How consultants calculate for planning


    About a month ago, Christopher Lyman and Grant Holdren started an experiment.

    Holdren recently bought Allied Financial Advisors, a 30-year-old Newtown, Pennsylvania firm that charged clients the customary 1% AUM fee for years.

    However, finding that the price was putting off younger prospects, the two consultants decided it was time to test a new agreement: a flat monthly financial planning fee and a 0.5% AUM fee; a more expensive planning flat rate with no asset management services or fees; and the regular 1% of managed assets.

    “We started getting younger customers who were really shying away from that fee and were looking for alternative ways to compensate us,” said Lyman, whose company is approximately $ 200 million in assets. Customers choose from three service levels for planning, with a slight discount for year-round prepayment.

    It’s no secret that more and more consultants like Lyman are rethinking the fees for their services. Driven by everything from the commodification of investment management to better technology, many are beginning to separate financial planning from managing assets and billing that service. Some charge an annual or hourly fee while others are experimenting with subscription services, which are usually paid monthly.

    Certainly, the demand for plans – and the ability of consultants to bill them – is increasing. In 2020, 55% of customers had a financial plan, up from 48% in 2015. according to a survey by Envestnet-MoneyGuidePro. D.During that time, flat fees increased about 50% to an average of $ 2,482, and hourly fees increased nearly 25% to $ 257. This is in contrast to the AUM model, where the rate has stayed pretty much the same for some time, around 1%.

    Most consultants do not expect to fully reimburse the AUM fee. Rather, it is a way of increasing sales and, in the case of subscription models, attracting younger customers who lack the assets for an AUM agreement.

    “They are not returning to their existing clients and replacing them all,” said George Karris, Head of Strategy and Advisor Experience at Cetera Financial Group. “You get access to people with whom you would not have worked before.”

    For example, Brian Colvert, President and CEO of Bonfire Financial in Colorado Springs, Co., added monthly subscription service in 2019. Today around 7 to 10% of income comes from subscriptions, the rest from AUM fees. he believes it could get up to 25% in five years. “This market is underserved for customers between the ages of 20 and 40,” says Colvert, whose company has assets of around $ 130 million. “Why not be there for her when nobody else is.”

    Of course, many consultants don’t just take on younger clients. The deciding factor is their potential to grow their wealth across the board. Take Stephen Brubaker, an asset management advisor at ERSI Wealth Management in Centennial, Colorado. About three years ago, his company introduced a new model: as usual, accounts with assets under management of over $ 1 million would not be paid extra for planning. Everyone else would be billed a recurring annual fee of approximately $ 1,500. But at the same time: “We’re not going to take someone who we don’t believe could become a $ 1 million customer in the future,” says Brubaker. “In time we know that if you listen to us, they will grow.”

    Technology, people and determining the right fee

    Still, calculating fees for planning is not as profitable as the AUM model. Consultants who are successful at this say that efficient workflows and technology platforms are essential. “Consultants need a repeatable, standardized process and a technology platform that enables this,” said Shannon Spotswood, president of RFG Advisory. Most consultants point to software that often makes billing multiple customers with relatively small amounts the most important tool. Others also mention better financial planning software, as well as programs that allow customers to simply enter financial information and then display it on a page.

    For Jamie Lima, who just started his solo company Woodson Wealth Management last summer, this ability is particularly useful for getting an overview of all a client’s assets and their custody. “Customers have to tell you where all the bodies are buried,” he says.

    It is also about the right know-how of the employees. Financial planning is a different skill than managing money. For example, when Colvert started experimenting with subscriptions, he hired a consultant who focused entirely on planning. Brubaker bought a company three years ago to gain its financial planning expertise and processes.

    It is also important to collect the correct fee. Nobody is going to build a thriving business with that average one-time planning fee of $ 2,400. Instead, many consultants use a retainer model. That means one of two approaches. The first is aimed at high net worth clients who need highly complex plans and require an advance of $ 10,000 to $ 30,000 and more.

    The other is to charge a subscription – a fee for a plan, and then a monthly fee after that. The holy grail for this model is reaching out to high-income but low-wealth customers – doctors, executives, and others who make high salaries but don’t have a lot of wealth to manage. Consultants there typically charge $ 100 to $ 300 a month, but that also depends on the complexity. Lima, for example, charges $ 250 a month for a basic plan and services, but $ 8,000 or more per year for a highly complex plan. “When you have businesses, real estate, and significant tax needs, you pay more,” he says.

    David Johnston, Managing Partner at Amwell Ridge Wealth Management in Flemington, NJ, was lucky with a different approach. About four years ago, Johnston, whose company has assets of roughly $ 150 million, began charging separate fees for planning so that, he says, “customers get a better appreciation for what they get.” For this purpose, it offers the option of paying just an AUM fee without financial planning or an investment management fee based on the AUM plus a monthly subscription fee.

    But he also offers the option of “Pick Two,” where clients pay for short-term work in two areas, such as student debt reduction or insurance needs analysis, at a cost of $ 1,750. According to Johnston, it’s more popular than the subscription option.

    Consultants don’t always get it right the first time either. Brubaker charged $ 1,000 until it was clear the price was not cost-effective and raised it by $ 500. When Amy Braun-Bostich, CEO of Braun-Bostich & Associates in Canonsburg, Pennsylvania, began experimenting with new approaches to billing financial planning two years ago, she charged her first client a flat planning fee of $ 12,000. Since it was a $ 4 million account, she soon discovered that she had underdrawed. Now, Braun-Bostich, whose company is worth about $ 200 million, is tracking their time with a software program to see how long the process is taking and setting fees accordingly.

    Spell out value

    Ultimately, consultants need to be able to show their clients that they can create enough value to make the spending worth it. That means being specific – presenting customers and prospects with a structured calendar and determining which services will be provided and when. “Consultants need to determine how to deliver a quantifiable experience each month,” says Spotswood-say, two video calls and one face-to-face meeting per year, monthly email, financial plan, and monthly plan review.

    Johnston displays its range of services on its website, categorized into four life cycle categories, such as “young accumulators” and “early retirees”. Then under each grouping there is the payment schedule for different types of fees as well as detailed services such as the number of first, free, and face-to-face meetings a customer can expect, newsletters per year they receive, and resources such as cash flow and household budget -Tool.

    With these efforts, however, there is a big question mark: further price pressure on planning. Last summer, for example, Charles Schwab introduced Schwab Plan, a free, self-directed digital financial planning tool for customers. Should planning fees go down and the digitization of planning services go up, will customers eventually see cheap – or free – digital financial advice as the norm?

    “When people have spent 20 years managing their finances through technology, they won’t suddenly decide that they have to pay a lot of money for this advice just because they’re older,” said Samantha Russell, chief marketing and business development Officer at Twenty Over Ten. “I think this is a change that people need to think about.”


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