How Should You Pay For Financial Planning Advice

I’m different, and I know it. I’ve come to find personal fulfillment in trips to my dentist.

It was a realization not many years back that my dentist’s approach to client service exemplified what financial services should strive to be; and not in a pulling teeth sort of way. I now look forward to meeting with my dentist as a way to witness what true client service looks like.

At the end of every cleaning my dentist would point out the problems I was likely to face in the future, and the procedures I’d need to tackle at some point, along with what he thought the risks, benefits, and costs would be. Though many of these procedures didn’t happen for years, he didn’t fire me or pressure them into happening. Everything was simply his professional opinion, and up to me to give the go ahead to weight the costs, benefits, and timing.

It is my belief that paying for personal financial planning services should be just as personal. And clients shouldn’t be left to develop new relationships simply because they weren’t convinced by the professional advisor of the costs and benefits of a high cost service.

We all know most financial advisors sell a product. My dentist perhaps could make more by pushing people to complete higher complexity (and presumably higher revenue) procedures. If that was the case his clients would feel the same pressure that many advisors place on their clients to buy products from them, pay a high annual fee, or else find another advisor.

In all of my experiences in various compensation models, I’ve come to the conclusion that a fee-only, hourly approach to financial planning advice is a service that fits best with most individuals.

Unlike a fee-based relationships, NAPFA fee-only advisors are not compensated from investment or insurance products, and do not participate in financial advisory services with brokerage relationships that often rely on revenue sharing arraignments.

Some fee-only advisors charge an annual retainer fee, which can be appropriate to some, but the following explains why I find the hourly approach preferred for those who do not need significant and regular financial handholding:

  • Clients often overpay in the first year. In the retainer model you may come to an advisor for advice on a retirement opinion, but end up at 4-8 meetings that cover far more than you sought advice on, as the advisor attempts to get to know far more about you than you meant to share.

It may be worthwhile, but in a retainer relationship it is the dentist making that decision to charge for more than the patient agreed to, rather than the patient having the power to choose their procedures.

Retainer firms charge the same fee for time spent on providing information (such as how long to keep your financial files) as they do for providing advice. As an hourly planner I tend to create resources or point people in a direction to solve their simple finance answers rather than charge for information.

  • Clients often overpay in the second and subsequent years. The rationale for a high ongoing fee is that the client may have a life event maybe once every several years, and in that year the fees paid over the other years are justified.

The above is just not true however. I don’t pay my dentist for root canals he might do in five years. Likewise, you may never have complicated planning needs. Why pay for it today?

  • Due to the two points above, there is often high client turnover in the retainer firms I worked at. Many clients eventually rightly feel they don’t use enough of the services to justify the fee, and have to rework their plan with a new advisor who has new biases, and has to charge the high initial fee to get to know you all over again.

There are conflicts in every model (an hourly advisor clearly wants more hours to work after all); and to be sure, there are individuals that have advice needs that require meeting or services on a weekly or monthly basis where a retainer is justified.

However, most individuals and families should pay for financial planning services in a method that matches fees with need. Nothing prevents an hourly advisor from recommending further services and letting the client have decide if (and when) the cost is worthwhile. My dentist reminds me every visit of why it’s important I come back. Personal financial advice may someday be delivered to the masses just like other fee-for-service professions.

The preceding blog was originally published by Forbes. To view the original blog please visit our blog at Forbes.


online fee-only fiduciary financial advisor blog robert schmansky
Follow Us
online fee-only fiduciary financial advisor blog robert schmansky
online fee-only fiduciary financial advisor blog robert schmansky
online fee-only fiduciary financial advisor blog robert schmansky
About Us

Detroit, Ann Arbor, and online fee-only, fiduciary financial advisor blog / podcast on retirement, investments, economy, taxes, 401k, 403b, Roth, IRAs