AdvicePay Financial Advisor Community Blog

Why Giving Away Financial Planning for Free May Hurt Your Practice

October 31, 2023 By Shannon Beck
Shannon Beck

If you are still relying solely on the sale of products and working with clients through AUM (Assets Under Management), then you know that for most of its history, "getting paid" for financial planning has really been about giving away financial planning at little or no cost. However, before deciding to share your expertise without charge, it's essential to thoughtfully consider the impact on your business and the opportunities that could arise from rethinking this approach.

Charging for your financial planning services highlights the value of your expertise and creates a sustainable model that benefits both you and your clients. It allows you to invest more time and resources into providing the best possible service, leading to greater client satisfaction and loyalty, all while establishing a steady and predictable revenue stream.

 The Financial Planning Industry is Evolving

In recent years, trends show that almost a third of Americans fail to meet a $100,000 asset minimum, and many struggle to manage their finances effectively. Enter the XY Generations, a group with substantial incomes but hampered by student loans, mortgages, and credit card debt. They're more than willing to pay for financial advice but haven't yet amassed significant assets. The traditional AUM-centric model falls short in serving this demographic, limiting your reach. 

According to Cerulli, 61% of households prefer to pay for their advice via a fee, compared to 39% who prefer commissions. As this new generation of investors continues to seek advice, they will demand more nontraditional fee arrangements, aligning with how they currently pay for other services. It's time to adapt your financial advisory model to these evolving preferences and embrace change for the betterment of your practice.


The Importance of Valuing Your Expertise

By giving away your services, you may inadvertently undervalue your expertise. When you work for free, it could send the message that your services aren't worth paying for. Investor fee awareness continues to reach new heights, and the fee-for-service model lets the advice become front and center of your relationship with your client. While only 35% of investors in 2011 were aware of the fees they were being charged, by the second quarter of 2020, more than half (55%) of surveyed investors understood how they paid for financial advice. When you align the value of your advice toward the financial planning services you provide and the process rather than just investment management, it strengthens your client relationships and makes the conversion of a prospect to a client that much easier.  


Energizing Your Practice: Avoiding the Exhaustion Effect

By giving away your services, you might be missing out on lucrative opportunities to grow your business. Every hour spent providing free financial planning is an hour you could have spent nurturing paying clients or expanding your practice. It's not just about the potential loss of income; it's the emotional toll of constantly giving away your expertise without receiving fair compensation. Over time, this can lead to burnout, leaving you feeling drained and depleted.

By ensuring you're fairly compensated, you'll protect your energy and maintain the passion and enthusiasm that inspired you to pursue this career in the first place.


Transitioning to the Fee-For-Service Model

For advisors who have been successful with AUM-based clients, transitioning to the fee-for-service model may feel like stepping into the unknown. Here are some considerations to help guide your journey:

Clarify Service Offerings: Distinguish between investment planning (managed through AUM) and financial planning (with a separate fee). Clearly communicate these distinctions to your clients. Check out this blog on how to create an annual client service calendar to help you get started.

Define Fees: Next up, let's talk money. Determine your fees for financial advice and decide whether you'll switch all clients at once or transition gradually. There's no one-size-fits-all approach here, so take your time and consider what feels right for you and your clients. Need a little guidance? We've got a handy guide on pricing your fee-for-service offerings to help you crunch the numbers.

Test the Waters: Now, if you're feeling a tad apprehensive about springing fees on your existing clients, don't fret. You can always test the waters by offering the fee-for-service model to new clients first. It's like dipping your toe in to check the temperature – you'll gain valuable experience and confidence to help ease future transitions.

Transitioning to a fee-for-service model isn't just a fleeting trend—it's a transformative shift in the industry. While generosity is commendable, it's equally vital to safeguard the sustainability of your practice and recognize the value of your expertise. Offering free financial planning may feel gratifying at first, but it can quickly undermine your long-term success. As you embrace the fee-for-service approach, remember, that it's not about abandoning the past but eagerly embracing a future where financial planning is valued, accessible, and characterized by transparency.

Learn more about how AdvicePay can help you grow your practice.



Posted by Shannon Beck

In her role, Shannon oversees all aspects of AdvicePay’s marketing and brand communications. Her experience in marketing for continuing education and tech companies means that she’s both a learner and a teacher through her work. When she’s not using her creative skills to help folks learn about AdvicePay and how to get the most out of it, you can find her kayaking, camping, and trying out new recipes with her husband. Born in Baltimore, she’s still an avid Raven’s fan, cheering from Montana.

Topics: Practice Management, Case Studies, Fee-For-Service, Sales, Enterprise