A question that comes up when meeting a new family is “How do you charge?” This is a great question, because we certainly do not work for free, nor do our clients expect us to.
There are several ways that a firm like ours can charge. Each method has its’ advantages and drawbacks.
There are many firms that do personal financial planning at a straight hourly rate. This is great for individuals who want basic advice as needed. It is not the best set up for individuals that are looking for an ongoing, proactive relationship with their financial professional.
Some firms do the planning at no charge and recoup the cost of services through commissions generated through product implementation at the end of the planning process. This is cost effective for the consumer. The disconnect occurs when the plan shows no need for product implementation, or the client chooses not to purchase the financial product being recommended and the financial professional has completed a fair amount of work with no compensation.
Other firms are compensated with asset management fees. This fee is usually expressed as a percentage of assets that the firm administers on behalf of the client. This arrangement is simple for the client, and the ongoing revenue for the firm allows the financial professional to take a more proactive approach to the client relationship. The downside is that there are a great many families that want an ongoing planning relationship, but either do not want someone else managing their investments, or don’t have enough in manageable assets to meet the firm’s revenue minimum. You see this frequently with families that have most of their financial wealth in company retirement plans.
We utilize a “fee and offset” approach. We charge an annual planning fee based upon the complexity of the family’s situation, regardless of whether we manage the family’s investments. However, most clients do ask us to manage their investment accounts for them, and we charge a percentage-based asset management fee. We then apply the asset management fee that we collect to the balance due for the annual planning services. This fee “offset” reduces or eliminates the ongoing planning charge.
While not perfect, this flexible approach allows us to provide a ongoing, proactive, and collaborative planning system to more families within a structure that makes good sense for both of us.
Securities and advisory services offered through LPL Financial, a registered investment advisor, Member FINRA/ SIPC.
This is a hypothetical situation based on real life examples. Names and circumstances have been changed. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investments or strategies may be appropriate for you, consult your advisor prior to investing.