Do You Charge For Financial Plans?

Sunday, August 19, 2012 22:17
Do You Charge For Financial Plans?

Tags: Advisor businesses | client acquisition | client feedback | compensation | differentiation | financial planning | marketing | profitability | prospects | value proposition

As strange as it seems, there are some financial advisors who don’t charge for financial plans – even for brand new clients!  If you’re one of those advisors, you are selling yourself short.  

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Advisors who don’t charge for financial plans usually cite one primary reason:  If they propose charging for an initial financial plan, they might not get the client.  After all, there’s a lot of competition out there, so it’s necessary to woo prospects with free services, right?  But, let’s think about this.  Do you really want clients that don’t place value on professional advice?
I assert that we should always charge for initial financial plans.  Why? 
Clients value what they pay for.  I typically charge about $5,000 for a basic plan, asking for 50 percent up front, with the remaining 50% due on presentation of the plan.  When a client pays money up front, they are “buying in” to the process.  They will have more incentive to actively participate, provide information, and act on recommendations.  By charging for this service, the advisor is validating the value proposition while the client acknowledges that there is a value to financial planning.
As financial advisors, we differentiate ourselves from stockbrokers and portfolio managers by providing services beyond mere investment management.  We tout our value as financial planners, yet some of us charge only for investing, not for financial plans!
By not charging, initial financial plans are essentially a “loss leader.”  That’s just a plain bad business practice.  Think about how much time is spent on preparing and presenting financial plans.  As opposed to giving this time away, financial planning should be treated as its own business unit.  And, you should charge a fair price.  
How many financial plans do you provide for free?  If you average just two plans per month, charging $5,000 each would increase your annual revenue by $120,000.  In the end, any revenue increase from financial planning is a winner – and you will ensure a stream of new clients that truly value you.

Comments (3)

Jeff Weiand
Sheryl, I could not agree with you more. Our experience over the past 25+ years with prospects we met who were coming over from firms who threw planning in for free was that they certainly got what they paid for. If you truly believe in planning and the value that it delivers, you would never consider for even a minute not charge for it. Devaluing planning by "giving it away" certainly doesn't help the client nor does it help the profession. Being afraid of losing the prospect because someone down the street doesn't charge for planning has very little if anything to do with the fact that they're not charging for planning. Instead, it probably has everything to do with the inability to effectively communicate your true value proposition.

Jeff Weiand , August 20, 2012
Sheryl - you may be missing the two more logical reasons why advisors do not charge. First, no charge, no liability - see a decade old MetLife decision by Fed Courts.

However, most advisors simply can't justify the fee. The use an off the shelf planning application, like MGP, which in its disclosures is NOT financial planning. Charging for financial planning while filling in the blanks of a investment hypo software would be a huge no-no.
brentb843 , August 20, 2012
Hi Brent - I agree that some advisors don't really provide comprehensive financial plans, using more of a boilerplate solution. In that case, it's tough to charge for something that is not of value. Also, in spite of some case law that says no liability if you don't get paid, as an advisor, I would hate to hang my hat on that. I believe that an RIA could be held to a professional standard of care even if not paid for the financial plan - especially if the recipient became a paying investment management client as a result. Finally, as an aside, I do use MGP. However, as I tell my clients, I use software to assist in the calculations, not to think for me! (This applies to all of the efficiency-adding software that we use, including PortfolioCenter, Junxure and TRX.)
SherylCPA , August 22, 2012

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