managing these accounts directly.

You can also offer similar services for outside insurance and annuity policy reviews.

Full Fee Change

If you already have an established firm, you may be getting away from bringing new clients on board and want to focus on providing the best service to your existing client base. Evaluating your profitability for existing clients is a great place to start. As mentioned, AUM fees can vary with the markets, but having a steady revenue stream can help you focus on your clients when the markets get rocky. 

When you’re having conversations with clients, be upfront and confident about the reasons why you’re changing your pricing structure:

• You’re transitioning from investment management to a more advice-based approach to ensure you’re providing the most value for your clients
• Fee-for-service offerings tend to be easier to understand and more consistent than AUM billing
• With fee-for-service planning, you can clearly lay out what your fee entails and the services you’re providing

Characteristics:

• Loyal clients who find high value in your offerings
• Clients who need assistance with outside accounts
• Clients who are looking for more consistent fees

Why You Want Them as (Fee-For-Service) Clients:

• You already have an existing relationship! No client acquisition costs or ramp-up period 
• Chance to make your existing client base more profitable while providing more value
• Opportunity to help with outside accounts in a more formal matter, leading to a more complete financial plan
• Stay in the know when outside policies become liquid/movable so you can quickly offer assistance in moving those accounts to your firm. 

Success Stories: Mason & Associates, LLC

While certain clients do lend themselves to fee-for-service planning, a large majority of clients and prospects could really benefit from the transparency and consistency that goes hand-in-hand with this model. We want you to work with the clients that you bring the most value to, and implementing the fee-for-service model can undoubtedly help you do so!

Are you curious how other advisors have made fee-for-service work in their practice? Read more real-world success stories of fee-for-service firms with our case studies.