Should I charge a fee for putting together retirement plans?

by **hayek** » Thu Jun 19, 2008 2:00 pm

I am a newly minted Certified Financial Planner at a small independent RIA firm. I have been using retirement seminars to build my AUM. So far, at the "suggestion" of the firm's founder, I have been charging $600 to put together a retirement plan for couples who attend. About 10% of the couples who attend have had me put together retirement plans for them, and, of those, about half end up engaging me for portfolio management. I tend to think I would ultimately bring in more in AUM if I offered retirement plans at no-cost and with no-obligation. Thoughts?

by Ed » Thu Jun 19, 2008 2:52 pm

What makes you think that you would gather more AUM if you did the plans for free?

by **Tad Borek** » Thu Jun 19, 2008 3:07 pm

What do you include in a plan, and how much work goes into one? If it's a pretense for gathering AUM that takes little effort, and is of little value to the client if they don't hire you, the free plan would make sense. A true retirement plan takes a good bit of effort and I wouldn't dream of doing all that work for free. (I do routinely begin work on an AUM account before the assets have actually transferred over and billing begun.)

It also sets a good tone initially that work is for pay and has value; that way when planning issues come up that don't relate to AUM dollars, the client has an expectation that they'll pay for your time.

And keep in mind that some people simply don't want to pay for financial advice and you'll scoop up a bunch of those by offering free plans. Insisting on a paid relationship screens out people who aren't likely to hire you (because they aren't likely to hire anyone).

-Tad

by **Zek, The Grand Nagus** » Fri Jun 20, 2008 9:40 am

I used to work at a credit union, on a fee/commission basis, where I was told to do free plans for their members. They thought they knew better that this would be a leader into bringing on AUM.. They were TOTALLY WRONG.

People who are expecting to get a free plan have no commitment to working with you, or accepting your recommendations. I probably did 50 plans for these people in the last year, and the only ones who had any interest in working with me, were the employees of the credit union. The members had no vested interest in following your recommendations.

In the end, there needs to be perceived value on both sides. Without a fee, the whole thing is worthless, and you don't get the respect you deserve.

Ron Mexico

by **DST** » Mon Jun 23, 2008 2:21 pm

There's a saying that is very appropriate for our business. It's "price is only an issue in the absence of value". If you are providing them true value in your planning services then there should be very little resistance to paying for that value.

I have worked for two of the largest financial planning firms and both made the same mistake in their strategies. They mistook selling the plan "tangible document" for delivering quality, objective advice.

If you present your prospects with your ability to help them solve serious financial issues, they will pay for that. If you offer them a nice"book", there's little perceived value in it for them.

Ultimately, what they are really paying for is you, not the plan.

Good luck!

Dennis S. Tygart, CFP
Managing Director

by **MLK** » Mon Jun 23, 2008 2:53 pm

First, congratulations on earning your CFP(R) credential. This was hard work! You should definitely charge a fee for anything after your initial complimentary meeting with a potential client. Every other professional does. Why shouldn't you? If a client isn't willing to pony up $600, he doesn't trust you anyway. Why waste your time offering "free" advice he won't follow anyway? Salespeople offer free advice, not professionals. By the way, you should have a written agreement with every client detailing the scope of your engagement. This protects both you and your client.

Maynard Keller, CFP(R)
www.TraditionalValuesIndex.com
The World's Most Politically Incorrect Investment(tm)

by **hayek** » Mon Jun 23, 2008 2:55 pm

I understand that, as Nick Murray writes, "Your price is only an issue to the extent that your value is in question." But how can I establish that the portfolio management service I am offering is valuable if I am not even getting a chance to present that value proposition to more than a handful of prospects? I first have to convince them, gathered 30-40 to a room, to hand over $600 in order to meet with me...

I tend to think I would bring in more AUM by giving away the retirement planning because I would be able to establish my value added in person by means of my proposal - a written retirement plan - and my proposal presentation.

by **no bd for me** » Mon Jun 23, 2008 3:21 pm

You'll be better off delivering your 'value proposition' to only those that are willing to pay the fee. The amount of wasted time you'll save by not working with those that don't have any skin in the game will pay off in 2 ways--(1) you'll have more time to work with people that want help and are willing to pay for it; and (2) you won't get emotionally burned out by doing a ton of free consulting and then not getting the AUM to boot.

I would look at your process for the class / seminar and try to improve the results you're currently obtaining. I'm not sure how you're conducting the seminar, but your results seem low.

KK

by **hayek** » Mon Jun 23, 2008 3:25 pm

To put together a retirement plan I charge a one-time fee between $600-$800. For portfolio management, I charge a fee calculated as a % of AUM. Typically, depending upon the amount of assets, this works out to somewhere between $4,000 (on the low end) and $14,000 (on the high end) in revenue recurring annually. I am certainly willing to give away the 6-8 hours of work it requires to put together a retirement plan for the chance to gain a client for life. Sure, sometimes prospects will take the free advice and walk away, but if I am able to close just 20% of the prospects who would not have otherwise even met with me, than I am much better off (from a business perspective).

by **hayek** » Mon Jun 23, 2008 3:27 pm

Right now I have plenty of time...

That's precisely why I need to do everything I can to get in front of more prospects!

by **hayek** » Mon Jun 23, 2008 3:40 pm

Here is another issue I have...

Currently, because I am charging a fee to put together a retirement plan, I feel like I have to provide a lot of detail as far as how an individual/couple ought to have their investments allocated, how they should create a sustainable income stream, etc. In fact, I'm surprised more of them don't take the info I provide and try to implement it on their own.

If I were to give away the retirement planning, I feel like I could be a little more vague, thus making it less likely that they would attempt to implement on their own.

In essence, by selling the financial planning, I believe I might be undermining my ability to sell the much more profitbale portfolio management.

by **MS1** » Mon Jun 23, 2008 4:36 pm

Absolutely! When I first started in the business, I also hosted seminars and did not charge for the plans. My conversion rate for planning activity was very similar to yours.

After completely 28 plans in the first year for free, I decided it was insane to do the work at no cost and immediately began charging $750 for each plan. Oddly enough, I still completed the same number of plans in year 2 and the implementation success rate improved dramatically. I also felt better about my work and my practice.

I just increased my rate to $1,500. So far, I have had little resistance to the price. Perception is reality. It must not be that great if it's free!

by **Buzz** » Mon Jun 23, 2008 4:56 pm

Totally agree that you should be charging a fee. There is no perceived value in a FREE plan. You get what you pay for.

Here's a perfect way to offer a FREE plan. Offer them a Money Back Guarantee. If they are not completely satisfied...after giving you every opportunity to make them satisfied...give them they're money back. (If they're not satisfied not dump them like a bad habit...they' alway s be disatisfied). When you have presented your plan, ask them if they are satisfied. If they are,have them sign a declaration of satisfaction. If they're not and you can't satisfy them take back the plan..."then you won't be needing this."

As Nick Murray says, if you don't put a value on yourSELF, the market ain't.

by **john-adams** » Tue Jun 24, 2008 8:01 am

From my experience when you do a seminar the initial consultation should be free where they offer you there concerns. Then you tell them about your services which include a financial plan they pay for. Attourneys and CPA's all work the same way. They listen to peoples concerns but they do not provide returns or wills for free. We are professionals who study and learn a profession just as much as they do so dont be afraid to charge you studied and earned the right.

by **bennybiggs** » Fri Jul 18, 2008 8:04 am

I moved from a wirehouse to a credit union 2 years ago. I, also, am a CFP.

Here is my opinion based on my experience.

At the wirehouse, I would do retirement only plans for no charge. I found that my chances of getting a client was about 25-30% when I "gave the plan away". If the client had more complicated needs, I would charge $300 for a comprehensive financial plan. I found my chances of getting a client was about 80-90%.

At the Credit Union, members seem to want everything for free. My time, and your time, is worth something. My belief is that if a client does not want to pay a fee for financial planning then they are not really convinced that they need to be planning and need your services.

Other issues:
Your fee of $600 to do a "retirement plan" sounds a little steep. If the plan is comprehensive (retirement, education, investment allocation, stock options, estate, insurance), the fee is pretty darn close (I charge $500). If you are only focusing on retirement and their ability to retire based on what they are doing, in my opinion, your fee is way to high. In addition to being high, a $600 plan requires you to do a lot of work to justify the value. If the only issue is retirement and you can do that analysis in 30 minutes if they give you the right information, why would you want to put yourself into a real value proposition argument.
I charge $150 per hour for specific component planning. The typical fee is right around $150. That pays me for my time and limits the value issue.
Further, with the issue of acting in a "fiduciary" manner under the new CFP standards, I firmly believe you should be compensated for taking this risk.

Just some thoughts.

by **FinPlanMike** » Sat Jul 19, 2008 11:26 am

I'm not sure how comprehensive your retirement plan is, but I think you're way undervalueing it. I routinely charge $750 for a comprehensive retirement plan. Our retirement plan includes a written retirement projection using a monte carlo simulation, asset allocation recommendations to match their investment strategy to their goals, recommendtions for increasing the tax-efficiency of their investment accounts and future investment contributions, and a specific action plan of suggested steps required to implement the plan.

If a client has a need for some basic estate planning as well, then I charge $1,250.

For clients with more complex estate planning needs or a complex financial situation (small business ownership, real estate investments, etc.), I quote my cost the plan on a case-by-case basis.

Funny thing is, I actually feel like I could and should be charging more. I am considering raising my fee to $1,000 for a basic retirement/financial plan and $1,500 for a plan including basic estate planning - effective 1/1/2009.

I think a big part of the issue is how confident are you in delivering value far greater than your fee and how well do you communicate that value. I can assure you that, if you don't think your plan is worth $300 or $500, your clients sure as heck won't. And, depending upon how simple or detailed your plans are - perhaps you're not delivering that much value.

But, I can tell you this. Given what I charge, I still close over 80% of the clients who come into my office. I've never had a problem justifying my fees.

Matter of fact, I have a funny story to illustrat the point. I recently had a couple hire me to do a plan that included basic estate planning. I charged them $1,250. As I was reviewing their financial documents during our first meeting, I pointed out the fact that their living trusts did not provide for the creation of a by-pass trust to make sure they both utilize their estate tax exemptions. I pointed out that it was a problem easily fixed with a visit to an estate planning attorney. The mistake could have cost their family several hundred thousand dollars in unnecessary estate taxes. About five minutes later, as the wife was writing out the check for the fee, she asked me how sure I was that I would provide them advice to justify the fee. She felt a little embarassed when I pointed out that I had just saved them from a several hundred thousand dollar mistake - and haven't event started working on the details of the plan. She finished writing the check and handed it over, gladly!

So, I would suggest that the first sale on the value of the plan you provide is yourself. Once you realize the value of the plan you're providing and gain confidence, you'll find that the fee for the plan won't be an issue.

Of course, if you're creating a plan that is reverse-engineered to generate commissioned sales of financial products, then my advice may not be appropriate. I am a fee-based financial planner who gets paid a fee for advice - not a commission for selling investments. (Disclaimer: I do sell fixed insurance products on commission; but I fully disclose this conflict to my clients and encourage them to shop around)

by **latoure** » Fri Jun 26, 2009 4:04 pm

I would agree on charging nothing for services for a new financial planner. Im considering getting certified in FP soon,
but everything I hear hints that it will take 2-5 years to creat a decent book of clients. For me , I plan on keeping my day job adn going at it part time until I can cut the cord. To do that, Ill offer my services for free and build a credible reference list in preparation for going full time solo and charging. Its a rough business out there and not all existing planners like the idea of others getting into the business and taking their potential clients.

my 2 cents.

by **Bradly T.** » Mon Jun 29, 2009 4:05 pm

hayek - I am a little distressed by the descriptions of "retirement" planning I am reading here - by folks whom I hope are primarily investment advisors/managers. You CANNOT prepare any retirement "plan" without survivor scenarios, ownership and beneficiary and trust review, income tax review, a full documentation of employee benefits including pension elections and health insurance continuation, and elder care expense planning - AT A MINIMUM!!!!!! Do you really think retirement planning is about savings rates, allocations, and monte carlo distribution rates.....PLEASE!!!!!! You must be talking to 40 year olds only! That's not retirement planning.

If you offer "planning", then you damn sure better be a planner!! A fact finder and portfolio recommendation do not qualify by any definition. Be careful what you offer. I know the CFP Board allows a narrower, less comprehensive engagement, but "retirement" planning ain't one of 'em. Your fee needs to be task centered. We use 1% of AGI for all planning - the fee includes tax prep in years 2+ (the workload is substantially less after the case is setup). We provide the same service without charge to clients who bring us a minimum AUM for either fee based or commissioned account. The ability to offer either service results in a very high closing ratio. We explain both options clearly - some clients start as planning fee only but love it so much, then they bring the accounts. Others bring us money first. Either way, the planning AND the investment advisory/management obligations make complete planning essential to the relationship, the recommendations, and the outcomes.

Some of us can't charge planning fees due to BD restrictions and must give it away as a relationship builder. Nothing wrong with that except clients are not stupid - they know a loss leader when they see it. People who charge nothing know best how little their time and work are worth. I always heard "Advice is worth what you pay for it....good advice is always worth more!"

by **flaplan** » Tue Jun 30, 2009 1:35 pm

Giving away a minimal plan might work for someone selling commissioned products, but it's a bad idea for someone who hopes to develop a fee-only business. I agree with those who say you will attract people who want something for nothing rather than people who are good candidates for asset management. And if you provide them with minimal plans, you will be distributing examples of your work that are not your best work. So far my experience is that people are mainly interested in a plan or mainly interested in asset management. We let them choose which way they want to pay, but they don't get anything for free. I find people who come in for a plan generally do not convert to asset management clients. However, some of them come back for additional advice, paid for by the hour.
I think many people get started in fee-only planning by working with an established planner and taking on the smaller clients.
Good luck.

by **fonarkin** » Tue Jun 30, 2009 1:47 pm

I am curious why most practitioners insists on charging high AUM fees while most work seem to be on the financial planning side. Not charging for initial plan is an extreme case of such misalignment. Why not charge fair planning fee (a lot more than what is suggested in this discussion) and a lot less for AUM because it does not take 1% AUM to manage a portfolio. Because when you client is asking you why 1%, you have to come up with some distorted picture of where most efforts reside. Of course, it is harder to have client pay $2k for a plan upfront and much easier milk these fees from the his account, but if you reduce your AUM fees and provide cleint with cost analysis, I think, lots of them would appreciate your ownesty.

by **jdang307** » Tue Jun 30, 2009 2:50 pm

"it does not take 1% AUM to manage a portfolio."

Depends on what you mean by manage. Are you just performing an asset allocation according to your plan and adjusting once a year (yes I've seen that!). Then no, it doesn't.

I know of an accountant who provided fin plan and cpa services, then proceeded to build a $50M aum practice off of Litman Gregory advisor intelligence platform, and rebalanced once a year. Crazy.

Genius. But crazy.

by **fonarkin** » Tue Jun 30, 2009 3:07 pm

jdang307 wrote:"it does not take 1% AUM to manage a portfolio."

Depends on what you mean by manage. Are you just performing an asset allocation according to your plan and adjusting once a year (yes I've seen that!). Then no, it doesn't.

I know of an accountant who provided fin plan and cpa services, then proceeded to build a $50M aum practice off of Litman Gregory advisor intelligence platform, and rebalanced once a year. Crazy.

Genius. But crazy.

My point exactly. People will pay AUM fees and won't know that it requires minimal work if you are in the passive investment advisor category. I do not think it is fair to exploit this type of lack of financial literacy, after all they come to you for guidance.

by **Pyrodoug** » Tue Jun 30, 2009 3:20 pm

This is a simple marketing question and it has a simple marketing response. Simply test it both ways and see which one works better. So do some for free, track your results, and go with what works.

Think of split testing everything in your marketing and you'll find what works for you better and you will generate results far faster. Guessing isn't what professional marketers do. They test, measure, adjust, and test again.

Sure it's wise to start with your best guess, but right from the start split test with another option. Try one for free. Try a higher price point. Try offering tp apply the plan fee to their AUM fee if they go with the portfolio management. Try anything you think might work to see what does work the best for you and your target market.

Marketing is all about data. It's sure not about guessing. No one really knows for sure what will work for you, so you have to try things and find out. It's testing, measuring, and retesting. That's marketing.